A New Electricity Pricing Paradigm?

General discussion of thorium and nuclear energy.
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Lindsay
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Re: A New Electricity Pricing Paradigm?

Post by Lindsay » Aug 18, 2014 1:55 pm

Eino wrote:Who is going to invest in this business that only gives a return during the "peak" hours? Will the rates be so high to get the necessary return as to be exorbitant?

Will the utilities be run by private organizations or public? With public, I could see rate bases being good for the common good. With private, the stockholders must be considered.

The Nuke plants that they are building in Georgia are pretty expensive. Despite the rhetoric that I've heard multiple times that building LFTRs will be cheap, I'll bet the capital costs will still be high. The turbine, generator, auxiliaries, substation and political gifts to the public do not come cheap. The combined cycle option will cost even more. The capital costs and interest charges will need to be paid back. I'd think the investors would not want to see any product given away for free.

If this is a "merchant" plant, the investors will want every penny. They will be out to maximize returns. They will scream at any Public Utility Commission (PUC) that comes up with a rate structure that gives things away for free. They will enlist the aid of the conservative groups who will howl about government regulations and welfare electricity. There will be a spate of articles about the death of capitalism and the usual nonsense.

Another aspect to this is innovation. A cheap product does not encourage innovation. We are speaking of LFTRs, a conceptual product worked on long ago at Oak Ridge. Will free electricity ever encourage the beancounters to loosen their pockets for new ideas? This is happening right now with the cheap natural gas. Necessity is the mother of invention. Few new nukes are being built in the US due to the gas supply. No innovative new nuke plants are being constructed due to cheap natural gas. Free electricity would have the same effect.

Yeh,....to cheap to meter is too high a price to ever be built.
You seem to have missed the point of the original question. Nuclear in general is high capital costs, high annual fixed operating
costs, but very low marginal costs for squeezing out one extra MWh. LFTR/MSR will be even more extreme in this regard because of very efficient use of fuel, i.e. very low marginal price of energy production. Given that their cost structures are fixed relative to their capacity why not bill on consumers that basis? That's the question.

The best answer as to why not is that there will probably always be peaking plants with high fuel costs, and for those plants to make an extra MWh they have to recover that fuel cost in an energy price ($/MWh), unless the use of peakers becomes so limited that they become ancillary service and not a transparent open market participant.
Who is going to invest in this business that only gives a return during the "peak" hours?
The capacity payment would only be available to plants who were on line or available 85%+ of the time and covering 90%+ of all coincident peak demand periods.

E Ireland
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Re: A New Electricity Pricing Paradigm?

Post by E Ireland » Aug 18, 2014 2:02 pm

It all depends how much people can be persuaded to pay for a kW of capacity available whenever and wherever they want.

If it is enough to cover the cost of the reactor then it becomes irrelevant what the capacity factor of the reactor is.

Cyril R
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Re: A New Electricity Pricing Paradigm?

Post by Cyril R » Aug 18, 2014 3:28 pm

I think Eino has a couple of good points. A system with less profitability (even on the margin) isn't going to be greeted with open arms by the people who actually have to buy and/or own the powerplants.

Interestingly though, there are quite successful systems that use this pay-for-capacity concept. Most notable is probably modern high capacity internet. You pay per month, and it doesn't matter how many bytes you download. Abuse is not tolerated though, even here. So called "fair use policy" means that if you use 100% of the capacity even 50% of the time, you will get warning messages and then you can get cut down on speed or cut off.

Technically I think what is needed regardless of pay per capacity or pay per energy, is a system that reflects scarcity. At night there's more power, so power should be cheaper to encourage people to use more of their power at night. The pay per capacity system doesn't reward people as precisely as the pay per energy system, for using power at night. So I think the pay per energy system is still the best way to go on balance. It is better for efficiency (pay per capacity is extremely wasteful, judging by my own internet use). It is better for demand management.

It is not just about cost. Scale and profitability are equally important. Selling electricity at the marginal kWh for 0 cents is not going to be profitable for investors. That's a no show already. Even if your capacity costs nothing, selling the marginal kWh for 5 cents is still going to make a heck of a lot more money than selling it for 0 cents.

Households aren't even that important in the grand scale of things. Industry is more important. Industry already uses the capacity model - they often build their own powerplants or CHP units. They buy the capacity all at once and then only have the low running and fuel costs remaining.

