By Paul Homewood
Jillian Ambrose embarrasses herself with her obvious lack of understanding of the energy sector one again:
Some of the UK’s biggest banks have agreed to invest £100m in a fleet of eleven micro gas-fired power plants across England to offer the national grid fast-starting power options.
Lloyd’s commercial banking division, HSBC and NIBC have agreed to finance Green Frog Power’s plans for 220MW of gas-fired power capacity across sites from Plymouth to Newcastle.
The £100m loan could be stretched by a further £50m to allow Green Frog to build another 110MW worth of gas-fired power in the next few years.
Together the flurry of small gas plants represent the equivalent of one large gas-fired power unit, which could compete for contracts with National Grid to help balance the energy system as old coal-plants are shut down.
In fact, small gas plants have long been an essential part of the UK electricity sector. They are generically known as “small scale peakers”. (Note for Jillian – the clue is in the name).
Peakers have the advantage of flexibility and low capital costs per unit (but not though per MW). They, however, have the disadvantage of being much more expensive to run than large CCGT plants.
The chart from BEIS’ Electricity Generation Costs report from 2016 shows just how expensive they actually are:
Focussing on small OCGT and and 1200 MW CCGT:
Capital and fixed costs per MWh are much higher for OCGT, simply because the figures are based a load factor of 6%. This reflects the fact that they are not designed to provide regular, large amounts of power, but instead simply help to top up the grid at times of peak demand.
Significantly though, fuel costs are also much higher for OCGTs, as they are much less efficient generators. At £52/MWh for fuel alone, they would not be able to run economically during most of the year when the market price is less.
Energy Consultants, Timera Energy, noted in a report on peakers last year:
A major transformation is underway in European power markets. Ageing coal, gas and nuclear plants are retiring and being replaced to a significant extent by renewable capacity. Loss of existing flexible plants and the inherent intermittency of wind and solar output is driving a requirement for substantial investment in new flexibility.
Investment in flexible thermal capacity over the last 3 decades has been dominated by large grid connected CCGTs. But investment in distribution connected peakers has surged over the last 3 years, particularly as a source of new capacity in the UK power market (with 3.5GW successful in UK capacity auctions to date).
Peaker investment is now focused on gas-fired technologies, particularly distribution connected reciprocating engines. These units represent a relatively cheap source of low load factor flexibility. However there are a number of different types of technology in play and an important trade-off between cost & efficiency.
Gas engines have a capital cost advantage over CCGTs (400-450 $/kW vs 650-700 $/kW). Fixed costs of CCGTs (around 25 $/kW) can be more than 50% higher than those of gas engines. Engines are significantly more flexible than CCGTs and have lower start costs. Peaker economic lives are also shorter than for CCGTs (e.g. 15 vs 25 years) which reduces the risk of assets becoming uneconomic or stranded in later life.
Small scale gas plants can only be viable by qualifying for capacity market payments, which essentially cover all of their fixed and capital costs.
As Timera noted in another post on the latest Capacity Market auction earlier this year, peakers can only afford to run at times of peak prices:
The replacement of mid-merit with peaking plants, accelerates a trend established in the previous three auctions. While it fulfils the government’s goals in a capacity accounting sense, it will have some important implications for wholesale market pricing dynamics.
Changing stack shape is set to support super peak prices. The removal of coal units means prices will more often need to rise to bring on gas engines during periods of high net system demand.
Indeed, as Timera also explain, most of the profit for peakers arises from hedging operations (see here). In essence, bets or hedges are made on future prices. If prices are higher, operators take the profit margin. If prices are lower, they take the hedge. (The actual market is much more complex than I can explain here, as the Timera piece details).
But going back to Ambrose’s article, there is no possibility of peakers replacing the need for large gas plants, which she implies. You might just as well argue that diesel engines could replace Hinkley Point.
Given the intermittency of renewable energy, there will still be a need for large amounts of reliable and flexible baseload capacity, which small gas plants are not capable of supplying. They certainly won’t do anything to balance the energy system as old coal-plants are shut down, as she claims.
via NOT A LOT OF PEOPLE KNOW THAT
May 9, 2018 at 08:30AM