As the Guardian has reported this morning:
Millions of homes will be forced to pay some of the highest energy bills for the past decade after the industry regulator gave suppliers the green light to raise their prices by up to £153 a year.
Households across Great Britain that use a default energy tariff to buy their gas and electricity can expect a sharp increase in their bills from October this year after the regulator lifted its energy price cap for the winter.
This is profoundly worrying.
Firstly, the reason for the price increases is supposedly because of market pressures. Actually, as massive profit increases at BP, Shell and other companies shows, that is nothing more than profit-taking.
Second, this is apparently intended to keep small market suppliers afloat - because otherwise they would go bust and the supposed 'market' in domestic energy supply would fail.
Third, the impact will, of course, be deeply regressive: fuel poverty is a fact for those on low incomes.
Fourth, this will inevitably link to flu deaths: they are largely caused by fuel poverty.
Fifth, note this is happening as Universal Credit is cut by £20 a week.
Could you make this up? Only if you are a believer that markets are for the benefits of the companies in them and are not for the benefit of consumers could you make any such scenario up.
What were the right reactions to price increases? First, if companies were going to fail as a result, they should have been allowed to do so. That's what happens in markets.
Second, if there is no domestic energy market (and there is not: it's an abusive charade, exploiting the least well off most) then the pretence should be dropped.
Third, the companies in that market should be nationalised. That's what should happen for utilities where come what may, whoever you but from, there's only one wire and one pipe into your house and no real choice at all.
Fourth, a nationalised energy supplier should supply a clear, simple, tariff that is lowest price to all. The current exploitation of the elderly, those without internet and who stay with a supplier should end for good.
Fifth, that nationalised company should be run on a not for profit, after allowing fro funding reinvestment basis.
Sixth, if there are forced price changes because of market moves that company should be required to work with 0ther government agencies to provide credit to those least well off to protect them from sudden price changes.
Or, seventh, pensioners and those on universal credit should get a fuel adjustment to their payments to allow for such changes instead.
We have a state to protect us. That protection includes the expectation that the state will prevent poverty. The state we have is not doing that. And it is not good enough. It's protecting companies instead.
We need a state that gets priorities right. It's really not hard to do. I have set out the mechanism. Now, why can't we have Opposition parties agree on such policies to ensure that they can deliver the protection that this government will not provide?
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If we ignore the minnows and the stupidly expensive for a moment it would be interesting to know what the differences are between the ‘Best and Worse’ deals on the energy market are for domestic consumers.
I suggest that the ‘small business’ market should be nationalised as well
I am currently with Bristol Energy, formerly owned by Bristol City Council who got their fingers badly burnt setting up an energy company, Robin Hood energy formerly run by Nottingham City Council had an even more spectacular collapse, both of which indicate how difficult it is to be a new entrant in the market.
Entirely agree. Never understood how you could privatise monopolistic utilities. Just another income distribution scam, benefiting the rich. And what a waste of resources, how many are employed marketing the numerous companies selling the same product at different prices? What a fiasco having to waste time trying to compare various sellers every 12 months or so or face being moved on to a more costly ‘contract’. I pity the old, disabled and poor who haven’t got access to computers and internet. Loyalty to one company is punished.
But will it ever change?
There is another pressure developing, Decentralized Autonomous Organisations (DAOs) or to me Bitcoin. My grandson and I have been discussing the subject. He is sceptically pro and I am cynically anti. The evidence I assembled to bring to the debate shocked me.
Each single Bitcoin transaction takes 1200.86 kWh of electricity on average according to Statista. This compares to 148.63 kWh for 100,000 Visa transactions. The annual power consumption for Bitcoin is 133.68 TeraWh which is more than Sweden’s total power consumption (131.8 TWh).
I asked my grandson what is the source of supply for that huge increase of power consumption? Can it possibly be considered sustainable or climate friendly? Hinckley Point C is projected to cost between £22 and £23billion. It will produce electricity that has a strike rate (cost to customers) of £92 Mw/h compared to a rate of £40 Mw/h for other sources. Hinckley will only produce 3620 Mw/h. In addition concrete produces CO2 at 80.2 kg/tonne so far Hinckley has used 51,000 tonnes in its half finished construction.
