Home > Economics - General, Environment > Too cheap to meter

Too cheap to meter

April 26th, 2017

Reading about the UK National Grid recently, I came across the interesting concept of demand turn up. Unlike the usual form of demand side management, where users are paid to cut usage in periods of excess demand, demand turn up involves making small payments to users willing to increase demand when the supply from renewables exceeds demand.

This looks strange at first sight, but it simply reflects the fact that, once the capacity is installed, the marginal cost of renewable electricity is zero. In the short run, taking account of the costs of shutdown and startup, the marginal cost of electricity from an operating renewable generation source is negative*.

So, demand turn up is just an application of marginal cost pricing, the same as off-peak pricing for coal-fired power.

The broader point is that claims that the electricity supply system must have a large component of coal-fired to meet “baseload demand” reflects the assumption that the system must meet the demands generated by a pricing system set up for coal (or nuclear which is broadly similar).

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  1. Newtownian
    April 26th, 2017 at 09:48 | #1

    Good to see this ‘baseload’ paradigm highlighted here. (As you are probably aware) Mark Diesendorf and his students have been doing a lot in this area to develop an alternative much more flexible supply paradigm.

    The ‘baseload’ concept has unfortunately been turned into a furphy for justifying the need for big generation systems which cant be easily turned up or down in their output and the demand that more variable sources have to align with these systems. Ignoring of course the actual flexbility which has been widely available for decades – the use of energy storage spectacularly illustrated by the Snowy Mountains scheme in this country using pumping from high to low. There are of course others notably Sydney Water system at Fitroy Falls which doubles as a means for supplying water from the Shoalhaven during emergency periods.

    Malcolm’s fuss about expanding this was not totally stupid in principle at least.

  2. Ronald Brakels
    April 26th, 2017 at 10:04 | #2

    In Australia it generally occurs as a result of coal power station not wanting to go through the expense of shutting down and resulting in wholesale electricity prices going negative. It can also occur in South Australia from wind turbines earning LGCs during periods of high winds and low demand.

  3. Garry Claridge
    April 26th, 2017 at 10:20 | #3

    Could use it to charge batteries πŸ™‚

  4. Moz of Yarramulla
    April 26th, 2017 at 11:42 | #4

    Newtonian, the really ugly part of “baseload” is that Australia already has a pumped hydro scheme (Wivenhoe), but it’s owned by a coal generator so it’s almost never used (and it’s not in wikipedia’s pumped hydro list, oddly enough). We also have Tumut 3 as part of the Snowy Scheme.

    The only actual “too cheap to meter” power generators I’m aware of are domestic PV, which in some parts of the world is not metered at all (and in many others is only net metered). The one on my shed, for example, is not metered because it’s not grid connected πŸ™‚

  5. Happy Heyoka
    April 26th, 2017 at 12:05 | #5

    While energy storage is the obvious use (hydro, grid batteries, hot water, hot/cold storage, whatever) there is also the idea of opportunistic manufacturing processes… off the top of my head – small (and I mean small*) batches of metal recycling where returns are marginal at “normal” pricing but profitable when the energy is effectively nearly free.

    “Make hay while the sun shines” has become a proverb but it’s an actual example of such an opportunistic process.

    * I’m thinking of processes where a large process could be “packetised” to become the result of many many smaller process steps – perhaps each less efficient but collectively less risky (in the sense of pricing, energy supply failure and plant shutdown costs etc)

  6. Lt. Fred
    April 26th, 2017 at 12:37 | #6

    How price sensitive is the average household though? Is the effectiveness of demand management largely by influencing business decision-making? Or am I somehow missing the point as usual?

  7. Peter Rickwood
    April 26th, 2017 at 14:13 | #7

    Lt. Fred :
    How price sensitive is the average household though? Is the effectiveness of demand management largely by influencing business decision-making? Or am I somehow missing the point as usual?

    I’ve been involved in the statistical evaluation of a number of demand management programs, from peak demand pricing (i.e. higher prices during extreme events like heatwaves) through to trials of seasonal and time-of-use tariffs. I can assure you that the average household is sensitive enough to price that price is a useful lever to pull on if you want to affect behaviour. Especially for peak event management, this could make a big difference. Non-price measures would also work well (remote down-cycling of air-conditioners, mandatory efficiency standards, etc etc).

