Financial Times: Banks reel as ECB redraws funding rules

Yes, discussion of how to prepare individually, and in communities for this disaster seems more and more relevant.

Is the development/preparation of local trading schemes/currencies an important mitigation activity? or do you think they will never have sufficient support, or will be prevented by national policy because of their possible tax (and anti-inflation) implications.

Also, it seems to me that more people are using electrical heaters, than I remember, do you think this a general trend or just my experience? Could it be that people are opting for electrical heaters rather than more expensive central heating/boiler replacements in these harder times? If so, this will place even greater strain on the grid this winter.

The power grid is built for summer peak capacity, so a move towards electrical heaters would not strain the power grid, and actually relieve the gas grid (less gas consumption, which does peak in winter).

Still I doubt that this move to electrical heaters is real - electrical heating is a great deal more expensive than gas-fired central heating, so why would people do that?

Uh? Surely you are talking about usage patterns in the US when you refer to a summer peak - air conditioning is not common here.

Usage varies from a low of around 20GW, in around June, up to a maximum of around 75GW which occurs in the winter.

Yeah, I was refering to the UK situation. I thought people might choose to purchase cheap electrical heaters rather than the large expense of boiler replacement etc if they have little money.

I realise it's more expensive to do this in the long-term, but when things get financially tight people do all sorts of things which make their lives easier in the short-term, and much worse in the long-term.

Andy,

With the latest price increases UK electricity is about 12.5p/kWh and gas is about 3.5p/kWh.

Even if you are just heating one room, the cost of electricity for a small heater (say 1kW), quickly exceeds the cost of gas.

Domestic heating using electricity, using conventional heaters and with the current UK generation mix represents an inexcusable waste of energy resources - with the average UK powerstation running at only about 35% efficiency and all the waste heat being dumped to atmosphere.

If you look at the figures from National Grid Co. for summer and winter gas consumption, you will see that the UK summer consumption is close to 50% of the winter consumption - presumably as a result of nearly 40% of our power generation done in gas fired powerstations.

The UK energy industry is not well prepared for changing world circumstances. I can only see turbulent times ahead, as the current energy model is drastically restructured to meet the challenges of the 21st century.

As a nation we have to develop a more varied generation mix - one which is less reliant on natural gas.

At least one company in the USA is converting low grade lignite coal, to high grade natural gas.

Dakota Gasification Company

Coal gasification could be one way in which we could get better efficiency from coal fired generation using low grade fuels, provide a separate CO2 steam for capture and sequestration, and give the option to transmit energy either as electricity or as natural gas from coal, depending on the season or current demand.

We in the UK need an integrated energy policy which provides energy security, efficiency and flexibility. Our government seems reluctant to tackle this head on, instead leaving it to the global business market to sort out the mess.

2020

...with the average UK powerstation running at only about 35% efficiency and all the waste heat being dumped to atmosphere.

The thermal efficiency of the UK CCGTs is 48.9%, coal 35.7% and nuclear 38.6%. I guess the weighted average is a little over 40%. Taken from DUKES 5.10.

Chris,

Thankyou for confiming those figures.

I admit that my figure was closer to that of coal and nuclear plants, which account for about 50% of UK generation.

It should be noted that with rising gas prices, the percentage of coal fired generation has been increasing in recent years -especially in 2006 where coal usage increased by 10% - DUKES 5.4.

I note that the efficiency figures are based on gross calorific value basis, which I believe assumes that all the products of combustion are returned to their starting temperature - particularly important when burning natural gas and recuperating the latent heat in the water vapour of the flue gases.

DUKES 5.6 gives a better idea of the actual efficiency of the plants,
i.e. energy supplied to grid/fuel input

it accounts for the the fuel used in running the internal operations in the plant.

Power stations are not always run at peak efficiency - as their daily duty cycle is dictated by the demand for power and the spot price of electricity.

In a typical day, the UK demand fluctuates by as much as 20GW between minimum and maximum demand. This means that power station operators have to modulate the power output of their stations to match the demand. Varying the output of a thermal plant to meet the prevailing demand conditions has a negative effect on the efficiency of the plant.

This is analagous to driving at constant speed, compared to accelerating and braking to meet traffic conditions - the latter is alway costlier on fuel.

We should also consider the transmission and transformation losses of the National grid system, and the power consumed internally by the power station. Transmission losses, across the whole grid, from the power station to the plug, have averaged about 7% to 8% of generated output.

Agreed that power station efficiency is increasing slowly, and with higher steam temperatures and pressures, some combined cycle plants are creeping towards 50% efficiency.

Integrated coal gasification with combined cycle will also offer a means to get better thermal efficiency from coal fired plants- allowing the continued usage of low grade fuels, and an opportunity to remove the CO2 from the gas stream, allowing a possible route to CO2 capture and sequestration.

