By Paul Homewood
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There are increasingly clear signs that gas prices in Europe are returning to pre-war lows and may stop there. [TTF is the European benchmark]. As Timera explains, part of the reason is a decline in demand in Europe and Asia, as gas is replaced by coal and economic growth slows in China. Gradually, LNG capacity also started to be expanded.
Catalyst Digital Energy, UK energy consultant, agrees with UK next day prices falling to 178 p/heat by the end of December.
Naturally, this has an effect on consumer prices for gas, but also on electricity prices, which fall to £160/MWh on the wholesale market.
You will recall many references a few months ago to the claim that gas power is now nine times more expensive than wind power. As was pointed out at the time, this was based on a brief spike in gas prices in August. For most of last year, gas was much cheaper than that.
And now that gas prices in the market have returned to 2021 levels, gas power is indeed very competitive with wind power once again. Let’s crunch a few numbers.
178p/heat equates to £60/MWh. With a fuel efficiency of 53%, this means that the fuel cost per megawatt of electricity generated is £113.
The BEIS regulatory cost for CCGT works out to £85/MWh, but this includes a carbon cost of £32, which is not a cost but a tax at all. So if we add CAPEX and operating costs to the above £113/MWh, we get a total cost of £126/MWh:
https://www.gov.uk/government/publications/beis-electricity-generation-costs-2020
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Renewable energy lobbyists have always wanted to compare CfD prices for offshore wind farms that have not yet been built. But this is completely irrelevant, especially since there is no evidence that they will be able to actually meet those prices. No, it is the current batch of wind farms that we should compare.
And follow Low Carbon Contract Company In the database, the average strike price for offshore wind is currently £166/MWh. In any sane energy market, we would buy up all of our gas production before we use any offshore wind. Of course, we don’t because the subsidy mechanism means that renewables get priority access to the market first. (Since the wind farms in the CfD program receive a guaranteed exercise rate, they can provide electricity for free, provided they will still receive a guaranteed income.)
Offshore wind farms subsidized by the ROC cost even more. They receive a subsidy of around £100/MWh over the market price of the electricity they sell, meaning they now earn more than £200/MWh.
Low Carbon Contracts data confirms that electricity prices are falling again. For the first twelve days of this month, the only data they have so far, the average market price collected by wind farms was £110/MWh. With an average exercise price of £166/MWh, this means that offshore wind generators are now subsidized back under the CfD scheme. Of course, there was a lot of publicity a few months ago when they returned money to consumers in a few short months. I suspect that we will get nothing from the regeneration corridor this time!
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