The Anonymous Widower

Can We Move The Equilibrium Point Of The Energy Market?

Equilibrium In Systems

As a Control Engineer, I believe that most systems eventually end up in a state of equilibrium.

How many football batches have you watched between two evenly-matched teams that have ended, where the statistics are even and the match has ended in a nil-nil draw or a win by one goal.

Now suppose one manager makes an inspired substitution, one important player gets injured or one player gets sent off.

One team will have an advantage, the statistics will no longer be even and one team will probably win.

The equilibrium point will have been shifted.

Zopa’s Stable Peer-to-Peer Lending System

I used Zopa’s peer-to-peer lending system for several years and found it a very stable system, that over the years paid a steady return of between four and five percent before tax.

I even developed a method to maximise my savings income, which I wrote about in The Concept Of Hybrid Banking.

It was a sad day for me, when Zopa closed its ground-breaking peer-to-peer lending system.

As a Control Engineer, I believe that Zopa’s strength was a well-written computerised algorithm, that matched lenders and borrowers and spread the risk.

  • There was no bias in the system, introduced by personal prejudices.
  • The algorithm was agnostic and judged all borrowers on their profiles and credit ratings alone.
  • Money was allocated under fair rules for borrowers.
  • I never borrowed from Zopa, but from my experience of owning half of a finance company, their terms were the most customer-friendly I’ve ever seen.

Someone will go back to the basics of peer-to-peer lending and it can’t be soon enough for both savers and borrowers.

Zopa In Troubled Times

Over the years that I invested in Zopa, my returns stayed very much the same, as the algorithm seemed to be able to maintain sufficient difference between lenders’ returns and borrowers’ rates. I also suspect the dynamics of savvy lenders and borrowers helped to stabilise both the system and the difference between rates.

It even worked through the Banking Crisis of 2008 and other mini-hiccups along the way.

My Conclusion About Zopa

As someone, who knows computing well, I would rate Zopa, one of the best computer systems, I’ve ever seen.

But it showed how a large transactional system can work well.

One of the keys to its success and smooth operation was that the computer was totally in control and it took all transaction decisions without direct human intervention.

The Energy Market

The energy market is a network of energy providers and users.

It is controlled by complicated rules and it has settled into an equilibrium, which involves.

  • Importation of energy, which I suspect is not at a low price
  • Some high priced energy generators, based on gas, which has a high-price, due to Putin’s war.
  • Waste of wind energy due to lack of energy storage.
  • The intermittency of renewable sources.
  • A  lack of gas storage, means that we probably get the wrong end of fluctuations in the gas price.

This results in a high price to consumers.

Can We Move The Equilibrium Point Of The Energy Market?

And we also need to move it quickly to a more favourable place, which benefits everybody!

As a Control Engineer, I believe that there are five ways to move the equilibrium point.

  • Stop Putin’s war.
  • Increase gas storage.
  • Generate more low-cost electricity.
  • Increase electricity storage.
  • Improve the control algorithm.

I will now look at each in more detail.

Stopping Putin’s War

Giving in to Putin’s ambitions, would be an easy way to solve our energy crisis. But at what cost?

My parents generation, watched as Nazi Germany took over Austria and Czechoslovakia, whilst the world did nothing.

  • We mustn’t repeat that mistake.
  • We must not flinch in our support of the Ukraine.
  • We must be ready to support Moldova, Finland and the Baltic States if Putin expands his ambitions.

I do wonder, if Boris will turn up with Churchillian-style anti-Putin rhetoric all over Eastern Europe.

Increasing Gas Storage

The major gas storage facility is Rough, which is handily close to the Easington gas terminal.

The facility needs maintenance and this paragraph from the Wikipedia entry gives the current status.

In May 2022, the Secretary of State for Business, Energy and Industrial Strategy, Kwasi Kwarteng, began talks with the site’s owners with a view to reopening the site to help ease the ongoing cost-of-living crisis in the United Kingdom. In June 2022, owners Centrica submitted an application to the North Sea Transition Authority (NSTA), the licencing authority for the UK Government, to reopen the facility. Approval was granted in July. Subsequently, Centrica indicated that they are working hard to restore storage operations at Rough which would depend on securing subsidies from the British government. Centrica was aiming to have some capacity available for the winter of 2022/23 against an overall plan to increase storage capacity gradually over time.

Note.

  1. Rough can store around 2832 million cubic metres of gas.
  2. This article on Energy Live News is entitled Reopening Of Rough Storage Gets The All-Clear.

Less well-known is SSE and Equinor’s Aldborough Gas Storage.

These three paragraphs from SSE web site, describe the gas storage.

The Aldbrough Gas Storage facility, in East Yorkshire, officially opened in June 2011. The last of the nine caverns entered commercial operation in November 2012.

The facility, which is a joint venture between SSE Thermal (66%) and Equinor, has the capacity to store around 330 million cubic metres (mcm) of gas.

SSE Thermal and Equinor have consent to increase the storage capacity at the Aldbrough site (Aldbrough Phase 2) and during the last couple of years have been working to involve the local community where appropriate to refine aspects of this project, which has not been progressed to date due to market conditions.

