Bishop Hill Ofgem's maths
Jan 24, 2012 Economics Energy: wind Scotland The Telegraph is reporting that the UK's energy "regulator", Ofgem, has authorised capital expenditure of £7.6bn to allow windfarms in Scotland to be connected to the electricity grid (H/T Lord Beaverbrook).
Ofgem said on Monday it had fast-tracked proposals for infrastructure spending by energy companies ScottishPower and SSE and expected to make a final decision in April, following a consultation.
The investment will be paid for through energy bills and is likely to add 35p to a typical household bill each year from 2013 to 2021.
Eight years, 35p per year, and say 30 million households. By my reckoning the cost to consumers over eight years is £84 million, (£10.5m per annum).
8 × 0.35 × 30 million = 84 million
So who is paying the difference between the £7600m spend and the £84m recouped from consumers?
Or have they got their maths wrong and they mean that the cost per household per year will be £32?
7600 ÷ (30 × 8) = 32
I guessing they have got this wrong by a factor of 100.
Reader Comments (21)
35 pounds, 35 pence, what's the difference?
Same difference between catastrophic and natural global warming and probably the same mistake.
"So who is paying the difference between the £7600m spend and the £84m recouped from consumers?"
Isn't this going to be some sort of free, (but regulated!), market efficiency gain sort of thing? Iberdrola saw this coming back in 2010:
"Cooperation with the British Regulators
Regulatory review of energy activities began in the United Kingdom in 2010 in order to achieve the goal of an 80% reduction in greenhouse gases by 2050 as compared to those in 1990, preserving the
safety of supply and maintaining costs at levels accessible for consumers. The British regulators calculate that investments of 200,000 million pounds in infrastructure and measures promoting energy efficiency will be required in the coming years."
https://www.iberdrola.es/webibd/corporativa/iberdrola?IDPAG=ENWEBACCINFAN&codCache=13274382322201411
Michael Mann selected the data to input, Phil Jones set up the Excel spreadsheet and Steig was in charge of the maths.
http://eureferendum.blogspot.com/2012/01/brain-disconnect.html
I would guess that their claim is actually that the 32p is the incremental cost to consumers; the balance is what would be paid anyway for the power provided through other sources. This would mean though that the wind power is only 1% more expensive than the other sources. That also doesn't sound right, unless it is being subsidised by government and people are therefore paying for it through higher taxes.
'add 35p to a typical household bill each year '. If that's a cumulative 35p it still only comes to £378m
After 2021, boy oh boy!
Major transmission infrastructure would not normally be recovered over 8 years, so I'm not sure why Ofgem would be citing a 2013 to 2021 rate impact. My integrated utility amortizes "lines" over 35 - 100 years, and I would imagine that the high voltage (500kV) lines are on the high end of that range, given the need for Rights of Way, etc.
That being said, they have to collect at least the carrying cost:
7.6Bn x 6% = 456M annually
if there are 30M households, that's 15.2 GBP/annually per household
And that hasn't even absorbed any amortization (or paid down principal, depending on how you look at these things). Amortizing over 50 years at 6% (which is likely a real, rather than nominal discount rate) requires ~1.87Bn GBP annually, or just over 60 GBP/household - and that would escalate
Silly - they're going to use the 84 million to buy oxygen credits (thus cornering the market), and hold on to them until we're all gasping for air, and then sell them for hundreds of times what they paid for them. That 7600 million will be pocket change. Clever little sods, aren't they?
According to Clownopedia, carbon credits are soooooo yesterday.
lol at gixxerboy...awaits BBD's diversionary intervention blaming it on big oil
It'll be peddled as using private capital investment, which means National Grid plc or some such outfit borrowing from China, paying interest on the loan, paying stock dividends, paying corporation tax, charging admin and maintenance costs, charging transmission tariffs and all to be recouped in our bills.
http://www.whatdotheyknow.com/request/35p_a_year/
Lets see what they say to an FOI request on the matter
I think that the problem is all down to the introduction of decimal currency.
Bring back good old English pounds, shillings and pence.
That will make the maths much easier to do.
We will then have no more unfortunate errors like mistaking #32 for a mere 32p.
(Sorry about the # sign - blame the Ausie keyboard)
Nick
I emailed the press office to see if they would explain.
Looking at DUKES data for 2010, of the electricity consumption of 328,000GWh, industry used 104,000GWh, transport used 4,000GWh, domestic consumers used 119,000GWh and others (commerce, public administration (ahem) and agriculture used 101,000GWh. I believe the cost is accumulative, i.e.32p in year one, 64p in year two etc.
Thus assuming the cost is shared equally, the whole lot over 8 years will be, according to my calcs, as follows:
# of households = 25,000,000 (119,000GWh / 4.7MW)
Cost per household over 8 years = 36 x .32 x 25,000,000 = £288 million
Total cost to all consumers = 288,000,000 x 328 / 119 = £794 million
It can be seen that this arithmetic growth in costs will soon cover the investment. Over the following 8 years the cost to consumers will be £2.205 billion, and the next 8 years the cost to consumers will be £3.616 billion.
By this typical piece of sleight of hand, Ofgem has made a huge and wasted investment sound like a small cost to consumers.
PS The author has not verified any of the calculations and bears no responsibility for the correctness of the calculations, which have not been peer-reviewed. Users of the results do so at their own risk.
I think the best rated comment on the Telegraph bears repeating. It is what I have been saying to DECC ministers via my MP for several years now, clearly also to no avai. I have also been saying it at wind farm public inquiries, but Inspectors don't want to hear it and take no notice of the hard evidence, because it runs counter to Government policy:
The real problem is that the big energy companies are all going to make a bomb out of the scam and so aren't prepared to rock the boat by telling the truth. I still see no way we can stop this lemming-like, suicidal and mad energy policy. There's hardly a single politician who understands the issue at all.
"I simply do not understand this madness,"
Well, if elec wholesale is about £50MWh, which I make 5p/kWh, IMO this line helps to explain it:
"On top of this the off-shore wind turbines receive 12p/kWh subsidies and on-shore currently 6p/kWh."
I once tried to find out how all this finds its way through the consolidated accounts of our europower suppliers. Hmmm.
Sad really - the politicians thought they were doing their bit for the planet and have been railroaded into some, at best, highly inefficient investment policies and, at worst, some economically and socially catastrophic ones.
Who's going to be the first with the nouse to say "Time for a pause - just to check we are on the right track of course!"?
First, it is likely that the £7.6bn is an underestimate and there will be over-spends. History of all past large scale infra-structural projects suggests that this will almost certainly be the case. Hence, energy bills are likely to rise even more than you suggest.
Second, should not the expense be split between ScottishPower and SEE customers or will other energy companies be contributing towards the capiutal costs of the infra-structure?
Politicians are desperate to keep the true cost of all this from the public until it is a fait a complis.
A proper audit of the effectiveness and cost implications of windfarms is well overdue and a public debate on whether the public wish to go down this route should take place without delay and before even more huge sums of money are wasyed.
"I guessing they have got this wrong by a factor of 100"
Normal for slack hacks. How many abstracts and press synopses of published papers have I seen which confuse milli- and micro-? Answer - I don't know because I have lost count. In my field of interest this makes the difference between kilograms and tonnes of emission or sequestration per hectare of land.
Why should Ofgem want to fast-track the proposals when they know many Scots want independence?
Why should English consumers fork out for Scottish infrastructure, that then allows the Scots to more-easily sell their unpredictable commodity to the English?