I have been reflecting on yesterday's political debacles. One of these was the fiasco of a plan that Rishi Sunak put forward to support those who will suffer dramatic increases in energy prices over the coming months and years. My response was a Twitter thread, unusually for me actually written on Twiter itself and so only capable of easy reproduction by screenshot.
I began with this:
The argument continued with me saying:
I am quite convinced that what we are seeing is evidence of total market failure. We must have reform or this crisis will not go away.
But is Labour willing to suggest it? And will the SNP do so too? It's beholden on both to rise to the challenge.
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As you say, dogma triumphs over what would actually be in the national interest, and, given that this government cannot break from its ideological shackles (even if it wanted to, which I doubt anyone in government does) the magic money tree has to be utilised – once again – to protect that ideology. On a practical note, I wonder what all those customers of the various energy companies who claim their supply comes from renewable sources feel about seeing their bills increase so dramatically. So much for trying to do the right thing. And, once again, a supposedly ‘green’ initiative is shown up to be nothing but ‘greenwash’.
Agreed
“But nationalisation doesn’t work or so my mate Mandy tells me now he doesn’t have Jeffrey Epstein to confide in”. Any idea why Sir Kier?
I switched to Octopus some years ago. No doubt someone will tell me how bad they are but I’m happy so far. No one wants price rises, but I’ll manage, and if it allows them to keep investing in renewables I am ok with that. But something needs to be done about windfall profits.
I got moved to them by the Co-op a while ago, but keep Co-op ‘green’ tariffs, ha ha
…and all the Scots say, “You’re welcome”!
The lack of any energy strategy has come home to roost…. but the whole point about “marketisation” is that it eliminates all strategy by definition! Any strategy is seen as market meddling. If you think we need an energy strategy then Nationalisation is the only solution.
Also, the BoE needs to think differently. In some sense, an energy price hike is like a VAT hike – an arbitrary increase in prices that hits everyone’s spending power….. which is, ultimately, deflationary. Sure, the analogy is a bit rough and ready but (given we import most of our gas) energy price rises, in terms of domestic economic activity, are deflationary.
Clive – I disagree that nationalisation is the only solution – nationalise “supply”, yes – but no need to nationalise the electricity generation sector. I strongly believe in community owned renewable energy and that is a form “public ownership” but not “nationalisation”.
Let’s not pick hairs…
I use “nationalisation” as a short hand for control over the entire sector to ensure it delivers on the strategy chosen by our elected government…. but I accept other forms of control/ownership are possible.
If you number the bottom of your tweets “1/” and so on, you and others can make use of:
@threadreaderapp unroll
Then you can just copy all of the sequenced text easily in one felk swoop. Saves a whole lot of cutting and pasting.
I know, but this is still a lot easier when time is tight
Anyone who actually experienced the farce that is the British energy market, if they lived through one of the recent storms and consequent power-loss (energy, heat, communications – everything), will have discovered that the whole system is a fake.
In such an emergency you discover your energy supplier doesn’t supply your energy, help or anything at all; save the price you pay. You discover you do not know who actually supplies your energy (you are not supposed to know0; and when you discover, only by your own diligent efforts who actually delivers your energy; you also discover the network operator that supplies your energy has no interest in you, and is, in effect, a monopoly supplier. I am still struggling to find out how or even whether I will receive any compensation for the loss of energy and communications for around two days; and without the network energy supplier ever having made any attempt to contact me at any time at all, of their volition, and without me first contacting them. My so-called energy “supplier” with whom I have my energy contract actually informed me that the real energy supply was nothing to do with them, it was all the responsibility of the network suppler, whoever that was; including contact and compensation.
It is only ever in a crisis that the public will find out how any market really works. Few work at all in a crisis. The British energy market is little better than a massive political scam being perpetrated on the British people.