Future plans for the facility, may include converting it to one of the world’s largest hydrogen stores.

In the grand scheme of things, Rough and Aldborough, when you consider that the UK uses 211 million cubic metres of gas every day, will only keep us going for a few days.

But it should be noted, that the Easington gas terminal is connected to the Norwegian gas fields, by the Langeled pipeline.

So Yorkshire and Humberside will be alright.

Generating More Low-Cost Electricity

The only low-cost electricity of any size to come on stream will be wind-power.

This article on Renewables Now is entitled UK Hits 25.5 GW Of Wind Power Capacity.

These wind farms seem to be coming on stream soon or have been commissioned recently.

  • Dogger Bank A – 1200 MW – Commissioning 2023 expected
  • Dogger Bank B – 1200 MW – Commissioning 2024/25 expected
  • Dogger Bank C – 1200 MW – Commissioning 2024/25 expected
  • Hornsea Two – 1386 MW – Commissioned 2022
  • Moray East – 950 MW – Commissioning 2022 expected
  • Neart Na Gaoithe – 450 MW – Commissioning 2024 expected
  • Seagreen – 1075 MW – Commissioning 2023 expected
  • Triton Knoll – 857 MW – Commissioning 2022 expected

That is expected to be over 5 GW of offshore wind by the end of 2023.

In case there is some double counting, I’ll only say that wind power capacity could be near to 30 GW by December 2023, with perhaps another 3 GW by December 2024.

Other large wind farms in the future include.

  • Berwick Bank – 4100 MW – Commissioning 2028 expected
  • East Anglia Two – 900 MW – Commissioning 2026 expected
  • East Anglia Three – 1400 MW – Commissioning 2027 expected
  • Inch Cape Phase 1 – 1080 MW – Commissioning 2027 expected
  • Hornsea Three – 2800 MW – Commissioning 2027 expected
  • Moray West – 294 MW – Commissioning 2027 expected
  • Morgan and Mona – 3000 MW – Commissioning for 2028 expected
  • Morven – 2900 MW – Commissioning for 2028 expected
  • Norfolk Boreas – 1400 MW – Commissioning 2027 expected
  • Norfolk Vanguard – 1400 MW – Construction start planned for 2023
  • Sofia – 1400 MW – Commissioning 2026 expected

That is over 14 GW of wind power.

I should also take note of solar and onshore wind power detailed in this document from the Department of Business, Industry and Industrial Strategy that lists all the Contracts for Difference Allocation Round 4 results for the supply of zero-carbon electricity.

It gives these figures and dates.

  • Solar – 251 MW – Commissioning 2023/24 expected
  • Solar – 1958 MW – Commissioning 2024/25 expected
  • Onshore Wind – 888 MW – Commissioning 2024/25 expected

I can now build a yearly table of renewables likely to be commissioned in each year.

  • 2022 – 3193 MW
  • 2023 – 2275 MW
  • 2024 – 701 MW
  • 2025 – 5246 MW
  • 2026 – 2300 MW
  • 2027 – 6974 MW
  • 2028 – 11400 MW

Note.

  1. Where a double date has been given, I’m taking the latter date.
  2. I have assumed that Norfolk Vanguard will be commissioned in 2028.
  3. I have ignored Hinckley Point C, which should add 3.26 GW in mid-2027.
  4. I have only taken into account one of the Scotwind wind farms in Scotland, some of which could be commissioned by 2028.
  5. I have assumed that BP’s Mona, Morgan and Morven will all be commissioned by 2028.

This is a total of 32 GW or an average of nearly 5 GW per year.

Increasing Electricity Storage

Big schemes like the 1.5 GW/ 30 GWh Coire Glas and 600 MW Cruachan 2 will help, but with 32 GW of renewable energy to be installed before 2028 and energy prices rocketing, we need substantial energy storage in the next couple of years.

One feasible plan that has been put forward is that of Highview Power’s CEO; Rupert Pearce,, that I wrote about in Highview Power’s Plan To Add Energy Storage To The UK Power Network.

The plan is to build twenty of Highview Power’s CRYOBatteries around the country.

  • Each CRYOBattery will be able to store 30 GWh.
  • Each CRYOBattery will be one of the largest batteries in the world.
  • They will have three times the storage of the pumped storage hydroelectric power station at Dinorwig.
  • They will be able to supply 2.5 GW for twelve hours, which is more output than Sizewell B nuclear power station.

Note.

  1. The first 30 GWh CRYOBattery is planned to be operational by late 2024.
  2. 600 GWh distributed around the country would probably be sufficient.

I believe that as these batteries are made from standard proven components, they could be built fairly quickly.

Paying For The Energy Storage

This press release from Highview Power is entitled New Analysis Reveals Extent Of UK Renewable Energy Waste, which makes these three bullet points.

  • Enough renewable energy to power 500,000 homes a day wasted since the energy crisis began.
  • 8 out of 10 Britons want more investment in boosting Britain’s energy resilience.
  • UK spent £390 million turning off wind farms and using gas since September 2021.