Whether these more efficient plants will be built, will be dictated by the cost of fuel compared to the added capital expenditure and complexity in these advanced coal plants. Remember we are a nation that in the 1990s built the cheapest plants that burned the cheapest fuel in the dash for gas.

That 12.5p/kWh for electricity and 3.5p/kWh for natural gas: Is that in heating equivalents? Is the electricity really almost 4 times more expensive for the same number of BTUs?

If that is the case then ground sink heat pumps would provide little to no cost benefit in Britain owing to the high cost of electricity.

That electricity cost is really high by American standards btw. Given 0.5662 dollars per pound at the time of this writing that means converted to US dollars that's 22.07 cents per kwh. Wow. The only US state where electricity costs more than that is Hawaii at 29.66 cents/kwh as compared to Wyoming at 7.58/kwh. The rest of the states are at that link. Mind you, those costs on that page are lagging costs. We are getting hit by big rate increases. But we'll still remain below Britain's electricity costs.

Of course, current exchange rates might not reflect purchasing power parity as measured by a basket of goods. So the differences between US and British electricity rates might be exaggerated by current exchange rates.

The cost difference is about right, since in the UK we tend to use highly efficient gas boilers.
For the electricity you have to burn it at the station then transport it.
Heat pumps at the moment will only pay for the 5 million or so homes which cannot connect to the gas network.

Gas shortages in the future and increased costs are likely to mean that electricity is more competitive, although not if we go for vastly expensive off-shore wind.

Prices are set somewhat retrospectively, and we have stonking rises in the pipeline, which will take out any benefit from the pound falling against the dollar.

The US has far superior energy resources to anywhere in Europe.

In the past the percentage of people's income spent on energy has been much higher. Since in the UK we have a lack of forward planning with depleting gas and old nuclear plants being retired the percentage will again increase. At some stage there will be no regular suplies of gas available, so we will have to use electricity.

Although I'm in France, I used oil central heating the first year to heat the house, the next year I used electric and the third year I used wood. So I believe people will follow a similar path, although wood is not a choice in the UK.

My belief has been that the Financial crisis will remove options for dealing with the Energy crisis. Likewise, the Energy crisis will then remove options for tackling the Climate crisis. Unbridled, the three crises will cause abject chaos which will be near impossible to navigate through.

As people in the UK rush to cheaper alternatives, the alternatives will themselves come under pressure and fail to deliver. For example, a gas crisis in the winter could easily lead people to switch to electricity as an alternative only to swamp the reduced electricity supply causing failure; which would take down the refineries and petrol stations; which would take down transport; which would leave food shelves empty; which would leave people without heat, water or food or the means to get any. Whereas this doesn't take into consideration the many points in the system where mitigation can be applied and so is unlikely to happen, it does show how sudden changes in usage could lead to larger than expected problems if unchecked.

For example, a gas crisis in the winter could easily lead people to switch to electricity as an alternative only to swamp the reduced electricity supply causing failure

Or more likely, in a gas crisis (that would be the combination of extreme cold weather + underground storage failure) the government will intervene to interrupt supplies to heavy industry in the peak hours. Something that has happened occasionally in the past.

Looking at the chart, restriciting gas to industries that can actually reduce use without going out of business will have only a small effect and can only be a VERY temporary fix.

Gas is primarily a domestic problem, like oil use is primarily a transport problem.

The problem with domestic gas use is that it is largely automatic - houses, hot water, cookers, etc are mostly thermostatically (often electrically) controlled and users have no idea how much they are using until their meters are read, maybe months later.

In a gas supply shortage unfortunately you can't cut the supply of gas to domestic pipes, so, in my opinion, we will have to have rolling ELECTRICTY cuts for gas reasons as well as nuclear (and as well as an inabilty to import all the other inputs necessary for adequate electricty.)

Expect electricity to become expensive and intermittent (not due to lack of wind!)

In a gas supply shortage unfortunately you can't cut the supply of gas to domestic pipes, so, in my opinion, we will have to have rolling ELECTRICTY cuts for gas reasons as well as nuclear (and as well as an inabilty to import all the other inputs necessary for adequate electricty.)

Yes, I think you're right to say gas in an electricity problem rather than a gas problem. However, when it's cold, pretty much all the daily gas supply is already away from power generations and allocated to domestic use. At the limit, when domestic gas demand is very high, there isn't much of an electricity margin available.

This chart is from Ofgem, or National Grid, I forget. It shows the fuel used for generation at half hour intervals through a cold day. Gas is a small proportion, much lower than its annual contribution.

