\n<\/p>\n
Travel 18 miles north of London and the grey bulk of a gas power plant comes into view near Rye House railway station in Hertfordshire.<\/p>\n
Rye House power station has generated electricity since 1993, making it Britain\u2019s longest-serving such power plant still in the market. But it also produces some of the most expensive electricity in the country.<\/p>\n
The power plant, owned by a subsidiary of the commodities trading giant Vitol, raised eyebrows in recent years by calling for record high payments to generate power when electricity was in short supply.<\/p>\n
In the winter of 2022, months after Russia\u2019s invasion of Ukraine triggered record high gas market prices, Rye House set its own records by charging \u00a36,000 for every megawatt-hour it generated. UK electricity market prices are typically between \u00a360 and \u00a3100 per megawatt-hour.<\/p>\n
In January, Rye House was one of two power plants that were each paid more than \u00a36m to run their gas turbines for a few hours during a spell of freezing weather.<\/p>\n
The payments provoked outrage from climate campaigners and consumer groups who have called on the government to hasten Britain\u2019s plan to reduce its reliance on gas power to just 5% of the electricity system by 2030.<\/p>\n
Under the system to balance Britain\u2019s grid when electricity supply is short, the National Energy System Operator (Neso) encourages energy companies to bid prices at which they would be prepared to power up their plants.<\/p>\n
But like it or not, these gas plants are here to stay for the foreseeable future. They will still be required to help keep the lights on by the end of the decade, according to official forecasts \u2013 and the one-off payments needed to make these plants economic over the course of a financial year are likely to rise.<\/p>\n
VPI, which owns Rye House, believes the plant\u2019s high costs are a price worth paying. The company justifies the staggering payments it receives on a per megawatt-hour basis by pointing to the costs of maintaining the plant for much of the year when it is not needed. The power plant is held in preservation mode over the summer, a period in which the plant still incurs some costs but makes no money.<\/p>\n
The rapid decarbonisation of Britain\u2019s electricity generation, whereby the last coal power station in Ratcliffe-on-Soar in Nottinghamshire closed a year ago, has made the grid more unstable. Gas plants and their big, spinning turbines are needed to provide the inertia that wind and solar cannot, helping keep the grid\u2019s frequency stable.<\/p>\n
Senior industry executives have warned that if companies like VPI were unable to cover their costs, and make a justifiable profit, it could spell the closure of Britain\u2019s older gas power plants, which would ultimately lead to higher costs for consumers if new gas plants needed to be built to replace them.<\/p>\n
<\/span>Ratcliffe-on-Soar power station, the final coal powered plant in the country, closed last year.<\/span> Photograph: Christopher Thomond\/The Guardian<\/p>\n To guard against this, the government\u2019s capacity market mechanism was devised in 2012 to secure the future of Britain\u2019s gas plants even as the country shifts away from fossil fuels. Energy companies must vie for contracts that cover the cost of keeping the power plants on standby for when they are needed. Separate auctions offer contracts to gas plants one year in advance or four years in advance.<\/p>\n The competition between generators to clinch a contract keeps the auction costs as low as possible, since the lowest bids are the ones that win. So to earn a profit, gas generators still need to top up these earnings by selling electricity into the market.<\/p>\n Rye House runs only 5-10% of the time, meaning its opportunity to turn a profit is limited. In the future, as the UK moves towards a low carbon energy system, many more gas generators will find themselves in the same position.<\/p>\n skip past newsletter promotion<\/p>\n Sign up to Business Today<\/span><\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n Privacy Notice: <\/strong>Newsletters may contain information about charities, online ads, and content funded by outside parties. If you do not have an account, we will create a guest account for you on theguardian.com to send you this newsletter. You can complete full registration at any time. For more information about how we use your data see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.<\/span><\/p>\n after newsletter promotion<\/p>\n An alternative trade-off would be higher prices through the capacity market, according to Tom Glover, the boss of RWE\u2019s UK business. RWE is the UK\u2019s biggest gas generator, and also one of the country\u2019s biggest renewable energy investors. Its plants run more often, meaning they do not typically call for \u201cscarcity prices\u201d on a par with those earned by Rye House.<\/p>\n \u201cThese things have been debated for years,\u201d Glover said. \u2018Twenty-five years ago everyone thought relying solely on scarcity pricing was the right economic signal to send. As the years go by, we\u2019re starting to realise that no one wants to accept a price of \u00a31,000\/MWh as fair.<\/p>\n \u201cWe\u2019re becoming the fire brigade of the energy system,\u201d he added. \u201cYou have to pay for the fire brigade to be around all the time. Hopefully you don\u2019t call on them very often but when you do, they best be there and they best be reliable. Today our gas plants still make up a quarter of the UK\u2019s electricity but this is going to evolve over the next five to 10 years. Eventually we will effectively be paid to be there, rather than getting paid for running.\u201d<\/p>\n Despite the arguable success of Britain\u2019s capacity market, concerns over whether gas generators are making fair profits have prompted fresh proposals to reform the system. Earlier this month, research by a former government energy mandarin found that the government could save energy users \u00a35bn a year by overhauling the electricity market by removing gas plants from it.<\/p>\n Adam Bell, the government\u2019s former head of strategy at the Department for Energy Security and Net Zero, argues that the UK\u2019s gas plants should be held in strategic reserve, available to be fired up when needed without distorting the overall cost of electricity in the wholesale market.<\/p>\n The report, which was commissioned by Greenpeace, proposed that gas plants should no longer be able to sell power on the open market, and instead provide a strategic reserve of electricity, at an agreed price, whenever they are required to fire up.<\/p>\n <\/span>Connah\u2019s Quay, a gas-fired power station in Flint, Wales. <\/span> Photograph: Adam Vaughan\/EPA<\/p>\n A senior industry source said that although gas generators are eager to tackle Britain\u2019s energy affordability crisis, the proposals were unlikely to win over private companies. A second source described the proposals as \u201ceconomically illiterate\u201d.<\/p>\n Critics of the plan believe that dampening volatility in the electricity market would undermine the incentive needed to spur batteries to release electricity, or for energy users to pause their demand, when supplies are short.<\/p>\n But there may still be room for further debate on reforming the market, according to Glover. \u201cWe want lower consumer prices, we want lower gas power generation, we want more renewables. We\u2019d like to work with them to achieve the objective we\u2019re all trying to get to, but maybe with a greater understanding of the market,\u201d he said. \u201cThere are different ways to get there.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":" Travel 18 miles north of London and the grey bulk of a gas power plant comes into view near Rye House railway station in Hertfordshire. Rye House power station has generated electricity since 1993, making it Britain\u2019s longest-serving such power plant still in the market. But it also produces some of the most expensive electricity<\/p>\n","protected":false},"author":1,"featured_media":24325,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[50],"tags":[131,611,1545,107,2264,693,6386,1664,14788],"class_list":{"0":"post-24324","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-environment","8":"tag-day","9":"tag-energy","10":"tag-industry","11":"tag-keeping","12":"tag-lights","13":"tag-millions","14":"tag-plants","15":"tag-power","16":"tag-profiteers"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/24324","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=24324"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/24324\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/24325"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=24324"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=24324"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=24324"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}The \u2018fire brigade\u2019<\/h2>\n