It could be partially your neighbor's solar panels or batteries. A lot of domestic power that gets contributed to the grid never leaves the neighborhood. These things aren't always as clear cut.
The key to lower prices on the grid is more flexible and localized pricing. Power suppliers don't like this because it favors cheaper sources of power that push their more expensive legacy generation out of the market. But it would create price incentives for demand and supply to align better.
A good example is the UK, which has national energy pricing and a lot of excess wind power in Scottland that is often being curtailed at the same time gas plants further south need to power up to power local demand there. End result: the Scottish pay the same high rate even though they are literally discarding energy they don't know what to do with. If they had local energy pricing, their rates would go down a lot because they have a lot of wind power most of the time.
And further south, people would either invest in local power generation (instead of far away in Scottland) or actually relocate data centers and other energy intensive businesses to where the power is cheap. As opposed to e.g. Slough.
You make an excellent point - so much so that it already exists today at the wholesale level in many markets. What you're describing is Locational Marginal Pricing (LMP) - a reasonable introduction is here: https://www.enverus.com/blog/an-intro-to-locational-marginal...
In the wholesale market the biggest consideration is transmission capacity - if I can generate 100MW of electricity at $15/MW but the transmission line between me and the demand can only carry 20MW, and another generator can generate 100MW for $30/MW with excess transmission capacity to the demand, the price at the demand will lean heavily towards the $30/MW price.
The same model could be applied to local grids as a way to "manage" residential solar installations for example; overcapacity is penalized through pricing signals (but if you throw in batteries so you can shift the release of electricity...).
Local “production-generation” can make sense at some level, but the mental model breaks down when you go back to the “water-in-a-lake” way of considering the grid.
I assume that there is less electricity being moved on one end of a winding of some downstream transformer, but it could also be that we really don’t know.
I don’t think it’s as simple as that. Expensive legacy gas and nuclear plants provide base load power at scale. Something renewables don’t really do. These have to be built and the cost distributed across everyone who takes power from the grid. The shared model is what makes it more resilient and reliable.
It is actually that simple. The current pricing system was created for a grid that no longer exists. There is now lots of wind generation, solar, battery power, etc. And growing rapidly. Both on the grid and domestic. And soon large amounts of batteries with wheels capable of powering houses and delivering power to the grid.
All this means lots of fluctuations in power availability and cost. Pretending that it costs the same all the time everywhere is irrational. If you give people incentives to adapt to these fluctuations, they will. Energy providers like Octopus prove that at scale. They by the way are a big proponent of more localized power. Because it's just more optimal.
Price incentives cause people and companies to adapt their behavior. Including when to to use power and where to use power. Likewise, it incentivizes power companies to invest in power generation where the demand is instead of where the NIMBY's are not (like Scottland). Speaking of NIMBY's, if they could benefit from lower pricing, they'd probably love wind power a lot more. Buy more electric cars, do the laundry when it's windy, etc.
As for base load. Nobody ever specifies a number in GW or GWH. It's a very fuzzy notion that people just assert is needed in huge (unspecified) amounts. If you put actual numbers on it, you would be able to have a sane discussion on (much) cheaper alternatives. But that never happens. Most discussions around base load center on the notion that we allegedly need a lot of it. What's the budget we need to reserve for that? How much? When? Where? Why? Are there any alternatives? The debate is mostly completely irrational and hand wavy on this.
There is a basic notion that power companies don't mind charging the same rate nationally because that means they make lots of money charging for mostly cheap power available everywhere except in a handful of places. The way the system works is that everybody pays the highest price on the system. Localized prices would introduce lots of variation and cause lots of reasons for power companies to optimize their power delivery and pricing. High prices mean unhappy customers voting with their feet. They are being shielded from that currently.
It's a big reason they are resisting changes on this front. In some cases they actually get paid to not generate power or discard it. That's wasteful. Scottland has plenty of base load. They are exporting their power surplus most of the time.
For base load one obvious reason to be sceptical is that in country A you may find that a generation technology is "base load" and so we can't possibly throttle it up or down, that's just how it works, and then in country B the very same technology is indeed throttled up and down as needed.
The UK has a lot of combined cycle gas burners. You will sometimes see US claims that these generators are only baseload and it wouldn't make sense to throttle them up and down. Over the course of an ordinary day in Britain you might see power output from these "baseload" generators vary between 2GW and 20GW and it's no big deal.
Every decision is a trade-off. The trade-off here is between on the one hand the savings from additional network reinforcement, the savings from reduction in aggregate Dx/Tx costs, and increasing the optimality of placement of generation wrt load; on the other hand, the cost of renewables generation being placed in areas with lower potential, the cost of increased price instability due to smaller markets, and of course, the switching costs. There is also the question of what incentives a zonal electricity market would actually provide to renewables developers.
