In the UK the wholesale price was about £80/MWh in 2025. The retail price was about £270/MWh + a standing charge. If you factor in the standing charge, an average user paid about £344/MWh. So the cost of generation was only about 23% of the retail price. I believe the green levies + CfDs accounted for about another 15% of the retail price.
Does this mean that if generation was free, and there were no green policy costs, our electric would still be expensive?
edit: "Network and Distribution" appears to contribute about 23% of the retail price. I guess green energy increased that cost because wind/solar are more spread out and sometimes off-shore.
It is important to realise that the current pricing mechanism is not an accident, and has some non-obvious benefits that need to be weighed against the obvious drawbacks. Clearly other mechanisms exist, which might solve the obvious drawbacks, but it is a choice of tradeoffs rather than a simple fix.
Gas can produce enormous amounts of power at short notice 100% of the time and is cheaper per watt, nobody builds a 5MW twin cycle gas turbine power plant. There is a reason it sets the price at market. The CFDs are locked in at persistently high prices for decades. All these actions will increase costs to customers.
There is a reason our energy costs are the highest in the world, it is because our politicians persistently make choices like the ones described in this article.
It isn't though? Even at high assumed load factor for gas wind beats it on LCOE £/MWh. [0] And not by a small margin either.
The only edge gas has is qualitative not price - it is dispatchable nature...and the cost of energy storage is in freefall. The trendlines here are not subtle.
>There is a reason it sets the price at market.
Yeah the sooner we get rid of ungodly expensive on demand peaker gas doing exactly that price setting the better for us all.
These prices are a lot closer. You can play around with the assumptions in the government's LCOE calculator spreadsheet linked from the article. Removing the carbon price and using pre-wind load factor of 75% gives a LCOE of £67/MWh, which is similar in cost to solar at £65/MWh and onshore wind at £72/MWh, albeit lower than offshore wind at £91/MWh.
Assuming future costs of gas will go down is risky too. UK North Sea production is falling and recovery costs are likely to increase as we are left with only more marginal deposits.
The UK hasn't produced enough gas in the North Sea to actually run the country for a very long time, maybe ever. Anybody who sells you a dream about British gas for British people isn't telling you the truth and it doesn't matter whether they are lying or incompetent, you can't trust anything they say.
America, Russia and a handful of other places could do this. It's probably a terrible idea, but it is technically possible. However Britain is not one of those places.
While I agree that the unreliable grid dominates I don't see how that says it's been factored in. The cost is hidden, pushed off onto the existing powerplants which run less of the time and thus cost more per kwh actually produced. This "works" until you don't have enough gas when it's calm and things go badly.
Most places simply do not have a high enough percentage of renewables to hit this yet. Last I knew Hawaii had hit a different wall--while in theory a transformer works equally well in both directions real world engineering of high power transformers doesn't work that way. The substations can't push power up, thus solar connections were prohibited if they could cause the situation to occur. (You can't have panels if too many of your neighbors do.)
Externalities such as destroying your manufacturing base and eroding living standards and middle-class wealth by having 4x higher electricity costs than a country like China which emits 2x more CO2 per capita?
Rest assured that the UK would have damaged manufacturing and living standards regardless of renewables. It is just too complicated and expensive to build things. That not only damages the things you mentioned but renewables, gas and nuclear deployment.
But yeah bet against the Chinese solar and battery industries. And bet in favour of cheap plentiful gas in northern Europe.
> Rest assured that the UK would have damaged manufacturing and living standards regardless of renewables. It is just too complicated and expensive to build things. That not only damages the things you mentioned but renewables, gas and nuclear deployment.
High energy prices unquestionably make most primary and manufacturing production less competitive, and they reduce living standards. What are you even trying to say?
> But yeah bet against the Chinese solar and battery industries. And bet in favour of cheap plentiful gas in northern Europe.
It’s is categorically not cheaper per watt. Solar and wind are roughly £50/MWh and gas is £125/MWh. Not just LCOE but this is taking into account build cost. It’s insanely more expensive. What kind of low quality shill are you?
This is highly misleadling. Nobody is setting the price, it is determined by an open market. This naturally drives it towards the price of the cheapest energy source with available capacity (often natural gas). It would be irrational to sell electricity for cheaper than this. If more batteries get deployed, the price will more often get set by battery storage instead.