The energy problem is big and scary enough without us actively seeking to be more wasteful with it. If you consider just giving 1 kWe to every person on the globe, that's 10 billion kWe, 10000 GWe. 1 kWe is not that even that much.

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Re: A New Electricity Pricing Paradigm?

Post by Lindsay » Aug 19, 2014 12:00 am

Here's an alternate way of looking at things, let's imagine our future MSR/LFTR utopia where 90%+ of the electrical energy produced comes from MSR's or LFTR's. During periods of excess capacity, generators price to their marginal cost of production, let's call that $5/MWh for the sake of argument. As the number of on-peak hours reduces the price during those periods has to be very high to recover enough cash to pay for the power plant, let's imagine that there are 3 hours a day of on-peak operation.

To provide a 9% return to investors on a $2,500/kWe plant with fixed opex of $50/kWe per year, at 90% load factor the power plant must earn $1,100/MWe per operating day we can slice that multiple ways.

Fixed Price Capacity: $1.10/kWe per operating day; or

21 hours a day at $5/MWh followed by 3 hours at $332/MWh

For the latter the delta between high and low prices is massive, if 10% of consumers change their behaviour to avoid paying $332/MWh, all of a sudden the price snaps back to $5/MWh but now for 24 hours a day and generators go broke if the situation persists. If there is a drop in demand or someone builds just one power station too soon, you tend to get the same result. That's not investing, that's playing Russian Roulette. The first rule of running a profitable business is that first you must survive.

While this is a simplified example, the underlying drivers are correct for generation with low short run marginal cost (SRMC) and reasonably high capital cost. All for a open market with a large number of participants and no constraints. In such a system, spot energy prices will tend to bounce around between outrageously high and ridiculously cheap with little certainty of annual income for generators.

I think that what would happen in reality is that the open cycle GT peaking plant step in to cover the evening peak at say $75 - 150/MWh limiting the number of MSR's that get built and extending the number of higher priced hours per day. And all the economists would say "That's very economically efficient", but we'd still be burning quite a bit of natural gas. A capacity based billing system would avoid that and allow 100% MSR/LFTR power, generators would have certainty of income, consumers would have certainty of their monthly and annual power bills.

E Ireland
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Re: A New Electricity Pricing Paradigm?

Post by E Ireland » Aug 20, 2014 8:26 am

I decided to attempt to price us some numbers for this idea.

According to Ofgem the UK spends roughly £4.4bn per year to maintain the electricity distribution system - another ~£1.5bn or so goes on the maintenance of the National Grid (The 400kV and most 133kV circuits).
So lets just say ~£6bn for argument.

The peak load on the grid is roughly 85GWe - so we will assume that the grid is very close to its maximum feasible output at that time.
That implies that each kilowatt requires roughly £70 per year.
That is approximately $115/kW.yr.

A $3200/kW nuclear power plant with the current non inflation adjusted 30 year gilt rate of 3.1% would require annual payments of $165/kW over 30 years.

Additionally the operating costs of a nuclear power plant come out at approximately one cent per kWh - which iis roughly $90/kW.yr

That brings us to a total cost of $370/kW - not including various sundry charges such as billing (which should be reduced compared to the current system as 'overrun' charges can be collected at annual intervals rather than quarterly as now as they should be very small).
Call it $400/kW.

I don't know how that compares to current billing in the US but that is roughly £240/kW.
The average electricity bill is something like £630/yr which means the electricity supply alone would provide roughly 2600W - which means they would be fine apart from kettles and possibly using electric hobs.
However - using computer controlled load shedding systems on interruptible heating loads you should be able to replace the gas system as well.
The total average UK energy bill is roughly £1265/yr.
That means you would be able to purchase 5300W with that.

That is an awful lot - I doubt you would ever run up significant 'overrun' charges on that, and it probably means you can reduce the capital cost of houses by using mainly resistive heating and spending less on insulation.
A flat charge per kilowatt is also likely to overstate the cost of larger supplies - it might be better to have a higher rate for the first kilowatt and then a lower charge on top, to represent that a transformer with twice the capacity does not twice as much to maintain.

