January 19 (IPS) – Not for the first time, global energy markets have been mixed. International gas prices are more traded quadruple by 2021. In their judgment, many energy suppliers have gone bankrupt and household bills across Europe are set to soar. Energy prices are driving up the cost of living and inflation, but it’s also time to realize the old adage: “never waste a good crisis.”
Some causes of sky-high energy bills are inevitable – there is little that most governments can do about wholesale gas prices. Fossil fuel companies make huge investments that take years to mature, a breeding season for moderate prices, followed by a squeeze in supply as prices skyrocket. Gasoline prices have fallen over the last decade and the arrival of a pandemic in 2020 has dented demand.
Areas that have no domestic gas supply or have exhausted most of their gas reserves in recent decades will get a lot of gas by importing it. Europe’s periphery, including the UK and parts of the Mediterranean, argue that they can rely on a global supply of liquefied natural gas.
However, tankers from major gas producers such as Qatar could move to Europe or Asia depending on the highest bidder. Now there is a scramble, and Asian demand prevails.
The knock-on effect on energy bills is amplified in the UK and other countries in Europe, where electricity is organized through wholesale markets (in which generators bid to operate if prices are high). both suitable) and where most homes rely on gas for heating.
The average home energy bill in the UK, which has grown to more than £1,200 (US$1,630) in 2021, is predicted to rise by about 50% by 2022. Up to half of the increase will not come from the gas you burn, but from the impact of gas on electricity prices.
So why is the gas price crisis shown so strongly in the electricity bill? After all, gas generates less than half of electricity – less than 40% in the UK and only about 20% throughout the EU.
Renewables generate more than a quarter of UK electricity, nuclear and imports another quarter. What is the cost of generating electricity from wind and solar? collapsed in the past decade globally, a reduction of more than 40% for onshore winds and further for Offshore wind and solar energy.
The final fixed-price government contracts offered for offshore wind in the UK – hardly the cheapest of renewables – were less than 5p per kilowatt hour (kWh). That’s less than a quarter of the typical domestic rate (the level most people pay for electricity at home) that consumers face in 2022. Households are paying many times more for electricity than they would have. at current prices to generate and transmit electricity from the cleanest energy sources at scale.
Power system design has not kept pace with the renewable energy revolution. Competitive electricity markets, set up in many countries to try and reduce costs, are actually experiencing the biggest price increases. This is not because governments elsewhere use taxes to subsidize electricity prices (although some do), but because in wholesale electricity markets the most expensive generator sets the price.
Since renewables and nuclear will always run when they can, that’s fossil fuels – and now, obviously gas, plus the cost of a CO tax? pollution – this causes prices to be almost always set, because some gas plants are needed most of the time, and they won’t run unless electricity prices are high enough to cover operating costs their movements. It’s like paying the peak price for every train you take.
If renewables are so much cheaper now, why can’t consumers buy electricity directly from them and avoid paying gas and carbon costs?
A new golden age
Energy markets are not designed to deal effectively with sources like renewables that cost a lot to build but much less than using fossil fuels. Governments offer long-term, fixed-price contracts to generators to produce their renewable energy. This is the biggest driver of investment, while competitive auctions of these contracts, for companies looking to build renewable energy, have cut construction costs the most.
In contrast, households and other small consumers are rarely able to purchase fixed-price contracts more than a year or two in advance, due to uncertain wholesale prices coupled with competitive government incentives for conversion. between suppliers.
Electricity generated from renewable energy contracts is fed into the rest of the system, helping to balance variable output from renewables by generating more or less from conventional sources.
That complements about about 1p per kWh compared to the cost of renewable electricity in the UK and Europe. Even taking this into account, the gap between cheap renewables and ultimately expensive electricity is becoming unconscionable.
A decade ago, many energy experts predicted a “the golden age of gas“. Countries will likely continue to burn gas for a number of years. But with efforts to cut emissions and the advent of cheap renewable energy, electricity is likely to dominate the future energy system, powering heat pumps, electric vehicles and more.
The golden age of electricity cannot come as long as electricity prices are determined by fossil fuels and their carbon cost.
How will the electricity market align with renewables? In the study, I led with my colleagues in electricity price, we proposed a green energy group that would consolidate long-term contracts with renewable energy power plants and sell electricity to consumers. Prices will mainly be driven by the actual investment cost of the generator set up, rather than the gas-powered wholesale markets.
When not enough renewable energy is generated or stored – such as on cold and quiet winter days – the green energy group buys electricity from the wholesale market for a limited time and in limited quantities.
To reduce those costs (and emissions), contracts can offer discounts to customers who can use electricity outside of peak times, or customers with two-way tram connections who can sell electricity. back to the grid.
It won’t happen overnight. It won’t cut the bill tomorrow. But new electricity needs a new market – one that cuts energy bills while decarbonizing the energy system.
Michael Grubb, Professor of Energy and Climate Change, UCL
This article was republished from Conversation under a Creative Commons license. Read original article.
© Inter Press Service (2022) – All rights reservedOrigin: Inter Press Service
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