Comment on Energy bills to tick lower this winter but will remain high

• hellothere@sh.itjust.works ⁨1⁩ ⁨year⁩ ago

  My good fellow, if you believe that cap and floor contracts somehow disproves my point, then you really do need to go back and re-read what I’ve been saying all along, not just what you think I’ve been saying.

  For the final, final time:

  • Both types of generation have the same capex payback considerations, which will be spread over the expected lifetime of the project. – To be crystal clear, I am not saying the literal cost is identical, obviously the actual Pounds and Pence cost of 1 small onshore windmill is different to 1 massive offshore windmill or 1 CCGT.
  • Capex costs do not change day to day due to whether you are generating or not because they are, by definition, unrelated to operation.
  • Prices fluctuate throughout the day, and may go up or down between when you start generating and when you stop. – The input ‘fuel’ used by solar, wind, and tidal to generate is free, which significantly reduces their Next Unit Cost compared to fossil fuels or storage, which is the key Opex cost when considering whether to generate at a specific time on a specific day. – Your ability to generate also changes. If you run a solar park and the price is sky high, but it’s 10pm in December, tough. – If the gas you’re burning, or the stored power you’re realising (batteries, pumped hydro) cost more than the current price you’d be paid, then it is extremely unlikely that you’re going to do it. – Cap and Floor contracts, which specify a maximum and minimum price you can be paid, merely put limits on how much money you can make on each unit sold
  • This means that, all else being equal, renewables are able to operate profitability at lower market prices compared to fossil fuels
  • As all else is not equal, the viability of a project is based on the projected difference between average costs, including capex payback, and average price. – These factors must be considered regardless of means of generation - the price of each factor will again obviously be different – The difference between average cost and average price is your profit margin / return on investment – The higher the floor relative to projected market price, the easier it is to operate profitability – The lower the cap, the harder it is – The closer your projected unit price and projected costs are, the less profit you’ll get and the less viable the project is

  Again:

  • the choice to generate on a specific Tuesday at 1am is based on the price you’ll be paid, versus Opex, in that day
  • the choice to build the generator in the first place is based on the projected profit from lifetime costs versus lifetime earnings

  I will only reply if your next comment actually brings something new to the conversation.

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  • bernieecclestoned@sh.itjust.works ⁨1⁩ ⁨year⁩ ago

    You’re talking about existing infrastructure, I’m talking about net new capex, do we’re talking at cross purposes and it’s dull

    Cya

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