I argued Bitcoin demands power now and its demands are growing. There is already difficulty in meeting demand but it would take until 2030 at least to construct new nuclear stations. Coal/Oil stations are cheaper, quicker to construct but dirtier. Supply and demand determines that whichever is chosen either costs to consumers will increase dramatically or climatically disastrous carbon based stations will take up the slack. The cost of construction will fall on the many who will gain no benefit from bitcoin and have no democratic voice with which to object to subsidising the accumulation of wealth by the few who do benefit. The heaviest burden will fall on those least able to afford it. We do not need such an avoidable significant increase in demand and we certainly don’t need the social and climate penalties it imposes.
As you rightly point out, this is a failure of markets for the population and a triumph for the energy companies who have no doubt been lobbying hard.
Below is Ofgem’s breakdown of an elec bill.
All prices in pence per kWh
Wholesale costs ……………………..7.26 (33.87%)
Network Costs ……………………….4.77 (22.26%)
Operating costs (e.g. billing)….. 3.59 (16.77%)
Envo & Social Obligation……….. 4.91 (22.92%)
VAT………………………………………. 1.02 (4.76%)
Total ……………………………………..21.45
I have missed out some “noise”. The actual charge by suppliers is both the wholesale and the operating costs (3.59pence/kWh seems quite a lot just for meter reading & billing) = 10.85pence. Gas prices have risen quite a bit – there were as low as Euro10/MWh and are now north of Euro30/MWh. (not making excuses – just providing a couple of facts.) Network costs seem quite high – for a fully amortised system. The envo & social costs are mostly historic subsidies – most renewables these days don’t need subsidies.
In terms of nationalisation, I’d start with the networks – who are incapable of being regulated by Ofgem due to the massive data assymetry between what Ofgem thinks it knows and what the networks knows (network engineer’s comments about Ofgem are mostly unprintable in this family oriented blog). Let’s just say that they despise Ofgem. In the case of the energy companies, fragmentation might be better than nationalisation. In the case of the energy “market” (snigger) – a UK government needs to sit between generatiors/suppliers and end users (look ma! “Electricity Council-CEGB II”). I and my collaborators in the European Commission have proposed this to amongst others ACER – I’m not sure they have fully recovered from the shock – ACER that is.
The category error is to think that future energy systems will look like current ones, they won’t. There needs to (operative word “needs”) be far more quasi-autonomous generation at lower network levels – perhaps (hopefully/) collectively owned. In the case of large more centralised systems, my three box model is the way forward – stochatic generation, statistical load and deterministic storage (combo of batts and electrolysers). Easy enough to prove, mathematically, that this is the only system (absent one that is largely nuclear) that can function at a national/European level. The three box system requires a centralised purchase of elec and centralised decision making on how it is dispatched to (statistical) load and (deterministic) storage. In such a system, markets still have a role: as the pencil sharpener with respect to renewable generation construction. This will define LCOEs and by extension the blended elec generation price. Gas(hydrogen) prices will then fall out from that (as a function of elec prices and pencil-sharpened electrolyser Capex).
The probability of the above happening is low because most people still think that markets deliver optimal results. Perhaps true (ish) when one has steady state conditions – but we don’t have those. The price hikes are a symptom of this. Doing a community energy project at the moment & am forced to collab with another company – who still think – bless – that markets have all the answers and want to treat households as predictable and independent units. This conveniently ignores the price stack at the beginning of this BTL and the actual cost of local renewables.
Thanks Mike
Mike,
A couple of inaccuracies in your comment.
Although a considerable portion of network costs may be fully amortised, it still has considerable running costs. In addition, equipment fails over time and has to be replaced and a large amount of new investment is needed to convert it from a centralised fossil-fuel-based network to a decentralised, renewables-friendly system
Also, although there are few new projects being supported by subsidies, the subsidies that were granted were not one-off historical payments but were in the form of a subsidy for each MWh of electricity generated for 15-25 years (depending on the subsidy) and so there will be ongoing costs to pay for these for many years to come.
Also, in response to Richard, I feel bound to add (as someone who works in the field of developing new solar generation capacity), that the increase in wholesale electricity prices is not negligible or just to do with profit-taking. These prices have quadrupled since the bottom of the market during covid and are now at historically almost unprecedented levels. This is due largely to high gas prices pushing up the price of electricity from gas-fired power stations due to supply shortages as the economy wakes up from lockdown. I expect these prices to drop as supply shortages are resolved.