> In this model, the price of electricity is set by the most expensive source needed to meet demand at any given time. Often, this is gas-fired power plants. Even if cheaper renewable sources like wind and solar are supplying a significant portion of electricity, the overall market price is influenced by the cost of gas.
If you don't cover 100% of the current power usage from batteries, the price will be price of gas plants.
The gas plants could be 1% of given moment, yet still set price
> The gas plants could be 1% of given moment, yet still set price
Makes sense. Since no one would build that last 1% (or then, last 10%) of needed capacity due to it being wildly unprofitable. Then you are dealing with rolling blackouts or even worse.
The cost of a watt is not fungible. Reliable electricity is worth many multiples more than an unreliable grid no one can rely on being there when they need it.
This is a very sensible way to structure an electricity market. It’s got to be set at the marginal price, otherwise you mess up incentives of cheaper producers.
It's not like the price is set for the whole year, though. The price is set each half-hour, so it does matter what percentage of the time the gas peaker plants are necessary to supply the grid. This makes the effect of renewables on prices quite nonlinear: if they can never supply 100% of the grid, then they have zero effect on the average wholesale price. But going from 0% to 99% is a large part of the hurdle, then the transition from 99% to 105% will have a very large effect on the pricing (of course, given the variable nature of renewables, this will get blurred a bit more: currently the UK grid is entirely renewables about 1% of the time. But doubling the renewable capacity will raise that percentage to a lot more than 2%).
Sure, it's a marginal price. It is surprising to me that HN struggles to understand marginal pricing, it makes me more likely to assume when I see such people unhappy with taxation that they probably also don't understand marginal taxation.
Marginal differences have a cliff effect, which is one of the things US Republicans are worried about in the event Trump isn't able to subvert or abolish entirely this year's elections. If you've gerrymandered every seat so that you'll win by 3-5% and then your support collapses 10% across the board then you lose all those seats, not 10% of them. Ouch.
For that 1% in reality it's probably not quite the case, my understanding is that most of the gas plants pay a significant price in terms of efficiency loss and wear on the turbine, for restarts, so e.g. make 10MW for an hour, switch off for an hour, then make 10MW for an hour is 20MWh produced, but incurred a stop-start. The 20MWh might equate to £1000 of gas burned, but the stop-start has an effective price of £500. So you need to charge £75 per MWh to break even. Or, you could sell for £60 per MWh, deliver 10MWh for all three hours, 30MWh, £1500 of gas burned, no stop-start overhead, your overall costs were the same but you got more profit because 30 x £60 = £1800 instead of 20 x £75 = £1500.
Very true about the Republicans. In the special elections since the general we have seen shifts of this level. Unfortunately, I strongly suspect subvert is what's going to happen.
That is exactly what I wrote. Gas plants being at 1% implies that there is no cheaper source with available capacity. Why should anyone sell electricity for less then?
So if I offer my services providing electricity through a bicycle transformer for the cheap cheap price of $1000 per kWh does that mean everyone has to pay that price.
Think about this like a market. Suppose yes, there is demand for your power at $1000/kwh.
What is the market pressure here? Suddenly a ton of new capacity in solar, gas, etc, will come online and drive that price down because there will be much more capacity before you reach the point of $1000/kwh purchases.
The alternative is that people get paid at cost of production, which if you think about it is less fair. Why should a gas turbine get paid $67/kwh and a solar cell or battery get paid less? It also means that the market incentivizes more cheaper energy as a rule, because they take profit.
Would you go to the gas station charging $2 above market price just because their costs are higher to produce the gas?
Every 30 mins the UK energy suppliers put in a bid for how much energy they can produce and what price they will do it for. The UK then selects the cheapest N companies to fufill the predicted energy demand. Each company selected is then paid the price of the most expensive supplier chosen which is usually gas.This is a simplification of what the Octopus Energy CEO explains in the link below starts ~1:40.
No. The operative word there is "required". The grid sorts the various providers cheapest to most expensive, then uses all the power from each until they don't need the power anymore, at which point they pay everyone who they did take power from the rate of the highest winning bidder.
If you were offering power at $1000/kWh, you would simply lose the auction.
Imagine the scenario where Alice, Bob, Charlie, and Daniel are each selling power at $1/kWh, $2, $3, and $4 respectively. We need 30 kW of power.
