CCS Fund Ditched

I suppose it was a good day to bury bad news. Quietly announced in the wake of the Chancellor's Autumn statement was a decision from DECC to withdraw the £1bn fund ring-fenced for commercialising CCS. Now, our team was pretty miffed not to get through to the final two in the early stages of the competition. I bet the Peterhead and White Rose players are spitting blood. While CCS is never going to be cheap it has the advantage of being applicable to fossil fuel combustion on a 24-hour basis, alleviating the problems of intermittency inherent in many renewable technologies. So as part of a decarbonisation package for the nation it should have had a major role to play. Possibly, it still could but this has to be seen as a giant leap backwards for the UK.

Britwind H15

The Britwind H15 is claimed to be set to a game changer as far as small wind generators are concerned (I hate the fact that they are called wind mills - they are not milling anything, at least not directly). I hope it is, but I've seen too many "game changers" that were withdrawn at half time so I'm not holding my breath.

Amber's Reset Speech

'Twas something of a curate's egg wasn't it? Yes, phasing out coal-fired generation is a good move. But replacing it with gas, still strongly CO2 producing and mainly imported, does smack of mixed objectives and but minimal commitment to climate change targets. Also heavily subsidising nuclear while kicking renewables in the proverbial teeth doesn't seem particularly coherent.

It's good that finally HMG appears to be waking up to the fact that UK energy policy is a mess. The worry is that we're in a frying pan to fire scenario.

Energy Isn't The Problem, Pollution Is

The title of this post is a direct crib from an article on the rebound effect by Peter O'Connor which has been reposted by Rod Janssen. I wish I had coined that statement - it drives right to the heart of the "energy saving" movement. "Energy saving" is used as a proxy for pollution reduction. Really what it's driving at is a reduction in energy conversion and thus the consequential side effects. Conversion of the chemical energy tied up in fossil fuels to mechanical energy in a rotating turbine to electrical energy from a generator results in emissions of CO2, SO2, NOx etc. from the initial combustion process. Provided that energy saving policy is clearly geared to pollution reduction that's fine. It's when objectives come to be distorted that problems arise.

Coming back to Peter's article - it's worth a quick read.

Batteries - Some Demand Side Movement

Rod Janssen has recently re-posted an article by Chris Mooney in the Washington Post on recent developments in the US large battery market. The main thrust is an increase in demand side pull, mainly for peak lopping but also for back-up, coupled with a willingness on the supply side to provide such facilities. Tesla's power packs are to the fore. Such activity is good news, not really for the direct impact it will have, but because it adds to the innovation stimulus to seek more efficient and robust batteries and/or fuel cells.

Empty Promises: G20 Subsidies to Oil, Gas and Coal Production

No chuntering on from me this time - just read this - shameful!!!

That Letter: Rudd Thrashing Around To Find A Solution

That letter from Amber Rudd leaked to the Ecologist recently speaks volumes. "The absence of a credible plan to meet the target carries the risk of successful judicial review, and failing to meet the overall target in 2020 could lead to on-going fines imposed by the EU Court of Justice (which could take into account avoided costs) until the UK reaches the target level." Quite! And what does Amber propose to do about it? For one, boost renewable heat. Oh, come on, Amber - even you acknowledge that delivery would be "subject to significant uncertainty as the market for renewable heat is at an early stage".  OK then, how about purchasing from abroad via the new Norwegian interconnector? This sounds like a good way of transferring business and jobs out of the UK to me. And in any case the interconnector is not expected to be operational until late 2021. Funnily enough there is no mention of wind and solar - the two technologies that Rudd seems determined to kick in the groin. It's time she climbed down off her ideological horse!

UK Fracking - The Elephants in the Room

While HMG appears desperate to get UK fracking up and running, ostensibly to bridge the upcoming energy gap (coal plant closures from next year and nuclear closures by 2023, North Sea depletion) there are many siren voices warning of all sorts of problems.

Let's consider the "direct" issues:

1) Air pollution - leakage of CH4 from fracking schemes is poorly understood but probably manageable;

2) Waste water - a contentious issue in the US but there regulation is lax. Again, in the UK it should be manageable;

3) Casing leaks - just make them more robust and monitor them;

4) Earthquakes - may happen but likely to be very minor;

5) Underground migration - could be an issue but good prior geological surveys should tell one where not to drill.

And now the elephants. There are two:

1) Time - it will take ten years or so for any meaningful production. That's too late to cover the issues raised at the top of this piece;

2) Combustion emissions - CO2 targets go out of the window if fracking does take off - even if all it does is displace coal. Displacing renewables would be a disaster.

Political inertia and incompetence by parties of all colours have brought us to this sorry pass and now HMG finds itself between a rock and a hard place. Increasing efficiency of use and demand reduction have to be the order of the day. And that will be no easy task.

Simple Modelling of PV FiTs

I've chuntered on, recently, about the stupidity of HMG's flip-flop management of renewables' FiTs. When I had my own solar PV array installed I analysed all the offers with a simple discounted cash-flow model. I still have that model (available to anyone who wants it on a no-liability basis) so I thought I'd run a couple of tests to see just how reasonable, or otherwise, HMG's proposals are.

I ran these tests on the orientation parameters for my own scheme (orientation 220 deg, pitch 40 deg) which are not perfect but adequate enough to produce a reasonable return based on the capital cost and FiTs pertaining at the time. I'm on course for an undiscounted payback in year 9 and an IRR over 25 years of 10.9%.

Plugging in the FiT rates for the first quarter of 2016, assuming long-run inflation to be 3% (with electricity prices inflating at the same rate), applying a discount rate of 4% and assuming that a 4 kWp scheme could be installed for £6750 gives a simple payback in year 10 and a discounted payback in year 15 (which includes the cost of a new inverter at year 12). The IRR for this scheme is 9.2% with an NPV at year 25 of £4470. That seems to me to be quite reasonable given the risks associated with such a project.

Now if I just plug in the proposed FiT of 1.63 p/kWh and keep everything else the same, undiscounted payback occurs in year 22 and on a discounted basis the project is still under water at year 25. Who would want to invest in a scheme like that? It's no wonder that some PV providers are already putting up the shutters.

Dropping the capital cost to £5000 would advance undiscounted payback to year 18 but the project is still just under water on a discounted basis at year 25.

If HMG is serious about hitting its renewables target they really do need to rethink the numbers here.

Addendum: I've just run a quick goal seek calculation. To achieve an IRR of 10% under the proposed FiT would require the installation cost of my example project to be £2785. Is there any installer out there prepared to offer at that level?