Businesses paid to cut energy at peak times

via NOT A LOT OF PEOPLE KNOW THAT
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By Paul Homewood

h/t stewgreen

Emily Gosden seems to be listening to a wider range of views since she joined The Times.

This latest article poses some interesting questions:

Businesses that agree to cut energy use when national supplies are running low will receive subsidies six times higher than plants that guarantee to provide power.

The government this week awarded £14 million in subsidies to businesses to provide demand side response (DSR) capacity for a year from October.

This involves agreeing to reduce electricity demand when supplies are short, such as by temporarily switching off unnecessary lighting or machinery, or shifting processes to a different time of the day.

Subsidies will be awarded to 312 megawatts of capacity at £45 per kilowatt. This contrasts with a scheme last month that awarded power plants just under £7 per kilowatt to guarantee they could generate electricity when supplies were scarce.

Several plants that offered to provide capacity at a fraction of the cost of DSR were deemed surplus to requirements and rejected. Industry experts said that the discrepancy indicated a shortage of businesses that would be willing to reduce energy use.

The results raise questions over the value for money of DSR and highlight the challenges for the nascent energy-saving industry, which ministers hope will form a key part of their plans to help manage Britain’s increasingly intermittent energy system. Yoav Zingher, chief executive of Kiwi Power, which secured contracts on behalf of businesses offering 60MW of energy-saving capacity, said that it was “very hard” to find businesses that could dip their use at any point through the day.

Last year businesses offering to reduce their demand on the grid were awarded subsidy contracts for 2020-21 at £22.50 per kilowatt, the same price as power plants. However, industry experts said that instead of reducing their power usage most of those businesses were instead switching to back-up diesel or gas generators, which have been criticised as polluting. This week’s scheme awarded subsidies only to those genuinely cutting their usage.

UK Power Reserve, which won 10 megawatts of contracts on behalf of businesses this week, said that the risk of not being able to use back-up generation meant that participants were quite difficult to find.

In future, genuine DSR will have to compete directly against power plants and other capacity sources for subsidies. Gareth Miller, a consultant at Cornwall, an energy specialist, said: “£45 per kilowatt indicates that genuine DSR would struggle if it had to compete against other technologies in the capacity market.” He said that while the price “looks very expensive” the two methods could not be compared directly because power plants also enjoyed other sources of income, including the market price for selling power, which means they needed lower subsidies.

DSR also brought other advantages such as helping industrial consumers to cut their energy bills, he said. Winners in this week’s auction included Tata Steel.

The government is understood to believe that DSR requires higher levels of subsidy support while it is still an emerging sector but that costs should fall so it can compete with power plants.

A source said that the total cost worked out at less than 50p per household this winter.

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As she points out, the payment of £45/KW for these new DSRs is very pricey, even compared to the T4 Capacity Market auction for 2020-21, where both DSRs and generators accepted contracts at £22.50/KW.

The difference this time is that contracts are only offered to companies “genuinely cutting their usage”. (I have no idea how we know this is the case).

Not only is the price of £45/KW high, but the capacity bought, 312MW, is a drop in the ocean. If the government wants to buy in a serious quantity in future, it is likely to have to go much higher on price.

As the article says, there appears to be a marked reluctance on the part of companies to interrupt their operations in any meaningful way.