Alice bids 10 kW at $1/kWh. We draw power from her, but we still need 20 kW
Bob bids 15 kW at $2/kWh. We draw power from him, but we still need 5 kW.
Charlie bids 30 kW at $3/kWh. We draw 5 kW from him. We don't need any more power, so Charlie has set the price at $3/kWh
Over the next hour, Alice gets $30, Bob gets $45, and Charlie gets $15. Daniel gets nothing, because he was out bid.
As I understand it (and even if I’m broadly right I’m greatly simplifying) there’s an auction system and if demand is X kilowatts, they line up all the bids to supply in cost order and draw a line at X kilowatts. All successful bidders receive the price bid by the highest successful bidder.
There are rare times in this kind of market where the price does go very high (though not to $1000 per kwh), and those brief periods push average prices up substantially.
In markets where batteries are going gangbusters, they are squashing many of these peaks and thus reducing average prices paid by consumers (though not as much as you’d hope because the majority of retail electricity costs are distribution rather than generation).
But with power the final product it's the same, the production method is different.
So it's more like this: I make a product for 5 and sell it for 6. My production facility is maxed, but there is still much demand. So I (or someone else) sets up another factory, making them for 8 and selling for 9 (there is demand enough). Now, will I keep selling at 6? No, my prices will also increase (to maximise my profit), and the final price will be where the demand curve crosses the supply curve.
I am wind, the new one is gass. We both make the same product, we sell at the same price, but I make a larger profit.
Makes sense. But in a normally functioning market, production at 5 will rapidly ramp up to capture the excess profits to be made by selling at 8. Eventually this will drive everyone's prices to 6 and the ones stuck producing at 7 (natural gas) will be driven out of business.
According to this comment https://news.ycombinator.com/item?id=46982118 there's additional "treasury" (is that the tax authority in the UK?) weirdness that prevents renewables from capturing these profits.
> But in a normally functioning market, production at 5 will rapidly ramp up to capture the excess profits to be made by selling at 8.
Not if your production is effectively random. If your factory produces a product at $5 this week, but next week your production is halved for a few days, someone else needs to step into that market who doesn't have a factory which produces like yours. You don't have any warehouses, and your product is consumed immediately. If there is not enough product for the market at any given 1 minute window of time Really Bad(tm) things happen to society.
You can build all the $5 factories you want, but when they tap into the same source of unreliable inputs then it really doesn't matter there is massively more cheap production than needed when the timing is fortuitous.
Once someone figures out how to build a different type of factory (battery storage) to buffer your good days of output into a warehouse for that $5 or less cost, then those $6 factories will simply go away over time as they can never sell their output on the open market.
The problem is that this is the market that absolutely cannot tolerate lack of supply for even a second or else everything falls apart, and that the goods are instantly consumed on purchase. (minus whatever is bought by entities storing and reselling it I guess)
Treasury is the name for the government's economic ministry, ie the people who "have the money" (except that of course all modern governments run a huge debt) if you're American your equivalent department is also named Treasury.
The UK's tax authority is HMRC, His Majesty's Revenue & Customs.
It takes a lot of time to build electrical generators, so "rapidly" here means what... decades? Years at least. I think wind farms generally you need to do a bunch of paperwork and then if you get an OK (after the paperwork) maybe 3-5 years to build.
The weirdness you're talking about is the other side of the Contracts for Difference subsidising the off shore (and historically onshore too) wind farms. A CfD works like this: You auction off the right to build generation and in the auction people can bid down for the price they'll be paid for say, 10 years of their electricity, this is called the Strike Price. Whatever they sell their electricity for, they always get that strike price. When the sale price was lower, the government is giving you free money - that's why this is obviously a subsidy. But when the sale price was higher the government (effectively the treasury, though actually via a for-purpose government owned company) takes every penny above your strike price, too bad.
This subsidy is cheap for governments because it's about certainty, something they have and which private investors lack. The British government knows it will have tax revenue in 2036, but a private investor would want a fat premium to cover that.
Now, CfDs run out. If you have 10 years of CfD obviously the wind turbine you bought doesn't magically explode after exactly 10 years, maybe maintenance prices get out of hand or the main blades reach end of life in 20 years and so it doesn't last forever, but eventually there's an unsubsidised generator, the situation today though is that there's a lot of very new generation, and so most of it is subsidised.