Chris, I don't think I follow your reasoning here. Your chart shows that at certain peak times of day the gas enables about 10 percent or more of electricity generation. You say gas is a small proportion. But surely an unavailability of that 10 percent could be the camel that breaks a lot of electrified backs?

And the fact that the domestic demand is soaking up most of the available supply suggests that there may be a concurrent domestic gas supply crisis to add to the interestingness of the times.

Yeah, it's still a shortage. I guess my point was that while the UK gets some 40% of electricity from gas over the year, on the day when the gas is tight there isn't nearly as much electricity generated from gas as one might think. A large amount of gas is already shifted from electricity to domestic in business as usual behaviour.

Actually that chart now gets me wondering what spare headroom capacity there is above that notional cold day. That would be capacity in terms of both generator capacity and of gas supply rate.

It looks like the lowest bands (nuke etc) are already at full power anyway, and any extra would have to be supplied by the top bands. Not clear whether pumped storage or liquids aren't already at their max. Otherwise it looks like the lights staying on is dependent entirely on the marginal gas capacity (plus None of those other things having an outage). If anyone knows how to find this info, I'd be most grateful for the answer. (The council say they have a plan for outages of our tower blocks but havent exactly burst forth with the slightest details beyond the hint that they think it's ok if the lifts don't work for a few hours.)

The BERR website would be the place to start - I had a quick prowl round but did not spot the info you are asking for, you may have better luck:
http://www.berr.gov.uk/energy/index.html

I believe in general terms though that supply interruptions aside, our 12 days storage means that we should be OK if we had a cold snap for a week or so, but if there was a second one then we start hitting trouble.

In a cold, still period obviously very little power comes from wind.

In addition, the nuclear fleet is very old, and although they try to schedule maintenance for slack demand in the summer, any unexpected outage in a cold winter would be disastrous.

We should be OK in a mild or warm winter, but the grid would be likely to go down or rolling blackouts would be needed in anything worse.

We don't need a 'perfect storm' to be in severe trouble.

Thanks - it looks like there may be useful info via this page below, but I'm at this moment falling to sleep (with nightmares of creeping around in a blackout):
http://www.berr.gov.uk/energy/reliability/downstream/page30313.html
--update: -- not found any enlightenment therein.

Isn't Britain going to need to become dependent on Russian natural gas as North Sea gas production declines? Won't natural gas prices go higher? How can Russia increase gas production? Does it have formations like America's shales that haven't been tapped yet?

Excess demand is controllable with higher prices if the political forces allow the economic forces to operate.

Wood heating: Given the dense population of France I do not see that as a viable long term option. We've already seen a big run-up in wood prices in New England. Europe has fewer trees per person than the US. So the price run-up will be worse in France.

In general, electric heating is the poor person's choice : cheap for the landlord, expensive for the tenant. The homeowner unable to raise the capital to replace their central heating, as you point out; but even a fill of fuel oil or gas tank looks like a capital investment at current prices. Resorting to electric heating may also be the last resort of the penniless, before the electricity gets cut off.

So, in all, financial crisis will probably put extra strain on the grid...

Local currencies have a number of issues, some of which are:

They rarely have any force of law, e.g. laws are set up to only allow the government's currency (coin of the realm) to be valid for enforcement of contracts. You can't settle a tax bill or buy something that has a large tax element like petrol with local ccy so you still need to earn official money.

They have only local acceptance, but of course if in the future we are only going to be in our local community this is less of an issue.

They less secure from fraud, i.e. easier to copy, but less of a problem if you know the person giving you the money.

laws are set up to only allow the government's currency (coin of the realm) to be valid for enforcement of contracts.

You sure about this? Surely you could have a legal contract for exchanging just about anything, such as five of my gold widgets for seventy of your organically-grown brain cells or whatever.

We could contract for any sort of swap but I only have two brain cells, one of which I am curently loaning out to several people and provided they don't actualy demand it at the same time should be OK (just like banking:-). The problem would come if i failed to deliver the 70 cells to you and you wanted to enforce the contract, I would offer to settle with some useless money and you would have to settle for that in exchange for your five gold widgets.

Fiat money refers to money that is given value by government fiat (Latin for "let it be done"), enforcing legal tender laws, whereby debtors are legally relieved of the debt if they (offer to) pay it off in the government's money. By law the refusal of "legal tender" money in favour of some other form of payment is illegal, and has at times in history (Rome under Diocletian, and post-revolutionary France) invoked the death penalty.

In the US under the Legal Tender Act of 1933, all American coin and paper money in circulation is now legal tender, i.e., under the law it must be accepted at face value by creditors in payment of ANY debt, public or private.

Looking at a dollar bills they say "this note is legal tender for all debts, public and private". On Pound notes it says "i promise to pay the bearer on demand the sum of (five,ten...) pounds".