@crackofdoom
I think I might be a bit confused about wholesale electricity costs. I thought any use of gas- even 1%- caused all electricity to be charged at the cost of gas generated electricity- is that not right?
It’s true that gas generation drives the price a lot of the time in the UK, and certainly more than in the rest of Europe, but it’s not a straightforward process.
Some electricity is bought on long term supply contracts, but what is left of the demand has to be supplied at a price set via various auction markets run by the network system operator to hold the system in balance (and attempt to maintain competition). This is a pretty good source to explain the various markets that are run
Wholesale trading: what are the different markets and how do they work?
Put simply, suppliers bid for each hour and half hour slot, based on forecast demand and renewable energy supply on a day-ahead, intraday and continuous basis, and they clear each time slot at the price of the lowest marginal offer in the day ahead and intraday markets and on a bid-by-bid basis in the continuous one.
So say the day ahead forecast demand 01:00 to 01:30 is 32GW, and there is forecast to be 18.5GW of wind power and 3.5GW of nuclear available during that period. The wind and nuclear power generators know that there is 25GW of gas-fired and other capacity competing to satisfy the remaining 10GW, so they bid lower than the marginal cost of gas, which is perhaps £70/MWh, so they bid £50/MWh for their 22GW total capacity.
The gas generators might bid a range of prices, say:
5GW: £50/MWh
5GW: £67/MWh <- 32GW reached
5GW: £90/MWh
5GW: £120/MWh
5GW: £150/MWh
The auction closes at £67, which is the lowest price that can clear the whole 32GW, and all bidders receive that price. So it is gas generation that has set the price, even though it is a little lower than the marginal cost of gas.
What if things are tighter? If renewables are much lower, then the much more expensive gas bidders will set the price, which is what we normally see at peak periods, since we still don’t have excess wind power at those times. And since the gas generators know they hold all the cards they don’t muck around with low prices - they’ll all bid well north of their marginal costs.
Why does any gas generator bid at lower than marginal cost? Or even at negative prices? That is complex - a combined cycle gas turbine generating set takes a lot of time to heat up, so they can’t just be switched on and off. Their market power derives precisely because they can be controlled, but that has limits. Typically they can “hot start” within an hour or something, but only if they have been running within the last few hours.
So sometimes, you can see that gas capacity has bid negative prices into the market to guarantee that their energy is sellable, and they are running the turbines with only 10% of their nominal output (the minimum stable demand), so that they can deliver 100% at a later time at higher prices.
Attached is an excellent example of that, where the wholesale price is negative, and the gas generation is absolutely minimal, with wind and solar delivering nearly all the demand. But it’s most likely that the gas generation has driven the price negative. Solar and wind power generators don’t need to bid at negative prices because they can simply switch off if their energy isn’t needed - they don’t need to keep running and burning fuel just so they can supply future demand as the thermal generators need to.
So gas generation frequently sets the price in the UK, even at minimal levels, but that is a function of the fact it is dispatch-able but not on a minute-by-minute basis, with a need to plan that dispatch over many hours to avoid the turbines going cold.
The reason why gas dominates the price setting process in the UK is we don’t have enough alternatives that are dispatch-able. Which is why there are many battery storage projects coming online in the next few years. Those should enable large amounts of excess wind and solar power to be stored and then bid into the market to compete with gas. And since their marginal energy costs will typically be lower than gas they should pull the peak-level wholesale prices down quite dramatically.