Spot on John
https://weownit.org.uk/privatisation-fails/energy
Who owns energy companies, according to weownit. When Hinkley Point C comes online prices will go up even more, even for those who have sourced green energy. I’m with Coop/Octopus too.
sorry, you are still floating on the surface. It is not enough to look at the major energy groups as consolidated corporate entities, since they will include both network production and distribution arms, and “suppliers” (marketing operations). The actual supply of electricity through the Grid (itself producing cost mismatches in different parts of the coutry), and the distribution network is supplied through the network companies. There are few of them, they are large – because they are the only operations with the capacity actually to deliver energy. The costs of production and networking do not move the energy cost materially, at least in the short or medium term; that is largely a function of very long term investment, and technology innovation. None of this has much to do with short term price movements. The other key factor is the eneregy source itself, and again the marketing companies do nothing materially to affect this, save when nothing is happening. think about it; the plethora of marketing companies all have costs, overheads, marketing costs and financing costs, all to produce small margins of supposed benefit only when nothing is happening, and the business environment is both easy and forecastable considerable periods ahead . In any other situation (which happens dramatically from time to time); the whole structure immediately collapses. This is not the best way to to tackle energy supply; indeed it emphasises the ‘market’, when the real issues are about relaiable sources, investment horizons, technological innovation and investment (typically only capable of being led by Government).
There are much better ways to control the major suppliers than phony markets. There are many ways to do this; some have been discussed by richard and experienced commenters here who are specialists in this area before. In the end I quite like control f the ROI on the energy producers, which are monoploies – because no state could afford two networks or more into every home.
Even Good Energy which claims to be 100% renewable sourced is increasing its prices in line with the other exploitative electricity and gas suppliers. I will keep paying them though as Richard pointed out about my proposal for a mass withholding of payments to encourage a change to investment to renewables and insulation will lead to my supply being cut off. However, as up to 5 million people may be thrown into fuel poverty despite Sunak’s pathetic gimmick of £150 rebate on council tax and £200 loan over 5 years when prices are increasing by at least £670a year (and probably even more in 2023) there will be mass involuntary refusals to pay by consumers anyway.
Very likely…..
They cannot “cut you off” if you pay what you can afford. Mass under-payment (remember the poll-tax protests?) would make producers/suppliers and politicos take notice, no?
Unless you are one of the millions of households compulsorily on pre-payment meters. You cut yourself off if you don’t top up the leter.
True
And prepay meter prices – already much more than ‘normal’ meters – are going up by 65%. All on the unchallenged (by ‘churnalists’) claim that they cost energy companies ‘more’. Since prepay meter holders are *already* paying much more, how can the so much higher *new* rates be justified?
“But is Labour willing to suggest it? And will the SNP do so too? It’s beholden on both to rise to the challenge”
No…..
I’m with Good Energy, 100% renewable electricity. They are not subject to the price cap. I could go elsewhere, less green, but my pv’s offset some of the increase so I’ll stay. Why are their prices going up too when onshore wind is the cheapest source of generation?
“ Unfortunately, gas is the key driver of electricity prices in the UK market. So whether you are buying direct from renewables, as we do, or not, prices are rising.
Renewables have seen huge cost reductions over the last 15 years and are now among the cheapest ways to generate power. But the price of electricity at any one time is typically set by the last type of generator that needs to switch on to meet electricity demand. In the UK, this is often gas. If that gas is very expensive, then generators of other types can then sell their electricity for more.
This is not how the market should work, but currently, it is. We believe it adds further urgency to the UK’s need to move away from gas and fossil fuels altogether.”
The green wash is rumbled
The electricity you get is identical to everyone else’s
There is no separate green distribution network
Gosh! I didn’t know that! Why didn’t they tell me when I signed up?
I’m paying for generators to produce green energy when I need it rather than those burning fossil fuels. And most years our PV panels produce more than we use. How much do you generate?
I used to generate a lot – more than we used
In this house I do not have panels for all sorts of complicated reasons – although that may change soon
Mr Hewitt,
Forget your “energy supplier”, they supply consumers with prices. Find out who is really supplying your electricity; your network operator.
Mr Warren, I know that. That’s why we built an eco house and have PV panels. So I export some nice clean electrons and put up with getting some nasty dirty ones back. What do you suggest I should do? Sign up with Shell?
Many of Good Energy’s suppliers are small generators and I prefer to help the little guy rather than the predatory monopolies who think nothing of trashing the environment and people.
There is nothing you can do about it; short of changing the energy system and discarding the fake “market”; and that is ‘politics’, pure ans simple.
Why do you have to put people down. We can all only do what we can. I am sorry I am not an expert like you, but at least I am concerned. weownit.org.uk want energy along with water and other commodities to be nationalised, which to me seems a good thing to do. I am sure you will tell me I am wrong there, too. Why is it that EDF can sell energy in France for less than they do in the UK?