About the only thing that might cause problems is rapid charging of electric cars - but you might just have a 'trickle' charging battery pack in your garage to handle that. Another thing to note that a 5300W average for a house would put the 'domestic' electricity demand up to something approaching 150GW..... several times higher than now.
With commercial demand and industry I doubt you would get much change out of 200GWe.
Truly the atomic future.

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Re: A New Electricity Pricing Paradigm?

Post by camiel » Aug 20, 2014 2:55 pm

I read a response to Charles Frank's recent study on the high cost of renewables in this week's edition of The Economist, which also touches upon electricity pricing. The response is written by Michael Grubb, a professor of international energy and climate policy at University College, London. I quote his response in full:
Misdirected energy

SIR – A recent Free exchange column (July 26th) asserted that “wind and solar power are even more expensive than commonly thought”. But the column made the fundamental mistake, based on an inappropriate measure, of assigning system costs to specific technologies and ignoring innovation in the system. It thereby perpetuated a myth dispatched by research many years ago about the high costs of intermittency in renewable energies.

Adequate capacity is a statistical property of the system. Whether or how much any given source contributes to that depends on its availability at times of need. The cost of backup hinges on the cheapest way of ensuring reliability. Yet the studies that you cited ignore all the systems research in this area, which contains three broad conclusions.

First, the most relevant measure is cost per kilowatt hour; cost per kilowatt is almost irrelevant, since people buy energy, not capacity. Second, the assignable cost of “backup” is modest and indeed can work either way: it amplifies the value of solar power in areas with air-conditioning peaks and the greater output of wind during winter enhances its value per megawatt hour in northern Europe, for example. Third, innovation and development of the system itself can radically reduce backup costs. Indeed, progress in energy efficiency, smart meters, distributed generation (including industrial backup plants) and pooling through interconnectors, in Europe and California, suggest there may be no need for dedicated new backup at all.

It certainly cannot be equated with the cost of new conventional capacity assigned per megawatt to renewables.
I was really mystified by this response, a professor of international energy arguing that the cost per kilowatt is irrelevant and that backup costs are just modest. I wonder with what kind of "Ivory Tower" electricity pricing system he would come up with.

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Re: A New Electricity Pricing Paradigm?

Post by Joshua Maurice » Aug 20, 2014 3:10 pm

Cyril. Indeed. It's completely mystifying.

The part that really sticks in my craw is where this professor argues that people pay for energy, not capacity. I don't even know what to say to that. You're telling me people would be ok if their houses received 2x power during the even numbered hours, and 0x during the odd numbered hours? Or even numbered days vs odd numbered days? This is so laughably false that I don't even know what to say.

Perhaps he meant to say something like: "People do buy capacity, not mere daily-average energy, but with appropriate enhancements to the grid and system, the costs are about the same." Most of his piece seems to defend that hypothesis. However, that's not what he said. At best, it's a problem of miserable communication and writing skills. IMHO we have two more likely possibilities. 1- He doesn't understand what he's talking about, and he actually believes this drivel like a dogma. 2- He's willfully lying and promoting a dogma he knows is false. Any way you slice it, it's not good.

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Re: A New Electricity Pricing Paradigm?

Post by HolgerNarrog » Aug 20, 2014 3:26 pm

Well in Switzerland the electricity bill is split between a base fee and charges per kWh. You can choose between nuclear electricity (lowest cost) and green electricity (highest cost).

The electricity demand in Germany fluctuate between 40000MW in a sat/sunday night in summer and +80000MW in a cold winter work day. The generating capacity without renewables is about 110.000 MW is not in surplus as spare capacity is needed in the different regions.

Nuclear requires high investment while the fuel costs are very low. A nuclear share above 50% would be in the actual cost situation not really appreciable. The cost of new power plants needs to be reduced drastically to make it attractive for a higher share of generated power.

Till today it seems to me that I`m the only one who sees the simplification and cost optimization of nuclear power plants as primary target.

E Ireland
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Re: A New Electricity Pricing Paradigm?

Post by E Ireland » Aug 20, 2014 4:33 pm

Its quite simple what pricing system this professor has in mind.....

He wants all supplies to have prices that vary from one second to the next - in line with the wholesale prices on the market.
Glorious free market price signals will then force the poor to stop using electricity at capacity constrained times.

People will be forced to base their lives around the availability of energy.

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Re: A New Electricity Pricing Paradigm?

