Forget renewables. According to an article published in the Financial Times last week, diesel generators are the hot new thing in power generation in the United Kingdom.
According to the FT, about 1.5 gigawatts of diesel power is being built in the UK under a government plan to encourage additional electricity generation capacity for the grid. The new capacity is needed because “facing serious energy-supply difficulties over the next few years as old coal plants are taken offline without new power plants being built to replace them.”
How bad is it? FT reports that the electricity supply/demand gap this winter could be squeezed to nearly 5%, the worst in nearly a decade.
So to solve this policy-driven capacity shortfall, the UK government last year approved a plan to pay power suppliers to make additional back-up generating capacity available at short notice.
This is where the law of unintended consequences kicks in. Instead of an anticipated increase in natural gas-fired plants, to the surprise of many the subsidy has encouraged other technologies, with the recent plunge in oil prices helping to make diesel this year’s big winner. Not only will these diesel generators get the back-up subsidy, but because these generators are quite small, they’re exempt from paying into the European emissions trading scheme.
And the price to UK taxpayers for all of this? About £436 million, or $670 million.
This is what happens when government try to redesign electricity markets to such a great extent—power shortages, market distortions, less grid reliability, and greater costs to consumers, taxpayers, and businesses.
Once the Obama Administration’s Clean Power Plan is implemented, we can expect the same sorts of things to happen here. Don’t say you haven’t been warned.