With regards to the network reinforcement savings, it is worth noting a few things. A major obstacle to increasing network reinforcement is not the intrinsic investment cost, but inadequate and restrictive planning, which, the grid being a natural monopoly, results in artificially constrained connection supply (not out of malice but policy failure). Just as an illustration, the way DNOs currently determine whether to pay for flexibility services or upgrade the network is done on the basis of a _5 year_ calculation (ludicrously short!). The current waiting lists for new grid connections are on the order of a decade. Fundamentally, there is a short-sightedness in the planning system, and the long term is catching up.
As for the optimality of placement of assets, price signals already exist to reflect local needs -- there isn't exactly one single price for electricity for the whole of the UK (though it's a decent approximation). Transmission and distribution costs are baked into the settlement system. For grid constraints, both distribution and transmission use of system charges vary in space and time to reflect constraints (and flexibility services also introduce a local price signal, although I have earlier expressed skepticism of the procurement process).
If these price signals exist, why don't they cause renewables generation to become more distributed across the UK? The answer is that they probably do, but that grid losses are just smaller than the increased capacity factor of building in Scotland. Grid losses (both Dx and Tx) is on the order of 10%, and wind farms in Scotland will have a capacity factor about 30-40% greater.
Finally, to touch on the incentives question. The justification for pay-as-clear pricing (which is what you refer to as paying the highest price on the system) is actually to _incentivize_ the construction of cheaper, _renewable_ and nuclear energy. Sure, it doesn't especially disincentivize the construction of marginally-priced gas plants, but it doesn't incentivize it either. You could argue that maybe power companies are keeping this market structure to profit from their renewable assets instead of moving the whole grid to renewable, except for a simple fact: there is no monopoly on power generation in the UK.
Let me be clear: I am not actually arguing against zonal pricing. There are plenty of good arguments being made by people who have studied this more closely than me. What I'm fundamentally trying to do is provide a different perspective: that there is a lower-hanging fruit in the form of improving grid planning, a point which may be argued. But it is _not_ a simple problem with an obvious solution that's only being held back due to a conspiracy of energy suppliers.
> Expensive legacy gas and nuclear plants provide base load power at scale. Something renewables don’t really do.
Running hydro, biogas (e.g. in Denmark) and offshore wind (UK, Spain, France, Italy) can definitely fulfill base load demand on the basis of renewable energy generation. With solar, enough overcapacity can guarantee base load during the day even when it's cloudy, and in the summer the solar overcapacity can be used to run synth-fuel plants for those things that we absolutely cannot run with electricity (ships and large airplanes).
Additionally, we can reduce base load demand during night time... a lot of places are still running incandescent lighting, for example. Replace that with LEDs, better reflectors (for less waste) and movement detectors, and you tackle light pollution at night at the same time. Or heat, add storage to a heat pump system to avoid having to run the heat pump at night. And for fucks sake France please get rid of resistive heating.
To reduce curtailment, more transmission is required. However, the planning process is absolutely ridiculous, so multiple years of consultations are required before there's a chance anything might actually get built.
Those transmission components are expected to cost the taxpayer at least £54 bn (https://www.bbc.co.uk/news/business-62085297). Transmission, of course, doesn't solve storage, which, to quote the article, "can’t really be stored or stockpiled on an industrial scale". Because it can't. Batteries are orders of magnitude less than what is needed, as is hydro.
Do you think anyone would be building mammoth turbines in the North of Scotland without access to the Southern markets? Oh yes please, I really want to invest several billion pounds in order to serve Ullapool and Wick, that makes my capitalist bones tingle.
But "nuclear expensive", and of cause that isn't to do with the planning process at all. Not if you have a competing product to sell.
The UK has the most expensive electricity in the developed world, and approximately 10 times the CO2 footprint per kWh of France, or of France since the 1980s. If the goal of the renewable energy policy was to be a world leader, it has dramatically failed.
£54 bn over eight years is around 0.2% of the UK's GDP. A lot of money, but doesn't sound unreasonable for a major overhaul of a central price of infrastructure.
Ruling out the possibility of storing energy at industrial scale might also not age terribly well.
Yeah, it’s the same in Germany. (And to add insult to injury, people in places with renewable generation often pay higher grid fees due to the investments necessary to connect all the new plants.)
Yes, but that's partly a consequence of how the German electricity market operates and the neglected state of its infrastructure, isn't it?
Wind power and other intermittent sources create grid instability, which drives up costs.