While high wholesale electricity prices are good for developers of new solar power, as it increases the prices at which we can sell our power, it does actually threaten the existence of retail market suppliers – many of whom are not large fossil fuel companies but are new entrants who have been encouraged into the market to make life tough for the Big 6. They are having to buy electricity at very high prices on the wholesale market and if they cannot pass on those costs to their customers, then they will fail and the old oligopoly will be reinforced.
Of course, this does not address whether gas and power markets have been structured in the right way and it certainly does not address fuel poverty. I would, however, just offer two comments. First, if we are to reduce our emissions we need energy prices, especially fossil-fueled energy prices, to rise as that will drive energy efficiency and reductions. Two, speaking as a developer of new renewable energy capacity, the market does work well in that provides a long-term pricing mechanism to make new renewables just about financeable. They enable us to offer returns to investors that are just about sufficient to get the projects financed but not a lot more.
I am sorry, but to conclude that this ‘market’ works well is not, in my opinion, a plausible opinion
At a time when Scotland is becoming a key producer of green electricity in European terms, what do we find? Not only will the poor throughtout Britain be required to pay more for energy, but this will fall more heavily on the poor in Scotland for three reasons. First, Scotland is, obviously further north, and Scottish winters are generally colder than elsewhere in the UK, and therefore energy requirements are higher, for longer through the year. Second, the housing stock of the poor tends to be more dependent on electricity, often combined with poor insulation and therefore is particularly expensive to run. Third, the electricity grid network in the UK has deliberately been structured not to ensure the cheapest and most efficient green supply network, but simply to subsidise London and the South East as a matter of political expediency, with the consequent penalties falling particularly heavily on Scotland, and especially on the poor.
There is the problem of the Union; everywhere you turn it does not work for Scotland. It will never change, because politcally it can’t change. The Conservatives will never, ever overturn it; and Labour, even if they accidentally discovered they were in power, would simply fudge it.
A good reminder
Thank you
Competition in the retail energy market is pointless. They are all selling the identical product (it comes from the same pipes or wires) and they are not separately responsible for correcting faults (gas leaks, electricity black-outs) so the consumer can’t get better service by shopping around. The only competition is in outwitting the consumer to get them to pay more than the current going rate.
I am less clear about the supply side. It seems important that there is a diversity of suppliers, and particularly importantly for electricity a diversity of generation sources. But whether that is best met by competing profit-making businesses is less clear, it has needed government intervention in the market to spur renewable energy investment for example which might suggest that the market doesn’t adequately serve the need.
These company’s profit by inflicting misery on hard working
People,and this is made worse for the old and those on any
Kind of benefits.
Agreed.
The word “Nationalise” has been stigmatized by the Press. Would “Community Owned” or similar be preferable?
Green Party policy – “Democratic control of the energy system will be enhanced, together with fair, affordable and equal access to energy and the goods and services it provides.”
Of course we need to reduce energy consumption and insulate homes etc to an approved high standard.
A good case in point is Welsh Water. It doesn’t claim to be “nationalised”. It’s just a non-profit company, run for the benefit of its customers.
https://en.wikipedia.org/wiki/Welsh_Water
https://corporate.dwrcymru.com/en
“We’re the only water company of its kind in the UK. We don’t have shareholders, which means we put every penny back into looking after your water and our beautiful environment – now and for years to come.”
I know Mike Parr always has good ideas (below), but, while his future architecture proposals make a lot of sense, we need a solution now. Nationalisation isn’t a solution now. It may have merits eventually as the course to net zero becomes clearer.
Ofgem did some collective switching trials, but all this was overtaken by the price-cap legislation. That has now proved to be the sick joke it always.
All it needs is some simple enabling legislating defining all residential and small business consumers as eligible for collective switching. Any consumer in these categories will have a clear opportunity to opt out and paddle their own canoes among the sharks, if that’s what they want. But everyone else is in and they can be segmented in to blocs of consumers probably on a regional basis. Then the suppliers would be invited to bid in a Dutch auction to supply one or more of these blocs for a defined period of time.
Only the suppliers know the costs of their antics and the auction will force them to reveal these costs.
Ofgem was excessively generous with the previous network price control (RIIO-1), but it has been forced to tighten things up significantly with the current RIIO-2. But there needs to statutory consumer representation in all regulatory proceedings. The current consumer challenge panels are just another sick joke.
It wouldn’t take a lot to get this show on the road. And final consumers, who fund the whole shebang, would certainly benefit.
