High prices cure high prices. This doesn't seem to yet be working for British electricity. Government contracts reduce the cost of capital, but they also insure against volatility. The cost of this insurance policy may be going up.
"British solar and onshore wind has a high levelised cost of electricity (LCOE), a theoretical measure for the cost of generating a unit of electricity over its project life" -- but lower than all the alternatives.
"The latest CfD auction results are out this week and in early February. If they are higher than prevailing wholesale prices" -- what's the median age of a CCGT in Great Britain, and what's the median age of a GB nuclear reactor? Do you think they are still paying off the finance raised to construct them, and that cost is reflected in their market offer price? Do you think the existing CCGT and nuclear fleet can operate indefinitely without replacement?
the governments new angle pre ME crisis was new build renewables are cheaper than new build gas plants so it doesnt matter that the prices have gone up.
Thanks - yes a little risky publishing this 2 days in advance of the first releases instead of afterwards. Regardless how they shake out, I think it's worth calling out the different functions of contracting and it won't always lead to lower costs. As you say - a counterparty will pay more when there's pressure and all the bidders know it. So many good examples of this - another I studied at grad school was paying for political risk insurance to cover your bases in extreme asset appropriation events, even if statistically you would be better off exposing yourself to that risk based on how often those political events actually happen.
"British solar and onshore wind has a high levelised cost of electricity (LCOE), a theoretical measure for the cost of generating a unit of electricity over its project life" -- but lower than all the alternatives.
"The latest CfD auction results are out this week and in early February. If they are higher than prevailing wholesale prices" -- what's the median age of a CCGT in Great Britain, and what's the median age of a GB nuclear reactor? Do you think they are still paying off the finance raised to construct them, and that cost is reflected in their market offer price? Do you think the existing CCGT and nuclear fleet can operate indefinitely without replacement?
the governments new angle pre ME crisis was new build renewables are cheaper than new build gas plants so it doesnt matter that the prices have gone up.
Thanks - yes a little risky publishing this 2 days in advance of the first releases instead of afterwards. Regardless how they shake out, I think it's worth calling out the different functions of contracting and it won't always lead to lower costs. As you say - a counterparty will pay more when there's pressure and all the bidders know it. So many good examples of this - another I studied at grad school was paying for political risk insurance to cover your bases in extreme asset appropriation events, even if statistically you would be better off exposing yourself to that risk based on how often those political events actually happen.