Post by Lindsay » Aug 21, 2014 3:25 am

camiel wrote:I read a response to Charles Frank's recent study on the high cost of renewables in this week's edition of The Economist, which also touches upon electricity pricing. The response is written by Michael Grubb, a professor of international energy and climate policy at University College, London. I quote his response in full:
Misdirected energy

SIR – A recent Free exchange column (July 26th) asserted that “wind and solar power are even more expensive than commonly thought”. But the column made the fundamental mistake, based on an inappropriate measure, of assigning system costs to specific technologies and ignoring innovation in the system. It thereby perpetuated a myth dispatched by research many years ago about the high costs of intermittency in renewable energies.

Adequate capacity is a statistical property of the system. Whether or how much any given source contributes to that depends on its availability at times of need. The cost of backup hinges on the cheapest way of ensuring reliability. Yet the studies that you cited ignore all the systems research in this area, which contains three broad conclusions.

First, the most relevant measure is cost per kilowatt hour; cost per kilowatt is almost irrelevant, since people buy energy, not capacity. Second, the assignable cost of “backup” is modest and indeed can work either way: it amplifies the value of solar power in areas with air-conditioning peaks and the greater output of wind during winter enhances its value per megawatt hour in northern Europe, for example. Third, innovation and development of the system itself can radically reduce backup costs. Indeed, progress in energy efficiency, smart meters, distributed generation (including industrial backup plants) and pooling through interconnectors, in Europe and California, suggest there may be no need for dedicated new backup at all.

It certainly cannot be equated with the cost of new conventional capacity assigned per megawatt to renewables.
I was really mystified by this response, a professor of international energy arguing that the cost per kilowatt is irrelevant and that backup costs are just modest. I wonder with what kind of "Ivory Tower" electricity pricing system he would come up with.
That's quite amazing, based on this statement I would say that Mr Grubb has no knowledge of how a real-time power system operates or the relevant economic factors that drive it, almost no clue at all, quite staggering.

E Ireland
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Re: A New Electricity Pricing Paradigm?

Post by E Ireland » Aug 21, 2014 4:03 am

Once you abandon the idea of price stability, as smart gridophiles do, then supply and demand removes the need for dedicated backup, as he says allow prices to go high enough and what little demand remains can be covered by industrial diesel generators.

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Re: A New Electricity Pricing Paradigm?

Post by Joshua Maurice » Aug 21, 2014 3:45 pm

Once you abandon the idea of price stability, as smart gridophiles do, then supply and demand removes the need for dedicated backup, as he says allow prices to go high enough and what little demand remains can be covered by industrial diesel generators.
I don't want to start anything political, but I do want to point out the irony in case anyone missed it. Here we have a presumably left-leaning professor, solar and wind renewable advocate, smart grid advocate, arguing for unrestrained free markets, no regulation, and no social/government control to guarantee prices and availability. I find it quite ironic.

E Ireland
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Re: A New Electricity Pricing Paradigm?

Post by E Ireland » Aug 21, 2014 4:06 pm

But remember the grid is to become unnecessary in the glorious future where we all live on homesteads in some sort of neoagrarian paradise. (And remember I am possibly the furthest left of any person on this forum)
Last edited by E Ireland on Aug 21, 2014 7:12 pm, edited 1 time in total.

Lars
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Re: A New Electricity Pricing Paradigm?

Post by Lars » Aug 21, 2014 6:43 pm

Joshua Maurice wrote:
Once you abandon the idea of price stability, as smart gridophiles do, then supply and demand removes the need for dedicated backup, as he says allow prices to go high enough and what little demand remains can be covered by industrial diesel generators.
I don't want to start anything political, but I do want to point out the irony in case anyone missed it. Here we have a presumably left-leaning professor, solar and wind renewable advocate, smart grid advocate, arguing for unrestrained free markets, no regulation, and no social/government control to guarantee prices and availability. I find it quite ironic.
I would be fine with a free market approach - but then you must give up on forcing the utilities to buy a certain percentage of their energy in the form of wind & solar and the requirement that they allow net metering. They should be allowed to contract long term power purchases. What the renewable advocates push for is far from a free market.

Joshua Maurice
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Re: A New Electricity Pricing Paradigm?

Post by Joshua Maurice » Aug 22, 2014 6:47 am

Agreed Lars.

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