I can’t claim any expertise in law, but if this account by the Trade Justice Movement is accurate, it would seem prudent for the UK to remove itself from the ‘Energy Charter Treaty’ before nationalising parts of the energy sector. If there are ‘sunset clauses’, unless we wanted to get taken to ISDS, we might even have to wait a while after leaving. Or have I misunderstood?
https://www.tjm.org.uk/trade-deals/energy-charter-treaty
[For clarity: I also want nationalisation]
Kind Regards
We have to take these clauses on and defeat them
There is a conundrum. We do want reduced energy use (well, certainly coal/oil/gas generated) and price (among others) is a legitimate tool to use……. but it has severe implications for the poorest.
Surely we need a two tier pricing structure where each person/household is allocated a ration of electricity at a low rate with additional purchases at a higher rate.
This is one of the great challenges of our time
The pricing is secondary; it follows the way the industry is structured and regulated. It is little better than the British rail network. It doesn’t work; from the grid to the regulation. The British system is just another function of neoliberal ideology indulged beyond its capacity to perform where markets function badly. The poorest suffer most; so nobody notices, or cares; from a neoliberal perspective, that works in the political market well enough.
There comes a point where we must stop following the essentially narrow, trivially technical measures to which neoliberalism attempts to reduce every solution to a problem; because first, the nature of the problem must be established; only then (second), what is the first essential in solving problems with technical measures is less a matter of the measurement itself, but the selection of that which is measured (the question neoliberalism invariably begs). Neoliberalism too often selects the wrong object to measure, because it only recognises measures determined by markets rather than the underlying nature of the problem: because neoliberalism is ideologically bound to the principle that human life must serve the market. Everything in human life is not reducible to markets, indeed very, very litte is actually reducible to markets (hence the Financial Crash, Austerity and the consequential unpreparedness for a pandemic); which is why we are in the mess we are in.
Yes.
Indeed. Why not change the world while we’re at it.
There’s actually quite a simple solution that could be implemented speedily as I’ve outlined above. But it seems to attract no interest, because it merely modifies, rather than completely overthrows, the existing market and regulatory arrangements.
“….a simple solution that …. modifies, rather than completely overthrows, the existing market and regulatory arrangements.”
Why not? Because that is exactly what we do not need; a focus on more detailed technical measures that are designed solely to provide a lifebelt ‘in extermis’ to the current system and perpetuate it. I do not see that as a “solution” but just another evasive fudge that is actually designed to prolong the life of a dud system, reinforcing the current model that we know does not work, and causes harm.
“Nationalisation isn’t a solution now. It may have merits eventually as the course to net zero becomes clearer.” This is a future that never comes, because more and more elaborate distortions are created just to save the current system. Kick the can down the road is not a solution, nor is it improved by simply labelling the identification of the real problem as: “Why not change the world while we’re at it.” Which is simply another way of saying; ‘There Is No Alternative’ to carrying on regardless, fudging and fiddling at the edges, no matter the consequences; because the last thing we can do is point out that the Emperor is bereft of clothes.
Agreed on this
If you have read Mirowski yet, you’ll know that the Neo-lib view for any problem is ‘more markets’ or assume that they are right where they operate.
This is where we are in our history – the market view prevails – even though there is rampant evidence to the contrary (markets have failed just about everywhere in my view in some way).
A courageous Government would take the bull by the horns and intervene on behalf of its citizens. The problem is though very deep, because in relying on the market view we have also – unbeknown to many – sacrificed sovereignty – the ability to take action or intervene. The sovereign power is still there but politicians just don’t want to use it.
And that which is not used tends to atrophy. We see that in politicians about Government money don’t we, with Left and Right politicians seemingly unaware of the facts despite what was achieved by Attlee who is seen as a quaint aberration? And that’s how you get TINA and Tim Snyder’s ‘politics of inevitability’ and an unwillingness to do anything to help with ‘the natural order of things’.
Because many politicians honestly believe that they can’t do anything.
The last is, of course, the cowardly state
Surely we need to change ownership of energy supply simply because it needs to be controlled for the climate’s sake.
Maximising profit just doesn’t do that…
Cowardly?
May I disagree somewhat?
I think that cowardice is knowing what one can do and then not doing it by choice.
I think that too many politicians are not even that knowledgeable about how the Government they are part of really works. They are either deliberately misinformed by (say) the Treasury or lack the get up and go to find out for themselves. They seem happy it seems to operate at a reduced level of knowledge.
I’d call it ‘The Ignorant State’ or if you like ‘The Thick State’.
But I do think they walk away deliberately…..