Sorry, jenw – but I wasn’t commenting on you, I was responding to Mr Hewitt’s reply to me, and I was not ‘putting him down’; merely declaring how I saw the predicament. Mr Hewitt may set me right, if I offended him.
Incidentally, I do not claim to be an expert in energy; there are others here who would better fill that bill; but I am both a user, and someone who experienced a serious power loss during one of the recent storms; so I know how little our market system actually does, or has to offer. That is all.
Thanks John for clearing that
In response to JenW, 84% of EDF is owned by the French government. It can make profits in the UK to subsidise French customers. And French government have ordered EDF to take an 8.4b euro hit.
I’m not sure that the claims of suppliers like Good Energy and Ecotricity are totally green wash. The electricity that comes into your home may be no different from that of any other supplier, but by purchasing from them you are helping to fund new sources of renewable energy. The problem is more that prices in the electricity market are determined by the marginal supplier, ie gas turbines. So high gas prices mean excess profit for renewable energy suppliers. I don’t know how much Good Energy would be able to redistribute those profits to their customers, as they’ve sold off all their generating capacity, and now rely on purchases from a large number of independent RE generators.
I’m afraid the “small” generators are generally overseas-based, or backed by private investors, who care not for how they make their money…as long ss they make it!
A farmer consortium applied for permission for (a total of) 17 turbines (25MW), on hills near me. Of course permission was granted for all the separate applications (guardians of the countryside, upstanding community land-owners etc)!
Upon receipt of their planning, they promptly sold them to Eneco, a Dutch company. Chi-ching! A hefty sale and annual ground-rent, for a little paperwork.
The fact that more than 10 properties, outwith the farms, were identified as at risk of “shadow-flicker”, for up to 30 minutes a day, over the space of 4 hours, for up to 6 months a year, was never a concern. They even lied on their applications about the installation of control circuits, to stop the turbines in shadow-flicker events.
Eneco sucks every penny over the upkeep of the farm, to HQ, in Rotterdam.
Driving investment in “UK renewables”? Aye, right!
https://www.euronews.com/green/2022/02/03/brexit-was-meant-to-lead-to-a-vat-cut-on-energy-bills-so-why-are-they-about-to-rise-by-54
I was with Ecotricity when I could afford it. Then I moved to Bulb, then Coop Energy/ Octopus. Strange why it’s taken until this crisis to find out why green energy costs so much, but I’ve known since the 70s that renewable enrgy is the only way to go. Note the article is not in MSM.
I admit to being woefully ill-informed on this subject and I am grateful for the education provided by many of the commenters on here. Particularly Mike Parr.
I have what is probably a very naive question.
I accept there needs to be root and branch reform of the energy markets, I think that case has been well made on here but that is probably a long-term thing. However, in terms of the short-term “cost of living crisis”, is it not the case that they could’ve just refused to increase the energy price cap? Is that not legally possible? Would that not be better than all the shenanigans about rebates, loans etc? What would be the consequences of that? Small energy “suppliers” going bust?
I suspect they could gave done
Or they could have required an average price method, as Mike Parr seems to suggest
But they do not believe in that as it is not what economics text books teach to be optimal
Thanks for this. I have occaisionally seen this phrase, or similar ‘energy is priced at the cost of the most expensive unit sold’ in articles but it has never been explained. Now I think I grasp it. The obvious question, to me at least,
– gas anyone done the sums to provide an estimate of energy prices if an averaged approach was used?
Search answers from Mike Parr here
A very nice series of tweets. Thanks Richard. 🙂
It would be trivial to change from marginal to basket pricing. The costs of all renewable generators are know, input costs for the fossil are known & by extension output prices. Thus the question is: why is this not under consideration or even mentioned by any of the political partes. & note making the change woud drip wholesale prices by half overnight.
I am baffled, so I put it out there
Mr Parr,
“It would be trivial to change from marginal to basket pricing.”
I thought you were advocating basket pricing; except perhaps for city conurbations? I am not trying to pick fault; I do think you should write an article with a pricing proposal. I am always interested in your energy contributions, but I am slightly losing the thread from your recent comments. What do we do about city conurbations? And what about Grid network pricing?
Thanks for the question Mr Warren. Apologies if I answer it in a roundabout way.