And to my knowledge, Germany has chosen not to have different bidding markets within the country (or has at least kept prices consistent across its four markets) to protect vital industries in the west?
This is how the energy grid operates everywhere, it's not some uniquely German mistake. Renewables require an incredibly huge grid investment - it's the same story they keep telling about external costs, only this time they don't want to hear it. I don't want to subsidize others' cheaper energy, I don't have any place to put my panels and batteries, I was happy with how it was before. But they would do anything to avoid the fees when they can.
Would you buy wind power if somebody provided that close to where you live? The way the system currently works is that you see no benefit at all if wind towers are close to where you live. Because somebody on the complete opposite side of the country only has access to gas power and the national prices are set for the highest price needed anywhere in the country. You are effectively subsidizing those people. Not the other way around. Your rates are high because gas is expensive and has to be shipped in in LNG form these days. No matter where you live in the country.
Gas is expensive because stable demand has been replaced by spikes based on renewable availability. I don't have any opportunity to get any renewable power - it's cold and there's no space for grid scale wind or solar.
This doesn't make any sense. Germany has storage for more than a season's worth of natural gas. The price went up because Russia stopped selling cheap gas to western Europe after its attack on Ukraine.
Myself I'm not affected by this. It's used too much as a counter argument, it's not universally applicable - even in Germany. The price spikes were happening before the war too.
> This is how the energy grid operates everywhere, it's not some uniquely German mistake.
The fact that Bavaria keeps sabotaging north-south transmission capacity is a uniquely German mistake, as is the insistence of Bavaria and Baden-Württemberg to keep the single pricing zone.
This was an interesting read. I still don't quite understand the pricing during emergencies or shortages, though.
There is no tolerable scenario where providers could choose not to generate electricity for a grid if it were necessary and they were the only provider available.
I want to assume that in the freest of markets the state could still compel electrical generators to operate in the events of an emergency.
I really need to read up on what happened in Texas in 2021.
It could be partially your neighbor's solar panels or batteries. A lot of domestic power that gets contributed to the grid never leaves the neighborhood. These things aren't always as clear cut.
The key to lower prices on the grid is more flexible and localized pricing. Power suppliers don't like this because it favors cheaper sources of power that push their more expensive legacy generation out of the market. But it would create price incentives for demand and supply to align better.
A good example is the UK, which has national energy pricing and a lot of excess wind power in Scottland that is often being curtailed at the same time gas plants further south need to power up to power local demand there. End result: the Scottish pay the same high rate even though they are literally discarding energy they don't know what to do with. If they had local energy pricing, their rates would go down a lot because they have a lot of wind power most of the time.
And further south, people would either invest in local power generation (instead of far away in Scottland) or actually relocate data centers and other energy intensive businesses to where the power is cheap. As opposed to e.g. Slough.
You make an excellent point - so much so that it already exists today at the wholesale level in many markets. What you're describing is Locational Marginal Pricing (LMP) - a reasonable introduction is here: https://www.enverus.com/blog/an-intro-to-locational-marginal...
In the wholesale market the biggest consideration is transmission capacity - if I can generate 100MW of electricity at $15/MW but the transmission line between me and the demand can only carry 20MW, and another generator can generate 100MW for $30/MW with excess transmission capacity to the demand, the price at the demand will lean heavily towards the $30/MW price.
The same model could be applied to local grids as a way to "manage" residential solar installations for example; overcapacity is penalized through pricing signals (but if you throw in batteries so you can shift the release of electricity...).
How is this partitioning implemented?
Local “production-generation” can make sense at some level, but the mental model breaks down when you go back to the “water-in-a-lake” way of considering the grid.
I assume that there is less electricity being moved on one end of a winding of some downstream transformer, but it could also be that we really don’t know.
I don’t think it’s as simple as that. Expensive legacy gas and nuclear plants provide base load power at scale. Something renewables don’t really do. These have to be built and the cost distributed across everyone who takes power from the grid. The shared model is what makes it more resilient and reliable.
It is actually that simple. The current pricing system was created for a grid that no longer exists. There is now lots of wind generation, solar, battery power, etc. And growing rapidly. Both on the grid and domestic. And soon large amounts of batteries with wheels capable of powering houses and delivering power to the grid.
All this means lots of fluctuations in power availability and cost. Pretending that it costs the same all the time everywhere is irrational. If you give people incentives to adapt to these fluctuations, they will. Energy providers like Octopus prove that at scale. They by the way are a big proponent of more localized power. Because it's just more optimal.
