Are we being gaslit* by the Secretary of State?
The results of the latest renewables subsidy auction are out and the Secretary of State for this sort of stuff, Ed Miliband, says it’s a wondrous example of how he and his newly installed in government confreres have been able to change things. Well, yes, sort of. The change in strike prices was actually announced in November last year. But that’s probably allowable politics - claiming that all good things that happen are your good things is par for the occupation.
There is something that worries rather more.
That’s all in 2012 prices. Because that’s how those prices always are reported. All of those prices are also uprated by CPI from 2012 to whichever year the money is actually handed over. The BoE’s inflation calculator seems to think that inflation this dozen years has been about 40%. Therefore all those prices are, in fact, in actual money paid, upped by 40%.
That is also before a number of variations possible. Page 5 here.
Costs not included in DECC’s standard levelised costs: CfD top-up payments will be paid on the basis of generation after taking account of the generator’s share of transmission losses, known as the Transmission Loss Multiplier so the strike prices need to be increased to account for this.
PPAs: The revenue received by the generator is a combination of the wholesale price and the CfD top-up, which is the difference between the strike price and the reference price. If the generator cannot achieve the reference price because it sells its power through a PPA at a discount to the market price, the strike price must be increased to compensate for this. PPA discounts reflect route to market costs including the costs of trading and imbalance costs.
Contract length: The levelised cost is defined over the operating life of a project. If the CfD contract length is shorter than the operating life and wholesale prices and capacity market revenue post-contract are lower than the levelised cost then, all other things being equal, the strike price must be increased above the levelised cost to compensate for this.
We’re not wholly sure about that last but we think it says that if a wind farm falls apart before its scheduled end of life then we’ve got to pay them more for the electricity they’ve produced? We agree that could be wrong, clarification encouraged.
But the thing that confuses us. The Sec of State, Mr Miliband, keeps telling us that renewables are much cheaper than fossil derived electricity. It would, obviously, be great if this were true for that would mean we’ve solved climate change. At those 2012 prices it’s also, just about, possible to make that claim - sure, there are a couple of experimental technologies but the big volumes there etc.
Except that the actual prices to be paid are that 2012 price plus 40% inflation plus those other costs and any future inflation to boot. Which is - at least as far as we understand it - significantly above the current gas derived electricity price.
Which is the bit we don’t understand. Why are prices so deliberately reported in this manner? Why are all the announcements of prices 33% below** the actual price being paid and so not comparable with current market prices? We’re sure there must be a reason for this other than trying to gaslight*** us all. We just can’t think of any that is other than that attempt to gaslight****.
Answers on a postcard to the Rt Hon***** Ed Miliband, 3-8 Whitehall Place, London, SW1A 2EG.
*Aha, aha, aha
**Yes, that’s how percentages work, roughly
*** Aha, aha
****Aha
*****Possibly