Too small to regulate…
…Inching towards a significant change in the size distribution of market participants in the UK Electricity industry.
Typically building significant new generation capacity is a big deal. In every sense of the phrase. The electricity policy of the UK government is largely about negotiating with large, vertically integrated utility companies about generation plants that are each about 1% of the UK’s installed capacity. Utility companies have focused on large developments. Certainly, the ones you have heard of have. The government has taken an interest in micro-generation and put in place some policy measures and financial incentives to encourage small scale generation. The government recognises the potential of distributed small and micro-scale distribution. However, by and large, the real action has been on giga-watt sized plant. This post explores how technological and market changes that are unfolding now may change the demographic of electricity generation market participants and some of the implications for policy makers and large scale investors.
Two examples should demonstrate the technological and market changes that I think are happening. They are the Ceres residential sized fuel cell driven combined heat and power (CHP) kit and a number of domestically sized Vertical Axis Wind Turbines. These products demonstrate that the market might be about to make offerings to consumers that bypass the Grid, and therefore bypass policy controls on Grid connected participants.
The Ceres machine uses a fuel cell technology spun out of Imperial College. The idea is to offer a residential CHP plant that will fit into the same space as a typical domestic gas boiler and easily connect with domestic gas and hot water systems. The plant is to be mass produced using as many off the shelf components as possible. The product has been tested in some volume and Ceres are beginning to mass produce the kit. The kit should provide the hot water needs of a typical dwelling along with the electricity needs of that building. Electrical capacity is 1kw.
As the unit is gas powered it is very flexible and despatchable. It is designed to have a heat to power ratio that favours running the unit to generate baseload electricity. At current gas, electricity and carbon prices and with current Feed-In Tariff (FIT) support Ceres reckon that a typical user will save a little over £600 on their energy bills a year. The product price has not been released but a £600 pound saving is worth a sizeable up-front investment.
The current FIT arrangements for residential CHP in the UK provide support at 10p per kilo watt hour electric (kwh-e) for generation consumed on site, with 3p per kwh-e for power exported to the grid. The onus of the policy appears to be on encouraging people to produce and consume their own energy. These support levels are fixed for ten years for the first 30,000 units installed and reviewable thereafter. In the grand scheme of things 30,000 units is not a huge number. It amounts to 30 mega-watts. To put this in context the size of the typical power station you will be protesting about over the next ten years is 1-2 giga-watts. The total UK installed capacity is around 77 GW. As more wind and marine capacity comes on line this is set to rise to approaching 130 GW. 30 MW is about 0.04% of current installed generation capacity. However, if these units work and deliver savings independent of the FIT support and you are replacing your boiler anyway why would you not replace your boiler with a CHP micro-generation plant? I cannot think of a reason why not.
There are approximately 22 million households in the UK. The UK will probably build a new fleet of nuclear power plants over the next decade and half. Boilers last about a decade and a half. If half of the 22m households replaced their boilers with a Ceres (or similar – although other brands do not appear to be available) micro-CHP plant I make that 11 giga-watts of installed capacity. Adding in the 10% line-losses avoided that is equivalent to just over 12 GW of capacity. That equates to the nuclear fleet. Running at a capacity factor of 50% micro-CHP units could produce 48,000 GWh a year or 13% of the UK electricity demand.
The second example is Vertical Axis Wind Turbines (VAWT). These differ from the more traditional windmill style Horizontal Axis Wind Turbine (HAWT) in that the blades are orientated up and down, rather than radiating from a central hub and the turbine shaft sits up and down and spins horizontal rather than the shaft running front to back. Think turning round and round using your feet rather than waving your arms round. Examples are the Quiet Revolution qr5 to be found on the new building at the Royal Botanical Gardens in Edinburgh.
The link below should help.
There is some controversy about the effectiveness of domestic wind turbines. It appears that the amount of wind in urban areas has been over estimated and current offerings for domestic wind turbines do not work well, or at all, at the actual average wind speed in an urban environment. Urban wind speeds average 4 meters per second, most micro-wind turbines do not work below 5 m/s. I expect that market pressure will encourage manufactures to find a solution to this mismatch. I’ll return to these issue in later posts but in the meantime please see
I am going to base my comments largely on the performance that wind turbine manufacturers are claiming rather than achieving because I want to illustrate a future position. I will temper them to reflect the recent report by the Energy Saving Trust on domestic wind turbines.
VAWT’s have a couple of advantages over domestic HAWT’s. They are quieter which means they do not disturb the neighbours. They perform better in the choppy wind conditions that are common in urban areas. They take up less room across the way, so you can pack them in a bit closer. Manufacturer guidelines suggest you can place them within 10m of each other. That’s one per domestic plot. Outputs range between 1kw and and 6kw.
The Energy Saving Trust report estimates that at current technical capabilities and economic some 450,000 sites are suitable for domestic sized wind turbines. They estimate that these sites would produce 3,459 gigawatthours a year. This is approximately 0.9% of the UK’s electricity demand of 380,000 GWh. I think domestic turbine manufacturers will be able to solve their technical difficulty and provide a product that will suit many more of the UK roofs. Let us be bold and say in ten years time ten times as many roofs will be able to sport a micro-wind turbine. This lifts micro-wind generation to 9% of UK electricity demand.
Two micro-generation technologies could conceivably supply up one fifth of the UK electricity demand. The key thing about them to pull out from this essay is that neither of these technologies is controllable by the government and they are not dependent on the muscle of a global energy company. They don’t need Section 36 or Section 37 consents or planning permission. If the economics work for your household you can phone up and buy one with no more fuss than would buy a car. These are small pieces of kit that will flow off a production line in China in kilowatts an hour rather than lumps of gigawatts a year. There is no two year waiting list for a CCGT turbine shaft, no health and safety review of your design for your nuclear power plant, no sit in protest at your coal power station. In the time it takes the government to legislate for a new fleet of nukes and for them to be built the same generation capacity can be in the nation’s boiler cupboards and on their roofs without a civil servant or a energy modeller looking once at them.
Each of the technologies have some profound implications for the UK’s energy future. If Ceres takes off we install 12 GW of gas capacity with all that that brings in terms of strategic energy security and exposure to price volatility. If roof mounted micro-generation succeeds we introduce large volumes of non-despatchable capacity to our grid.
Whilst the technology and the economics are marginal at the moment, in energy industry terms this can change in an instant. In an industry where plant lifecycles are between 30 and 60 years the fact that a factory producing hundreds of megawatts a year could be built in 18 months the dynamics of electricity markets could shift very quickly. A billion pound project that looked economic when you started could be out of the money by the time you finish. No change there perhaps but who do you lobby to restrict capacity installation.
I have looked at two technologies that caught my eye in recent weeks. There are others. Run of the river hydro-power, anaerobic digesters producing biogas, energy from waste scheme, solar thermal, ground source heat pumps and solar photo-voltaic and a few more besides. Then there are my favourite and possibly the strangest idea you do not own shares in, the MARS airborne wind turbine. http://www.magenn.com/
All of them are small scale and therefore mass producible and their deployment is much more flexible than even CCGT’s. Some of these operate on a domestic scale, some on the scale of a local community. All are below the radar of central electricity authorities.
The conclusion that I draw from these two cases is there is the potential for large amounts of our energy industry to be placed directly in the hands of ordinary people who will make their own decisions about the economic, security and environmental acceptability of generation technologies. The electricity market becomes a mass market with many competing actors and a varied value chain, rather than a turgid vertically integrated discussion between a few thousand key actors. The very idea that energy markets could be placed directly in the hands of ordinary people should cause some heads to be scratched.