Another issue is that it makes sense to build off-shore wind farms in particular on the Scottish coast, whereas it didn't make sense to build e.g. coal generation there, so the UK isn't set up to move a huge amount of power made in Scotland to the south where much of it is needed. This results in a situation where there's say 15GW of almost free electricity, but 5GW of it is the far side of a 2GW transit point, you can only have 12GW of that electricity, even though you made 15GW. Fixing this will take years and political will.
It sounds like a crazy system. But wouldn't it also make deploying renewables there wildly profitable? Sunlight is free but you get paid like you burned natural gas.
Renewables are heavily effected by capital costs. So a renewable energy scheme selling at wholesale prices may sometimes be ridiculously profitable. But it will also have higher interest rates that could wipe out that benefit for the developer. The more successful renewable energy is the lower the average wholesale price is likely to be. And the temporary peaks are likely to correlate with times where the weather conditions will reduce renewable output.
All these reasons make CfD's positive for both consumers and developers. The fact that schemes can be developed outside of this just shows how good the technology is.
In the UK the wholesale price was about £80/MWh in 2025. The retail price was about £270/MWh + a standing charge. If you factor in the standing charge, an average user paid about £344/MWh. So the cost of generation was only about 23% of the retail price. I believe the green levies + CfDs accounted for about another 15% of the retail price.
Does this mean that if generation was free, and there were no green policy costs, our electric would still be expensive?
edit: "Network and Distribution" appears to contribute about 23% of the retail price. I guess green energy increased that cost because wind/solar are more spread out and sometimes off-shore.
Transmission is pretty expensive, lots of infrastructure and maintenance.
Doesn’t gas generators set the market price 98% of the time in the UK?
They need to fix their market pricing mechanism before the public benefit from cheaper renewable energy sources.
It is important to realise that the current pricing mechanism is not an accident, and has some non-obvious benefits that need to be weighed against the obvious drawbacks. Clearly other mechanisms exist, which might solve the obvious drawbacks, but it is a choice of tradeoffs rather than a simple fix.
Not any more, according to this article you're commenting on, no.
the comment you are replying to is talking about marginal cost pricing, which wasn't addressed by this article.
Gas can produce enormous amounts of power at short notice 100% of the time and is cheaper per watt, nobody builds a 5MW twin cycle gas turbine power plant. There is a reason it sets the price at market. The CFDs are locked in at persistently high prices for decades. All these actions will increase costs to customers.
There is a reason our energy costs are the highest in the world, it is because our politicians persistently make choices like the ones described in this article.
>is cheaper per watt
It isn't though? Even at high assumed load factor for gas wind beats it on LCOE £/MWh. [0] And not by a small margin either.
The only edge gas has is qualitative not price - it is dispatchable nature...and the cost of energy storage is in freefall. The trendlines here are not subtle.
>There is a reason it sets the price at market.
Yeah the sooner we get rid of ungodly expensive on demand peaker gas doing exactly that price setting the better for us all.
[0] https://assets.publishing.service.gov.uk/media/696697d19d9b9...
These prices are a lot closer. You can play around with the assumptions in the government's LCOE calculator spreadsheet linked from the article. Removing the carbon price and using pre-wind load factor of 75% gives a LCOE of £67/MWh, which is similar in cost to solar at £65/MWh and onshore wind at £72/MWh, albeit lower than offshore wind at £91/MWh.
Assuming future costs of gas will go down is risky too. UK North Sea production is falling and recovery costs are likely to increase as we are left with only more marginal deposits.
The UK hasn't produced enough gas in the North Sea to actually run the country for a very long time, maybe ever. Anybody who sells you a dream about British gas for British people isn't telling you the truth and it doesn't matter whether they are lying or incompetent, you can't trust anything they say.
America, Russia and a handful of other places could do this. It's probably a terrible idea, but it is technically possible. However Britain is not one of those places.
Is it cheaper factoring in externalities?
Yes, because the primary externality is an unreliable power grid. That externality is being priced into the unreliable sources of production.
Any other externality is a rounding error against an unreliable electric grid.
While I agree that the unreliable grid dominates I don't see how that says it's been factored in. The cost is hidden, pushed off onto the existing powerplants which run less of the time and thus cost more per kwh actually produced. This "works" until you don't have enough gas when it's calm and things go badly.