Price incentives cause people and companies to adapt their behavior. Including when to to use power and where to use power. Likewise, it incentivizes power companies to invest in power generation where the demand is instead of where the NIMBY's are not (like Scottland). Speaking of NIMBY's, if they could benefit from lower pricing, they'd probably love wind power a lot more. Buy more electric cars, do the laundry when it's windy, etc.
As for base load. Nobody ever specifies a number in GW or GWH. It's a very fuzzy notion that people just assert is needed in huge (unspecified) amounts. If you put actual numbers on it, you would be able to have a sane discussion on (much) cheaper alternatives. But that never happens. Most discussions around base load center on the notion that we allegedly need a lot of it. What's the budget we need to reserve for that? How much? When? Where? Why? Are there any alternatives? The debate is mostly completely irrational and hand wavy on this.
There is a basic notion that power companies don't mind charging the same rate nationally because that means they make lots of money charging for mostly cheap power available everywhere except in a handful of places. The way the system works is that everybody pays the highest price on the system. Localized prices would introduce lots of variation and cause lots of reasons for power companies to optimize their power delivery and pricing. High prices mean unhappy customers voting with their feet. They are being shielded from that currently.
It's a big reason they are resisting changes on this front. In some cases they actually get paid to not generate power or discard it. That's wasteful. Scottland has plenty of base load. They are exporting their power surplus most of the time.
For base load one obvious reason to be sceptical is that in country A you may find that a generation technology is "base load" and so we can't possibly throttle it up or down, that's just how it works, and then in country B the very same technology is indeed throttled up and down as needed.
The UK has a lot of combined cycle gas burners. You will sometimes see US claims that these generators are only baseload and it wouldn't make sense to throttle them up and down. Over the course of an ordinary day in Britain you might see power output from these "baseload" generators vary between 2GW and 20GW and it's no big deal.
What £/kWh rate could we achieve at 2am, if we had the perfect localised modern pricing model?
It really isn't that simple.
Every decision is a trade-off. The trade-off here is between on the one hand the savings from additional network reinforcement, the savings from reduction in aggregate Dx/Tx costs, and increasing the optimality of placement of generation wrt load; on the other hand, the cost of renewables generation being placed in areas with lower potential, the cost of increased price instability due to smaller markets, and of course, the switching costs. There is also the question of what incentives a zonal electricity market would actually provide to renewables developers.
With regards to the network reinforcement savings, it is worth noting a few things. A major obstacle to increasing network reinforcement is not the intrinsic investment cost, but inadequate and restrictive planning, which, the grid being a natural monopoly, results in artificially constrained connection supply (not out of malice but policy failure). Just as an illustration, the way DNOs currently determine whether to pay for flexibility services or upgrade the network is done on the basis of a _5 year_ calculation (ludicrously short!). The current waiting lists for new grid connections are on the order of a decade. Fundamentally, there is a short-sightedness in the planning system, and the long term is catching up.
As for the optimality of placement of assets, price signals already exist to reflect local needs -- there isn't exactly one single price for electricity for the whole of the UK (though it's a decent approximation). Transmission and distribution costs are baked into the settlement system. For grid constraints, both distribution and transmission use of system charges vary in space and time to reflect constraints (and flexibility services also introduce a local price signal, although I have earlier expressed skepticism of the procurement process).
If these price signals exist, why don't they cause renewables generation to become more distributed across the UK? The answer is that they probably do, but that grid losses are just smaller than the increased capacity factor of building in Scotland. Grid losses (both Dx and Tx) is on the order of 10%, and wind farms in Scotland will have a capacity factor about 30-40% greater.
Finally, to touch on the incentives question. The justification for pay-as-clear pricing (which is what you refer to as paying the highest price on the system) is actually to _incentivize_ the construction of cheaper, _renewable_ and nuclear energy. Sure, it doesn't especially disincentivize the construction of marginally-priced gas plants, but it doesn't incentivize it either. You could argue that maybe power companies are keeping this market structure to profit from their renewable assets instead of moving the whole grid to renewable, except for a simple fact: there is no monopoly on power generation in the UK.
Let me be clear: I am not actually arguing against zonal pricing. There are plenty of good arguments being made by people who have studied this more closely than me. What I'm fundamentally trying to do is provide a different perspective: that there is a lower-hanging fruit in the form of improving grid planning, a point which may be argued. But it is _not_ a simple problem with an obvious solution that's only being held back due to a conspiracy of energy suppliers.
> Expensive legacy gas and nuclear plants provide base load power at scale. Something renewables don’t really do.
Running hydro, biogas (e.g. in Denmark) and offshore wind (UK, Spain, France, Italy) can definitely fulfill base load demand on the basis of renewable energy generation. With solar, enough overcapacity can guarantee base load during the day even when it's cloudy, and in the summer the solar overcapacity can be used to run synth-fuel plants for those things that we absolutely cannot run with electricity (ships and large airplanes).