  8. April 26th, 2017 at 18:49 | #8

    @Happy Heyoka
    This reasoning should extend to catalysed hydrogen. Many investigators focus on conversion efficiency, which is irrelevant with an intermittent free supply. What matters for the economics is really low capital costs. Any advance on a big plastic tank of seawater and two stainless steel bars as electrodes?

    The other huge potential market would be carbon sequestration, but I’m not aware of any existing method.

  9. April 26th, 2017 at 18:58 | #9

    @Lt. Fred
    Think ahead here to intelligent home management systems: a few generations more of Nest and Siri. The computer will do all the switching appliances on and off in response to a price signal from the grid through the smart meter. All the householder will need to do is enter a list of preferences, once. Examples: the freezer, which can be run supercold when electricity is cheap and allowed to warm up to the limit temperature when it’s expensive; the EV overnight charger, which can be run any time as long as the car ends up full at 7 a.m.

  10. Happy Heyoka
    April 26th, 2017 at 19:11 | #10

    James Wimberley :
    @Happy Heyoka
    This reasoning should extend to catalysed hydrogen. Many investigators focus on conversion efficiency, which is irrelevant with an intermittent free supply. What matters for the economics is really low capital costs.
    The other huge potential market would be carbon sequestration, but I’m not aware of any existing method.

    Yes, energy storage via an intermediate fuel is an interesting concept. Hydrogen is clean and efficient but storing it is a pain (compressing it, embrittlement of tanks etc). It’s much nicer to work with in other forms – I know the US Navy has performed successful experiments to produce jet fuel with the excess power from the reactor of a carrier.

    The most ideal form of carbon sequestration is to leave it in the ground but reprocessing it with excess electricity production is a possibility.

  11. April 26th, 2017 at 19:18 | #11

    PS: and with cheap solar at noon, the janitroids can heat or cool streetfuls of empty houses then, flattening the early evening duck curve.

  12. April 26th, 2017 at 19:20 | #12

    PS2: Wodehouse made Jeeves much more intelligent than his employer Bertie. That’s our future.

  13. Happy Heyoka
    April 26th, 2017 at 19:35 | #13

    (not picking on you James, your comments are interesting)

    James Wimberley :

    Think ahead here to intelligent home management systems: a few generations more of Nest and Siri. The computer will do all the switching appliances on and off in response to a price signal from the grid through the smart meter.

    My own personal experience in the bureaucratic world with smart meter roll out has left me pretty disheartened. The main issue here is systems integration – who controls the standards (IP) which enable all of these things to talk together and how do you do it without requiring a network engineer to go to every house to spend a day configuring it?

    You tend to get cabals of companies trying to enforce their own IP to the exclusion of others (appropriate buzz phrases here are Bluetooth, Zigbee, Ethernet over Power and a handful of other less established schemes I won’t mention).

    The replacement period for these smart meters is required to be decades – so any widespread roll out is not going to happen quickly. This stuff is not new – I was involved in a software project for monitoring power use nearly 30 years ago; sure we have got faster and cheaper technology now but my point is that the technology itself is not the problem.

    We really need a high level authority (feds?) to push down on the peak bodies for the utilities to put the standards in place. Expect serious back pressure from the incumbent manufacturers to stop their standard being displaced. You can go to the all the meetings… I’m done with that bs πŸ˜‰

  14. April 27th, 2017 at 04:04 | #14

    @Happy Heyoka
    You are no doubt right that it’s a standards issue. IoT handles the basic communications layer, but it probably needs several layers on top of that. I’ve been puzzled and disappointed by the lackadaisical way Google and Apple, who have the intellectual and financial resources to fix this, have been approaching home automation. Contrast the money they have been putting into self-driving cars. Nest’s last big launch was an integrated webcam, big deal. There’s something wrong when there is more innovation coming from Amazon with a voice-operated intelligent loudspeaker (the Echo). Thinking incrementally will not crack this.

  15. Ikonoclast
    April 27th, 2017 at 06:56 | #15

    For household power, I think the future is a fully integrated package of;

    (a) solar panels (maybe the new nano-antenna ones which convert the whole EM spectrum not just visible light like the current ones);

    (b) evacuated tube solar hot water system;

    (c) reverse-cycle air-con / heating system (solar powered with smart passive design features, insulation and thermal ballast in floors, walls etc.) and/or solar hot water space heating;

    (d) battery storage (fixed and in electric auto);

    (e) grid connection (where viable);

    (f) integrated inverter and smart system which determines where to draw power from (panels, batteries, grid) and where to send power (household use, battery charge, grid) based on use patterns, time of day/night, weather predictions and most effective value destination for excess power.

