From NOT A LOT OF PEOPLE KNOW THAT

By Paul Homewood

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European gas prices drop to pre-war lows

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There are increasingly strong signs that European gas prices are back to pre-war lows and may stop that way. [TTF is the European benchmark]. As Timera explain, part of the reason is demand destruction in Europe and Asia, with gas replaced by coal and slowing economic growth in China. Gradually as well LNG capacity is starting to expand.

Catalyst Digital Energy, the UK energy consultants, agree, with day ahead UK prices down to 178p/therm at the end of December.

Naturally this has an effect on consumer prices for gas, but there is also an effect on power prices too, and these are back down to £160/MWh on the wholesale market.

You will recall the many references a few months ago to the claim that gas power is now nine times as expensive as wind power. As was pointed out at the time, this was based on a very short spike in gas prices in August. For most of last year gas was much cheaper than that.

And now that market prices for gas are back to 2021 levels, gas-fired power is actually very competitive with wind power again. Let’s crunch a few numbers.

178p/therm equates to £60/MWh. With a fuel efficiency of 53%, this means that the fuel cost for every megawatt of electricity generated is £113.

BEIS levelised costs for CCGT work out at £85/MWh, but this includes a carbon cost of £32, which is not a cost at all, but a tax. 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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The renewable lobby always want to compare against the CfD prices for offshore wind farms that have not been built. But this is utterly irrelevant, not least because there is no evidence that they will be able to actually fulfil those prices. No, it is the existing tranche of wind farms which we should be comparing.

And according to the Low Carbon Contracts Company database, the average strike price for offshore wind is currently £166/MWh. In any sane energy market, we would be buying up all of the gas generation before we took any offshore wind power. We don’t, of course, because the subsidy mechanism means that renewables get preferential access to the market first. ( As wind farms on the CfD scheme receive a guaranteed strike price, they can give away their electricity for free, in the knowledge that they will still receive their guaranteed income.)

Offshore wind farms subsidised by ROCs costs even more, They receive about £100/MWh in subsidy on top of the market price of the electricity they sell, meaning they currently earn well over £200/MWh.

The Low Carbon Contracts data confirms that power prices are falling back. In the first twelve days this month, the only data they so far have, the average market price earned by wind farms was £110/MWh. With an average strike price of £166/MWh this means that offshore wind generators are now being subsidised again vis the CfD scheme. There was of course a great deal of publicity a few months ago when, for a few short months, they returned money to consumers. I suspect we will nothing from the renewable lobby this time!