Note.

  1. As the press release was published in July 2022, was the £390 million for ten months.
  2. Will this level of spend continue, as we’re not creating any electricity storage or building any factories that will start in a year or so, that will need large amounts of electricity?
  3. The Germans are at least building the NeuConnect interconnector between the Isle of Grain and Wilhelmshaven.
  4. As we’re adding up to 5 GW per year to our renewable energy systems, this problem will surely get worse and we’ll spend more money switching off wind turbines.

We have the money to build a very large amount of energy storage.

Improving The Control Algorithm

A better control algorithm would always help and politicians should only be allowed to set objectives.

Conclusion

There is a chance we’ll have an oversupply of electricity, but this will have effects in the UK.

  • Gas-fired power-stations will be retired from front-line service to produce electricity.
  • Some will question the need for nuclear power.
  • Gas may even be used selectively to provide carbon dioxide for agricultural, scientific and industrial processes.
  • Industries that need a lot of electricity may build factories in the UK.
  • We will have a large supply of green hydrogen.

But it should bring the price of electricity down.

 

September 5, 2022 - Posted by | Computing, Energy, Energy Storage | , , , , , , , , , , , , , , , ,

7 Comments »

  1. I believe the current control algorithm balances requested demand and sets a price every minute on an open market basis. As such the goal is security of supply, with the market setting the price (based on not having a large excess of unwanted power in the grid).

    How the variable cost of supply is combined into a spot price is the main area of change possible, with better matching of demand to supply and more long term contracts between big users and retailers and cheaper generators, and more dynamic control of use.

    Stopping Putin’s war is likely to very tied to countries ceasing to buy fossil fuels from Russia. Counties are reducing what they buy but can’t currently completely stop. The Russian economy is largely based on revenue from selling extracted goods, and potentially will be subject to the “Dutch disease” where there is a consequent decline in manufacturing and a knock on risk of decline is services, and if revenue from selling oil and gas significantly declines there will be a lack of money to continue the war. (The depth of decline will depend on whether countries like Turkey and Iran and former Sovier countries continue to buy oil, likely at a discounted price as consumers of last resort)

    I suspect the eventual outcome in Ukraine will be a stalemate similar to the current situation between North and South Korea, at least as long as strict economic sanctions remain intact.

    This kind of economic situation was observed in the economy of the Netherlands post discovery of the large gas deposits in the north in the 1960’s/60’s, hence the name “Dutch Disease”

    Comment by MilesT | September 6, 2022 | Reply

  2. There’s an interesting study of solar wind-farm consents at https://www.solarpowerportal.co.uk/blogs/uk_solar_farm_approval_hits_record_capacity_level_in_2022 The graph shows over 3GW (peak DC) approved last year and over 4GW so far this year. Probably not all of those will actually get built, but that’s still a significant amount of power. That of course doesn’t include roof-top solar, which is also soaring because of high energy prices.

    Comment by Peter Robins | September 6, 2022 | Reply

  3. Meanwhile, over in France, EDF have announced that they plan to reopen 27 of the 35 currently closed nuclear reactors by the end of the year, and the others by February. Some commentators are sceptical, particularly for the 12 which were closed because of corrosion. There’s a map of the reactors involved at https://fr.euronews.com/2022/09/04/nucleaire-edf-veut-relancer-tous-les-reacteurs-pendant-lhiver

    GB has been pumping some 3GW to France over the interconnectors pretty much non-stop over the last few months. If EDF do reopen these reactors, that should ease the price pressures, as the gas used can be used in GB.

    Comment by Peter Robins | September 6, 2022 | Reply

  4. Also, if you’re talking about systems equilibrium, you shouldn’t forget the other side of the system, namely demand management. Reducing demand, e.g. by better insulation, and changing demand timing, offering people incentives to consume when energy is plentiful and to avoid consumption when it’s tight, should be far cheaper than building new capacity.

    Also, don’t forget distribution: adding new capacity and speeding up the process. BEIS/Ofgem published their Electricity networks strategic framework last month to address just that https://www.gov.uk/government/publications/electricity-networks-strategic-framework

    Comment by Peter Robins | September 6, 2022 | Reply

  5. You said above “Now suppose one manager makes an inspired substitution, one important player gets injured or one player gets sent off” perhaps you consider Jacob Rees Mogg as the new BEIS inspired – i certainly don’t and can see your vision above being holed below the waterline but guess we need to see what he does first.

    Comment by Nicholas Lewis | September 6, 2022 | Reply

  6. I believe whoever gets BEIS has been left a good pile of nuggets by the previous politicians and thinkers in that department.

    I particularly liked how the BEIS has dished out grants and contracts for difference to encourage innovation. I hope that attitude is bow engrained.

    Comment by AnonW | September 6, 2022 | Reply

  7. […] Can We Move The Equilibrium Point Of The Energy Market?, I have been adding up all of the renewable energy to be commissioned in the next few […]

    Pingback by The Future Is Blowing In The Wind « The Anonymous Widower | September 7, 2022 | Reply


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