    Note: I say “grid connection where viable”. A house would only be connected to the grid if it was possible and it promised to be cost effective. I believe many city houses will stay grid connected IF macro and meso power generators provide power and buying micro power at reasonable prices. There could be price and certainty of supply benefits to being connected.

    Coal and nuclear power generation will go the way of the dinosaurs. Gas will follow. Solar, wind and various power storage methods (batteries, pumped hydro, molten salt heat tanks) will provide reliable power 24/7/365. Convection towers, though not as cost-effective as solar PV on the generation side, can produce power 24/7/365 and thus reduce power storage needs. Indeed, they can work better at night as the temperature differential between surface and tower top (500m to 1,000m) is greater at night. Modern flywheels are also astounding but most useful for immediate power fluctuation correction, not for bulk power storage.

    All we are seeing from the coal and nuclear boosters is a total and deliberate lack of imagination and planning based on their (fully justified) fears of losing money heavily due to having stranded assets. Funny how they are fully in favor of free markets and technology until their money spinner is about to be obsoleted. Then the squealing for subsidies, protections and special considerations begins.

  16. Simon Fowler
    April 27th, 2017 at 10:13 | #16

    I’m starting to think that any attempt at a broad-based market solution will just end up being unmanageable, particularly given the rapidity with which things will have to change during the transitional 20-30 years (starting whenever we get our arses into gear – after the next election?)

    How’s this for a (hastily thought out) model:

    1) Government owns all the large scale generation and all the distribution infrastructure (nationalised if necessary, possibly nationalised over some period to make it less of a “budget blowout”).

    2) Small scale production (rooftop PV, small turbines, etc) is encouraged in order to offset household use, and to allow for some degree of matching between household consumption and distributed electricity production (with an eye to minimising the amount of power flowing across the larger interconnects). Industrial rooftop installations and the like would be treated the same way.

    3) End-user pricing is flexible and reflects both raw usage and usage relative to broader demand and broader production capacity, but explicitly /not/ via any market mechanism. The point of the pricing is to give users information about the state of the broader system rather than any kind of cost recovery model. i.e. the price going up reflects the available capacity relative to the demand, and it only goes up as a way to signal to users that they should reduce demand. If you wanted to be “budget neutral” or even provide some return on the infrastructure investment the shape of the pricing model could be designed to provide it, but the core point would need to be demand management rather than extracting money (this is one of the main reasons the government would need to be in control – they might not be anywhere near perfect, but they’re far less likely to engage in outright gouging than a private market).

    The underlying assumption I’m basing this on is that price signals really do affect people’s purchasing decisions, which makes it worth our while to build an effective price signaling system for electricity. But at the same time, building completely artificial markets for something like electricity production has proven to be extraordinarily difficult – someone, somewhere, is always smarter than the regulators and will find a way to game the system in order to make windfall profits. The only way to avoid that gaming of the system, particularly when we need to be rebuilding large parts of the system at the same time (thereby stranding many existing assets), is by removing the whole market idea in the first place.

    There /may/ be scope for non-government generators, but if they were allowed to enter the system they’d have to be acting as simple wholesale providers, paid at a long-term contract rate rather than spot prices. I don’t know whether that would allow for commercially viable investment, though – locking in the current prices over a three or five year term might not be enough to get companies to invest in current tech when at the end of the contract they’d be competing with better tech.

    Even if this is a decent approach the question of how to get there from here is another matter, of course.

  17. Ronald Brakels
    April 27th, 2017 at 10:25 | #17

    James, heat storage should definitely be cheaper storage than hydrogen for electricity generation. Molten salt, sand, concrete, rocks, etc. can all be pretty cheap. It’s like solar thermal with storage without have to go through the expense of building the solar part.

  18. Ikonoclast
    April 27th, 2017 at 16:50 | #18

    @Ronald Brakels

    Yep, the thermal ballast idea basically. πŸ™‚

  19. Kien
    April 27th, 2017 at 19:33 | #19

    I live in an apartment, so no prospect of installing solar panels. But I would be happy to install batteries that take excess power, especially if paid to do so!

  20. April 27th, 2017 at 20:48 | #20

    @Ronald Brakels
    Heat storage does indeed look a good storage bet – for diurnal variation, which is what 24/7 or 18/7 CSP plants handle very well. And the CSP people have got the technology sorted. But does it work for week-long or seasonal storage? You need the former to cope with lulls in wind, the latter to cope with the annual solar cycle (assuming you need storage at all and don’t simply overbuild, which at a 2c/kWh LCOE you can easily afford to do). The advertised advantage of P2G is that storage has no time limit.