Most places simply do not have a high enough percentage of renewables to hit this yet. Last I knew Hawaii had hit a different wall--while in theory a transformer works equally well in both directions real world engineering of high power transformers doesn't work that way. The substations can't push power up, thus solar connections were prohibited if they could cause the situation to occur. (You can't have panels if too many of your neighbors do.)
Two can play the externalities game.
Externalities such as destroying your manufacturing base and eroding living standards and middle-class wealth by having 4x higher electricity costs than a country like China which emits 2x more CO2 per capita?
Rest assured that the UK would have damaged manufacturing and living standards regardless of renewables. It is just too complicated and expensive to build things. That not only damages the things you mentioned but renewables, gas and nuclear deployment.
But yeah bet against the Chinese solar and battery industries. And bet in favour of cheap plentiful gas in northern Europe.
> Rest assured that the UK would have damaged manufacturing and living standards regardless of renewables. It is just too complicated and expensive to build things. That not only damages the things you mentioned but renewables, gas and nuclear deployment.
High energy prices unquestionably make most primary and manufacturing production less competitive, and they reduce living standards. What are you even trying to say?
> But yeah bet against the Chinese solar and battery industries. And bet in favour of cheap plentiful gas in northern Europe.
This does not address what I wrote.
Why don’t you disprove this instead of throwing random unproven anecdotes.
> This means they will help cut consumer bills, according to multiple analysts.
It’s is categorically not cheaper per watt. Solar and wind are roughly £50/MWh and gas is £125/MWh. Not just LCOE but this is taking into account build cost. It’s insanely more expensive. What kind of low quality shill are you?
If you are wondering why the air quotes around "50% cheaper", it's because the price of electricity is set based on the price of gas. Crazy, right ? https://www.greeniow.org.uk/why-uk-electricity-prices-are-ti...
This is highly misleadling. Nobody is setting the price, it is determined by an open market. This naturally drives it towards the price of the cheapest energy source with available capacity (often natural gas). It would be irrational to sell electricity for cheaper than this. If more batteries get deployed, the price will more often get set by battery storage instead.
Not how it works
> In this model, the price of electricity is set by the most expensive source needed to meet demand at any given time. Often, this is gas-fired power plants. Even if cheaper renewable sources like wind and solar are supplying a significant portion of electricity, the overall market price is influenced by the cost of gas.
If you don't cover 100% of the current power usage from batteries, the price will be price of gas plants.
The gas plants could be 1% of given moment, yet still set price
> The gas plants could be 1% of given moment, yet still set price
Makes sense. Since no one would build that last 1% (or then, last 10%) of needed capacity due to it being wildly unprofitable. Then you are dealing with rolling blackouts or even worse.
The cost of a watt is not fungible. Reliable electricity is worth many multiples more than an unreliable grid no one can rely on being there when they need it.
This is a very sensible way to structure an electricity market. It’s got to be set at the marginal price, otherwise you mess up incentives of cheaper producers.
It's not like the price is set for the whole year, though. The price is set each half-hour, so it does matter what percentage of the time the gas peaker plants are necessary to supply the grid. This makes the effect of renewables on prices quite nonlinear: if they can never supply 100% of the grid, then they have zero effect on the average wholesale price. But going from 0% to 99% is a large part of the hurdle, then the transition from 99% to 105% will have a very large effect on the pricing (of course, given the variable nature of renewables, this will get blurred a bit more: currently the UK grid is entirely renewables about 1% of the time. But doubling the renewable capacity will raise that percentage to a lot more than 2%).
Sure, it's a marginal price. It is surprising to me that HN struggles to understand marginal pricing, it makes me more likely to assume when I see such people unhappy with taxation that they probably also don't understand marginal taxation.
Marginal differences have a cliff effect, which is one of the things US Republicans are worried about in the event Trump isn't able to subvert or abolish entirely this year's elections. If you've gerrymandered every seat so that you'll win by 3-5% and then your support collapses 10% across the board then you lose all those seats, not 10% of them. Ouch.