In summary I and my collaborators (two are engineers one is an ex-Harvard economist) propose basket pricing for all generation that feeds into the upper layers of the power system i.e. 33KV+ (above 33kV is regional transmission at 132kv and above that national transmission at 275 or 400kV). Generation at this level and above, has known price inputs (fossil or nuclear) or well defined subsidies (renewables and eventually Hinkley Pointless). Every single MWh can be priced in this way. We thus move from time &demand-based pricing (+/-marginal pricing ) to real pricing based on inputs and outputs.
The basket in any 15 minute time frame (one could stick with the current gate closure approach) would be based on lowest cost first, highest cost last (just like in the old CEGB days – merit order based on price). The price offered “to the market” would be the basket of generation matching the load (XMWHs x Y£s + ZMWHs x A£s…/∑Y£…). Under this approach lower cost renewables would mitigate higher cost gas. Sadly (from some PoV) it would also vastly simplify the market and there would be no point to forward selling.
This approach would provide an elec price nationally, whether in cities or in the countryside.
At the other end of the power system, below 33kV and mostly on the 11kV and LV (415v/3phase) in rural & semi-rural areas community energy schemes would operate and in most cases would provide power to locals at prices less than basket prices. Because they would need very little electricity from the main system, they would have little impact on overall systems operation or wholesale prices. Such rural/semi-rural schemes address one aspect of rural poverty – energy poverty. We guestimate that community energy schemes could cover perhaps 30% of the Uk population, which suggests that they are well worth implementing. The socialisation argument against this approach (everybody should pay the same elec price regardless) dissipates when one considers the availability of public services in urban vs rural areas (e.g. transport, telecoms, libraries.. the list is long).
Of course community energy based on renewables is not precluded from cities. However, it is more likely to supplement rather than replace large-scale energy systems.
“Grid network pricing”. The operation of the transmission system is complex but there is not much of it. Operation and maintenance is well understood & thus regulation is not so difficult. Pricing, “what to pay for a given MWH carried on the system” is something even Ofgem can accomplish. Sadly this simple approach falls to pieces with the distribution network and its “operators”. At the moment we have an extortionary system. Nationalisation is the solution to this. The extortionary system exists because of two reasons. First, information asymmetry (DNOs vs Regulator) which allows system gaming by the DNOs. Second, the “beneficial owners” (mostly foreign) are interested in maximising profit extraction & I’d hazard a guess build this into workforce incentives at the higher levels. Out comes include: e.g. photos of clearly rotten poles snapped off in the Dec storm indicating a lack of line patrols (cut costs – boost profits).
Apologies to all for long replies. I try to strike a balance between a banal response and encylopedia brittanica length
Mike
Can you give an example using currently realistic prices?
I would really like to publish this
Richard
Mr Parr,
Thank you. Now we are getting somewhere. I do not know what Richard has in mind, and it is his prerogative, but we do need to find some way to promote this thinking and discussion to the widest audience. It also need to be simplified without being manipulated, but presented in a form that is both arresting and easily digested by the ordinary energy user, who is only interested in such dry subjects if it materially affects his/her bill; and at the same time a proposal that is sufficiently detailed and explanatory that it must be taken on board by vested interests in the industry, and difficult for politicians to evade, however hard they try (as they certainly wil).
There also requires to be a clear proposal for the organisational stucturing of a system that serves the public need (not least between public and private sectors), is financially sustainable, adequately regulated, audited and monitored (in all kinds of ways from finance, through environment to overground v. underground in contested parts of the country).
No small order; but nothing is impossible!
Indeed more eloquently summarised than I’ve accomplished of late, the UK situation is wholly artificial and damaging – URL bookmarked to copy the article on.
Another political thorn is the outright hostility of government to funding energy conservation, long a hobbyhorse of mine – Reversal could simultaneously reduce demand, fuel poverty, emissions, and those currently crucial imports at volatile prices.
Unlike the options available to the UK with a political will to do so, the EU is largely over a barrel on pricing – I’d already calculated my bills would be +60%, but with Romanian government intervention it is +30% to a capped usage for each month of winter (I’m well under the thresholds).
In reality I’ve ended up with a smaller bill for gas and slightly higher bill for power than last year, but having undertaken conservation measures since 2017 (then a 4 year old modern insulated cottage/house of 100m2), power and gas consumption last year were already at 47 and 48% of the original, ANNUAL bills of 254 and 327 GBP respectively.
This winter smaller gas consumption is entirely due to having further insulated one of two upstairs bedrooms – On completion of the second bedroom, gas savings may well breach 40% of the original. Now imagine that brought to bear as a national strategy and the hair pulling in the Treasury…
That is the answer….
