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FiTs And Starts For The Solar Economy

Politics / Solar Energy Apr 01, 2014 - 06:00 PM GMT

By: Andrew_McKillop


Nadeem Walayat Explains in his most recent article on the follies of UK government attempts to “go low carbon” and self righteously pretend it is Saving the Planet from global warming catastrophe, Nadeem Walayat explained what solar feed-in tariffs really mean. Under the former New Labour regime paying FITs of 44 GBP pence or about 70 US cents per kilowatthour for Home Solar producers, pricing their electricity output at 1120 US dollars per barrel equivalent of energy (1600 kWh per barrel), they would have every reason to do the following.

Buy their electricity from the grid at about 5 times less than that, and use it to shine bright lights on their solar panels, and get 5 times more what they spent of grid electricity for their Home Solar output! More astute home producers could buy fake solar PV panels – similar to carved stone cell phones sold in low income developing countries -  and plaster them around the roof.

Why not? The national Feel Good at “doing something” to avert the so-certain global warming catastrophe would be supplied, and give a lovely profit to charlatans.

The downstream effects of this on the energy economy are also easy to explain.

European governments including the regime of David Cameron are increasingly adopting a strident tone with the electricity producers and distributors. The government line is that electricity prices in Europe are among the highest in the world – so why are the producers not investing? Their profits are “obviously” out of the roof, in fact on the roof if they have solar panels draped around them to cash in on government folly.

Total Disconnect With Reality

The so-called “legacy power producers” face a chaotic future, and respond that way. Their legacy business model and economic rationale has been trashed. The new renewables, wind and solar power, are ultra intermittent generators and can span from near total capacity output to almost zero in minutes or hours. Household consumers however expect reliable and constant electricity supplies – like industrial and commercial users.

If they also want near-total renewable-source electricity generation – and that is not sure – they will have to expect a lot of problems, all of them with an expensive bottom line. Germany, in 2013, proved that an advanced-developed nation with remaining large industrial power demand can produce about 26.5% of its total year-round power supply from renewable sources. Not 56.5% or 86.5%. Getting there has been a sweat, however, and the playing field is tilted ever upwards. Only in exceptional cases such as Iceland or Norway with small populations and large constant-supply renewables (hydro and geothermal) is it easy to “ramp up the renewables” for power generation.

The legacy power producers worked on a previous, easily learned and easily satisfied technical paradigm of “baseload plus peak”. This paradigm does not work when intermittent renewables are ramped up beyond technical limits of possibly 30% of national power on a year-round basis. Something has to give. In Europe, it was the business model of the power producers and distributors.

Denial of these simple realities with complex impacts right across the power sector, from generation to transport, distribution and final utilization, is where we are at in the UK case and elsewhere in Europe. Likely the most extreme folly, shown in the UK solar case, is to treat intrinsically distributed and widespread intermittent solar power, as a power source able to be centralized and re-distributed. In other words solar electricity should be produced and used locally, and any surplus power should be dumped.

Germany also proves how fast the energy economy, and the economy adapt to a massive paradigm change for electric power and energy. Unexpected by the federal government of Angela Merkel, and unwanted by it, Germany's major industrial power consumers, including its vaunted world class car makers have moved rapidly towards “in-plant power autonomy” or self-generation. Facing unpredictable and high cost power supplies, they prefer to produce their own, using a mix of renewables and fossil energy for power generation. The Federal government is unable to stop that rational trend, which however makes the economic case for German development of wide-area smart grids (even total national coverage by smart grids) and linked development of super grid power transport “highways” even weaker than it previously was.

For the EU of 28 nations, the continental super grid concept to shift intermittently produced power from Portugal to Poland, and Scotland to Sicily, needing as much as 40 000 kilometres of new ultra high capacity grids, has been estimated by Eurelec and the ENTSO-E agency as possibly costing 350 billion euros and needing 25 years to build. This in fact is a massive denial of reality, of the basic energy economic sort, and almost certainly will never be built.

Solar FITs and Starts

The serial abandonment, starting with sharp reduction, of solar FITs is now Europe-wide. In the UK case the cut was from 44 pence/kWh under New Labour, to 14 pence/kWh today. Since January 2013, solar FITs in Spain (which attained over 40 euro cents per kWh) have been purely and simply terminated. The reduction of solar FITs, and (windpower FITs) is under way in Denmark, Germany, France, Italy and elsewhere.

This “taper down” and out of the FITs is a healthy trend, due to it restoring some pricing reality and transparency in the electric power sector, which had become a political plaything with disastrous final results on Europe's power production, transport and distribution industry. Rarely admitted by governments, “negative FITs” had operated, and still operate on conventional power production – notably through the murky, corrupt and inefficient European ETS emissions trading system, supposedly able “by financial market means” to transfer and confer value on Low Carbon power. On the basis of ETS, large power companies such as Germany's No 1 producer E.On had foolishly invested in a large fleet of “state of the art', high-cost, low emission gas-fired power plants.

As the value of ETS permits dropped to their real intrinsic vale – of zero – the penalty on coal-fired producers also declined towards zero, and the advantage for much lower-emission gas power plants disappeared. E.On was left with a nonperforming asset! Even worse, the phasing out of FITs means that increasing tranches of Europe's new renewable power capacity and supply are also uneconomic.

Governments will have to face this reality, instead of bandying slogans and accusing the power companies of market-rigging, price fixing and cartelistic behaviour.

Solution will include government support to, instead of disapproving and attempting to thwart the rational decision by large industrial and commercial power consumers to self-generate, which in fact is a trend dating from the Industrial Revolution in Europe. At the household and residential level, local and district combined power-and-heat Energy Centres are the rational way forward – rather than the totally individualized “home power producer” model.

As at present, as shown by the UK, the so-called Low Carbon Imperative is a farce and to use a keyword of the Global Warming boomers, is completely unsustainable.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2014 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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