    Michael Liebreich made the interesting point that the spectacular falls in the cost of solar and wind have brought forward a debate that we all thought could be postponed for a decade. The renewables have not only won the cost battle with new fossil and nuclear generation by a KO, they are rapidly closing in on depreciated old fossil plants, on an LCOE vs. running costs basis. So the balancing issue has become topical.

  21. numerobis
    April 27th, 2017 at 22:49 | #21

    James Wimberley :
    the annual solar cycle (assuming you need storage at all and don’t simply overbuild…

    In the low arctic where I’m sitting now (about 64 north), late January, February, March, and early April your solar panels would be at 20% capacity factor. In summer it’s less, more like 15%, because it’s cloudier but also because the sun varies azimuth a lot during the day so a static panel won’t track it — but your demand is also less because you don’t need to heat as much. Getting solar power from October to December is almost useless, about 5% capacity factor, and in December, with bad weather you can have multiple consecutive days at precisely zero. And December is the peak demand month.

    So from 9 months of the year, you can be 100% off solar + a reasonable battery. The other 3 months you have to start to overbuild by increasingly ridiculous amounts. North of here it’s even worse; there are communities where the sun sets in late November and rises in early February.

    There’s plenty of wind year round, but wind can be calm for a week at a time — or too strong for days at a time (in gusty winds, wind towers stop producing).

    tl;dr: on purely technical grounds, we are going to need some medium- to long-term storage solutions.

  22. Ronald Brakels
    April 27th, 2017 at 22:53 | #22

    James, I doubt there will be any need for more than overnight storage. As you mention, it can be a lot cheaper to overbuild renewable capacity than to build storage, so that’s one reason why long term storage probably won’t be built and Australia has a considerable amount of existing hydroelectric capacity that can supply about a quarter of average demand when operated at full capacity. Also, there’s a lot of existing gas capacity.

    So if there is a situation where renewables including hydro can’t handle a period of high demand and low solar and or wind generation, then gas plants are started up and the CO2 they release captured agriculturally for hopefully only a few cents a kilowatt-hour, which is likely to be far cheaper than long term storage.

    Since we can predict the general weather more than a week in advance we shouldn’t be caught pants down. Even just a slight overbuild of solar and wind will ensure hydroelectric dam levels can remain high and hydro can start generating a high capacity well before a cold snap and its output used to charge up energy storage to full before the bad weather hits.

  23. Ronald Brakels
    April 27th, 2017 at 23:00 | #23

    James, with regard to beating depreciated fossil fuel plants, rooftop solar is doing really impressively in Australia. It has a lot of potential to drive coal out of business quite rapidly. Part of the reason is because it’s not as sensitive to falls in the daytime cost of electricity as utility scale solar and so people will still have an incentive to install it even if the feed-in tariff they receive for sending electricity into the grid falls. (But at the moment feed-in tariffs in Australia are increasing along with the wholesale cost of electricity.)

  24. numerobis
    April 27th, 2017 at 23:02 | #24

    That said, on economic grounds, at this year’s prices it’s break-even here to install enough solar + battery to cover those 9 months versus paying the utility (assuming you can get a loan at about 5%).

  25. Ikonoclast
    April 28th, 2017 at 07:20 | #25


    I don’t mean to be discourteous but why live at 64 degrees north? If oil, coal and gas are discontinued how many other gainful economic activities can occur at such latitudes? Some can of course, maybe tourism in Western terms. If boreal forest extends so far north it should be protected in any case. Other industries? Fishing I guess. But since the world’s fisheries are all being rapidly destroyed that will not last either.

    A new energy regime and climate regime, among other things, mean reassessing where and how it is viable to live. Not all our patterns can remain the same. In Australia’s northern states, if I was now building a house in the country anywhere near paddocks or bush, I would be having it built semi-underground (cut into a hill with storm/fire shutters on the one open, windowed and glass-doored wall). Above ground houses in such places will become more and more untenable. Heating and cooling costs would be much reduced.

    As for 64 degrees north, I guess you are already noticing changes from permafrost melt, increased biting insects and polar vortex weather pattern shifts?

  26. Ikonoclast
    April 28th, 2017 at 07:28 | #26

    Oops, I forgot mining if it’s the Northwest Territories, Canada. I guess it’s a cost-benefit thing then.

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