For that 1% in reality it's probably not quite the case, my understanding is that most of the gas plants pay a significant price in terms of efficiency loss and wear on the turbine, for restarts, so e.g. make 10MW for an hour, switch off for an hour, then make 10MW for an hour is 20MWh produced, but incurred a stop-start. The 20MWh might equate to £1000 of gas burned, but the stop-start has an effective price of £500. So you need to charge £75 per MWh to break even. Or, you could sell for £60 per MWh, deliver 10MWh for all three hours, 30MWh, £1500 of gas burned, no stop-start overhead, your overall costs were the same but you got more profit because 30 x £60 = £1800 instead of 20 x £75 = £1500.
Very true about the Republicans. In the special elections since the general we have seen shifts of this level. Unfortunately, I strongly suspect subvert is what's going to happen.
That is exactly what I wrote. Gas plants being at 1% implies that there is no cheaper source with available capacity. Why should anyone sell electricity for less then?
So if I offer my services providing electricity through a bicycle transformer for the cheap cheap price of $1000 per kWh does that mean everyone has to pay that price.
Think about this like a market. Suppose yes, there is demand for your power at $1000/kwh.
What is the market pressure here? Suddenly a ton of new capacity in solar, gas, etc, will come online and drive that price down because there will be much more capacity before you reach the point of $1000/kwh purchases.
The alternative is that people get paid at cost of production, which if you think about it is less fair. Why should a gas turbine get paid $67/kwh and a solar cell or battery get paid less? It also means that the market incentivizes more cheaper energy as a rule, because they take profit.
Would you go to the gas station charging $2 above market price just because their costs are higher to produce the gas?
Every 30 mins the UK energy suppliers put in a bid for how much energy they can produce and what price they will do it for. The UK then selects the cheapest N companies to fufill the predicted energy demand. Each company selected is then paid the price of the most expensive supplier chosen which is usually gas.This is a simplification of what the Octopus Energy CEO explains in the link below starts ~1:40.
https://youtu.be/5WgS-Dsm31E
No. The operative word there is "required". The grid sorts the various providers cheapest to most expensive, then uses all the power from each until they don't need the power anymore, at which point they pay everyone who they did take power from the rate of the highest winning bidder.
If you were offering power at $1000/kWh, you would simply lose the auction.
Imagine the scenario where Alice, Bob, Charlie, and Daniel are each selling power at $1/kWh, $2, $3, and $4 respectively. We need 30 kW of power.
Alice bids 10 kW at $1/kWh. We draw power from her, but we still need 20 kW
Bob bids 15 kW at $2/kWh. We draw power from him, but we still need 5 kW.
Charlie bids 30 kW at $3/kWh. We draw 5 kW from him. We don't need any more power, so Charlie has set the price at $3/kWh
Over the next hour, Alice gets $30, Bob gets $45, and Charlie gets $15. Daniel gets nothing, because he was out bid.
What happens when they bid power and can't deliver?
Pretty sure the answer is no, most of the time.
As I understand it (and even if I’m broadly right I’m greatly simplifying) there’s an auction system and if demand is X kilowatts, they line up all the bids to supply in cost order and draw a line at X kilowatts. All successful bidders receive the price bid by the highest successful bidder.
There are rare times in this kind of market where the price does go very high (though not to $1000 per kwh), and those brief periods push average prices up substantially.
In markets where batteries are going gangbusters, they are squashing many of these peaks and thus reducing average prices paid by consumers (though not as much as you’d hope because the majority of retail electricity costs are distribution rather than generation).
Only if your transformer is the difference between the grid failing to keep up with demand or not.
The quotes are because it's a quote. It was part of Energy secretary Ed Miliband's statement which is quoted in the article.
That's just marginal pricing, which is the pricing in many (most?) markets.
It just means that the price is determined by the price where the demand curve crosses the supply curve.
> That's just marginal pricing, which is the pricing in many (most?) markets.
I don't pay Johnnie Walker Blue Label prices for Jim Beam.
But with power the final product it's the same, the production method is different.
So it's more like this: I make a product for 5 and sell it for 6. My production facility is maxed, but there is still much demand. So I (or someone else) sets up another factory, making them for 8 and selling for 9 (there is demand enough). Now, will I keep selling at 6? No, my prices will also increase (to maximise my profit), and the final price will be where the demand curve crosses the supply curve.
I am wind, the new one is gass. We both make the same product, we sell at the same price, but I make a larger profit.
Makes sense. But in a normally functioning market, production at 5 will rapidly ramp up to capture the excess profits to be made by selling at 8. Eventually this will drive everyone's prices to 6 and the ones stuck producing at 7 (natural gas) will be driven out of business.