Additionally, we can reduce base load demand during night time... a lot of places are still running incandescent lighting, for example. Replace that with LEDs, better reflectors (for less waste) and movement detectors, and you tackle light pollution at night at the same time. Or heat, add storage to a heat pump system to avoid having to run the heat pump at night. And for fucks sake France please get rid of resistive heating.
> Running hydro, biogas (e.g. in Denmark) and offshore wind (UK, Spain, France, Italy) can definitely fulfill renewable base load demand.
What is renewable base load demand?
Sorry, brain fart, shifted the words around and didn't fix the sentence up. Corrected, thanks.
To reduce curtailment, more transmission is required. However, the planning process is absolutely ridiculous, so multiple years of consultations are required before there's a chance anything might actually get built.
Those transmission components are expected to cost the taxpayer at least £54 bn (https://www.bbc.co.uk/news/business-62085297). Transmission, of course, doesn't solve storage, which, to quote the article, "can’t really be stored or stockpiled on an industrial scale". Because it can't. Batteries are orders of magnitude less than what is needed, as is hydro.
Do you think anyone would be building mammoth turbines in the North of Scotland without access to the Southern markets? Oh yes please, I really want to invest several billion pounds in order to serve Ullapool and Wick, that makes my capitalist bones tingle.
But "nuclear expensive", and of cause that isn't to do with the planning process at all. Not if you have a competing product to sell.
The UK has the most expensive electricity in the developed world, and approximately 10 times the CO2 footprint per kWh of France, or of France since the 1980s. If the goal of the renewable energy policy was to be a world leader, it has dramatically failed.
£54 bn over eight years is around 0.2% of the UK's GDP. A lot of money, but doesn't sound unreasonable for a major overhaul of a central price of infrastructure.
Ruling out the possibility of storing energy at industrial scale might also not age terribly well.
Which is why the UK is putting in subsea cables between Scotland and England despite the added cost.
Yep, there are on-shore plans, but there is a lot of NIMBYism that results a resistance to these necessary projects.
Yeah, it’s the same in Germany. (And to add insult to injury, people in places with renewable generation often pay higher grid fees due to the investments necessary to connect all the new plants.)
Yes, but that's partly a consequence of how the German electricity market operates and the neglected state of its infrastructure, isn't it?
Wind power and other intermittent sources create grid instability, which drives up costs.
And to my knowledge, Germany has chosen not to have different bidding markets within the country (or has at least kept prices consistent across its four markets) to protect vital industries in the west?
This is how the energy grid operates everywhere, it's not some uniquely German mistake. Renewables require an incredibly huge grid investment - it's the same story they keep telling about external costs, only this time they don't want to hear it. I don't want to subsidize others' cheaper energy, I don't have any place to put my panels and batteries, I was happy with how it was before. But they would do anything to avoid the fees when they can.
Would you buy wind power if somebody provided that close to where you live? The way the system currently works is that you see no benefit at all if wind towers are close to where you live. Because somebody on the complete opposite side of the country only has access to gas power and the national prices are set for the highest price needed anywhere in the country. You are effectively subsidizing those people. Not the other way around. Your rates are high because gas is expensive and has to be shipped in in LNG form these days. No matter where you live in the country.
Gas is expensive because stable demand has been replaced by spikes based on renewable availability. I don't have any opportunity to get any renewable power - it's cold and there's no space for grid scale wind or solar.
This doesn't make any sense. Germany has storage for more than a season's worth of natural gas. The price went up because Russia stopped selling cheap gas to western Europe after its attack on Ukraine.
Myself I'm not affected by this. It's used too much as a counter argument, it's not universally applicable - even in Germany. The price spikes were happening before the war too.
> This is how the energy grid operates everywhere, it's not some uniquely German mistake.
The fact that Bavaria keeps sabotaging north-south transmission capacity is a uniquely German mistake, as is the insistence of Bavaria and Baden-Württemberg to keep the single pricing zone.
This was an interesting read. I still don't quite understand the pricing during emergencies or shortages, though.
There is no tolerable scenario where providers could choose not to generate electricity for a grid if it were necessary and they were the only provider available.
I want to assume that in the freest of markets the state could still compel electrical generators to operate in the events of an emergency.
I really need to read up on what happened in Texas in 2021.
> providers could choose not to generate electricity for a grid if it were necessary
Enron basically forced this exact situation in order to charge inflated prices.
Maybe worse is that this isn’t even the reason they ended up in court.