Richard, – in answer to above question – yes (see also e-mail just sent). I have most of the text, missing is a quick & dirty analysis of the UK (being implemented). I am 100% certain that, in terms of pricing, the UK will look somewhat like Spain = not pretty & with a very robust difference basket vs marginal.
You & perhaps your readers may be amused to hear that certain Euro regulators were deeply “sensisitve” with respect to the Euractive article. Funny that.
In a 2nd response to Mr Warren, much of what you ask has already been done or sits on hard drives of my server/my business partner. We just need the right audience/fora for it to be propagated.
Disclaimer: market reform will benefit me as a citizen -through lower electricity/energy costs. That said, I am a great believer in collective action, with each contributing what they can. For the many, not the few.
Thanks Mike
This is a very interesting debate from which I’ve learned a great deal and which supports my long-held view that natural monopolies should not be subjected to market control. My views on this began with the Tories’ imposition of an internal market on the NHS, which had the effect of massively increasing administrative costs and changing management influence and ethos from clinician-led to business-led, and in turn facilitated the first steps towards privatisation of UK healthcare.
The privatisation of water and sewage in England was further evidence of the disadvantaging of users by market conditions. In Scotland, mercifully, we were able to dodge privatisation for domestic water and waste thanks to devolution, but water and sewage for commercial users had already been privatised (and remains so) before devolution came into being .
Richard asks the question whether SNP would advocate reform of energy supplies. Sadly, it’s hard to say: the Scottish Gov had proposed a national energy company but reversed its decision in Sept 2021 despite the membership having voted by 527 to 6 for a nationalised resource. It’s worth remembering that all energy powers are reserved to Westminster (i.e. electricity, oil, gas, coal, nuclear, energy efficiency) and the SNP’s plans and proposals could only ever come into effect after constitutional change. However any proposed change to energy strategy for the UK, should sensibly take account of the possibility of Scottish and perhaps Welsh independence as well as Irish re-unification at some future date.
One particularly galling aspect for Scots of the UK’s current market conditions is the imposition of Transmission Charges which are calculated according to the perceived distance from the “market”, which, not surprisingly, is London and the South East of England. The most recent graphic I’ve seen for these charges shows £7.36/MWh (for Scotland north of the Central Belt) and £4.70/MWh for Southern Scotland and, by comparison, £0.49 for all of England & Wales. In addition, most of the islands and the west and north-west of the Scottish mainland are not connected to the gas grid and are therefore largely dependent on electricity and fossil fuels for light & heat. Orkney, a major source of green energy (wind, wave & tidal) apparently has the highest electricity costs in the UK. It’s also worth noting that Transmission Charges are largely non-existent across Europe and, where they do exist, are considerably lower than in Scotland (e.g. the highest, Norway, is £1.36/MWh).
The notion of an even-handed UK-wide market pricing system is untenable when these factors are taken into account and rural poverty is one of the results. Mike Parr and Jim Osborne stress the place of Community Energy schemes and these have the very great benefit of keeping money circulating in the local economy and enabling local schemes to counter poverty in the community. A fine example is the Isle of Eigg, where the community owns the Eigg Grid and gets its power from hydro, solar and wind sources. As a result Eigg now supports a brewery, a distillery and umpteen small businesses where formerly only subsistence crofting existed.
Thanks Ken
https://www.facebook.com/WeOwnItcampaign/videos/3157251151227034/
This is simple enough for me.
I am a big fan of what Cat does
You know, I’ve been thinking again about how Government is these days amongst all these great posts.
I note that if you pay your road tax in instalments you have to pay interest just so that you afford to pay it in segments (tough luck if you are strapped for cash and have to pay like this to afford your road tax).
And if you get this £200 off your utility raised bills – you will have that pay back!
It seems that we are getting more and more to the Neo-lib nirvana that is privately provided welfare and other Government services where they will behave like private sector companies obsessed with keeping down costs and maximising income to the detriment of those who really need their help.
A Tory Government is no better really than many a modern grasping, accountability avoiding, risk displacing business.
Profiteering from their citizens since 2010.
It’s a terrible thought but it looks like it to me.
It also needs energy. At the moment it mainly comes via UAE and Russia and especially burnt when no wind and or sun and you hate the nuclear option so that rules that out. Great today almost 49% wind.
Which is why we have had discussion of storage here, but maybe you chose to ignore that