According to this comment https://news.ycombinator.com/item?id=46982118 there's additional "treasury" (is that the tax authority in the UK?) weirdness that prevents renewables from capturing these profits.
> But in a normally functioning market, production at 5 will rapidly ramp up to capture the excess profits to be made by selling at 8.
Not if your production is effectively random. If your factory produces a product at $5 this week, but next week your production is halved for a few days, someone else needs to step into that market who doesn't have a factory which produces like yours. You don't have any warehouses, and your product is consumed immediately. If there is not enough product for the market at any given 1 minute window of time Really Bad(tm) things happen to society.
You can build all the $5 factories you want, but when they tap into the same source of unreliable inputs then it really doesn't matter there is massively more cheap production than needed when the timing is fortuitous.
Once someone figures out how to build a different type of factory (battery storage) to buffer your good days of output into a warehouse for that $5 or less cost, then those $6 factories will simply go away over time as they can never sell their output on the open market.
The problem fixes itself.
The problem is that this is the market that absolutely cannot tolerate lack of supply for even a second or else everything falls apart, and that the goods are instantly consumed on purchase. (minus whatever is bought by entities storing and reselling it I guess)
Treasury is the name for the government's economic ministry, ie the people who "have the money" (except that of course all modern governments run a huge debt) if you're American your equivalent department is also named Treasury.
The UK's tax authority is HMRC, His Majesty's Revenue & Customs.
It takes a lot of time to build electrical generators, so "rapidly" here means what... decades? Years at least. I think wind farms generally you need to do a bunch of paperwork and then if you get an OK (after the paperwork) maybe 3-5 years to build.
The weirdness you're talking about is the other side of the Contracts for Difference subsidising the off shore (and historically onshore too) wind farms. A CfD works like this: You auction off the right to build generation and in the auction people can bid down for the price they'll be paid for say, 10 years of their electricity, this is called the Strike Price. Whatever they sell their electricity for, they always get that strike price. When the sale price was lower, the government is giving you free money - that's why this is obviously a subsidy. But when the sale price was higher the government (effectively the treasury, though actually via a for-purpose government owned company) takes every penny above your strike price, too bad.
This subsidy is cheap for governments because it's about certainty, something they have and which private investors lack. The British government knows it will have tax revenue in 2036, but a private investor would want a fat premium to cover that.
Now, CfDs run out. If you have 10 years of CfD obviously the wind turbine you bought doesn't magically explode after exactly 10 years, maybe maintenance prices get out of hand or the main blades reach end of life in 20 years and so it doesn't last forever, but eventually there's an unsubsidised generator, the situation today though is that there's a lot of very new generation, and so most of it is subsidised.
Another issue is that it makes sense to build off-shore wind farms in particular on the Scottish coast, whereas it didn't make sense to build e.g. coal generation there, so the UK isn't set up to move a huge amount of power made in Scotland to the south where much of it is needed. This results in a situation where there's say 15GW of almost free electricity, but 5GW of it is the far side of a 2GW transit point, you can only have 12GW of that electricity, even though you made 15GW. Fixing this will take years and political will.
Aren’t a lot of extra north south links in progress already? So won’t it be better soon?
IIRC it's still years out, though less than a decade.
The Treasury is the finance ministry in charge of all public income and spending.
You get simple supply and demand with uniform prices in commodity markets but I'm doubtful that's most markets in general.
It sounds like a crazy system. But wouldn't it also make deploying renewables there wildly profitable? Sunlight is free but you get paid like you burned natural gas.
Renewables are heavily effected by capital costs. So a renewable energy scheme selling at wholesale prices may sometimes be ridiculously profitable. But it will also have higher interest rates that could wipe out that benefit for the developer. The more successful renewable energy is the lower the average wholesale price is likely to be. And the temporary peaks are likely to correlate with times where the weather conditions will reduce renewable output.
All these reasons make CfD's positive for both consumers and developers. The fact that schemes can be developed outside of this just shows how good the technology is.
that is the idea
but under the cfd mechanism the treasury takes the excess over the strike price
It does. It's basically scamming taxpayer into funding private companies renewable investments.
https://news.ycombinator.com/item?id=46982694 It's not a scam. Interesting your mind went there though. We know what you're about.
Now add storage costs