I posted a thread on energy pricing on Twitter yesterday and shared it here. At the time of writing, this has been viewed by more than 1 million Twitter readers, has had more than 10,000 likes and more than 5,000 retweets. Over a thousand people have followed me on Twitter. Many of them have asked questions. I can't answer them all, so I posted this new thread in response to questions this morning. It has to be read as an addition to yesterday's thread:
ADDITIONAL MATERIAL ON SUNDAY 13 MARCH. Thanks to so many who have read this thread. I can't answer all the questions individually so I am doing to post some additions to the thread to clarify some issues.
First, to all those asking about the extra standing charges they are paying, which are often double this year to what they were last. I can't see how these can be justified. In my calculation, I assume they should be fixed.
If standing charges have increased for a reason then the energy companies need to say why, and precisely what and who is to blame. If it is Brexit, say so. If it's poor regulation, say that too. But explain it so we know who to demand change from.
Second, it's been suggested I do not appreciate the split between energy creation / generation and energy distribution companies. I am confused by this claim. I thought it obvious from what I have done that I have made this split.
I have done a bit more checking though and think that I was, maybe, generous in assuming 10% profit in oil companies. Some don't make that. But all that means is that their profit increase is even bigger. The logic remains intact, in other words.
Third, some say I am ignoring the economics of scarcity here, and that the price rises are justified that there may be 11% less oil and gas supply in the world if Russia is cut off from supplying that oil and gas to Europe and beyond.
I have several responses. One is I guess I know some economics or I would not have been a professor of political economy for five years. Two, theories of economics are just that i.e. they're theories about how pure markets work.
Pure markets say scarcity increases prices. Political economy says something different. It says that those with power can influence markets, for better or worse. In other words, what economic theory says can be changed in reality, but it takes the powerful to do so.
Right now the powerful in this game appear to be the oil companies. They are exploiting us all to make exceptional profits. That's what my evidence shows. However you play with the numbers the answer will always be the same: they're exploiting this situation.
My answer to that is that for well over a century governments have challenged the power of those exploiting markets and the power they give to large companies to make profit at the expense of everyone else. This is a process that began in the US, surprisingly.
In the US they have what are called Antitrust Laws whose whole purpose is to prevent the exploitation of consumers by companies in the marketplace. My argument implicit in this thread is that this is what governments around the world need to be doing now.
More than that, I'm suggesting that if we want to stop Putin winning by making sure millions of people don't demand the end of sanctions on him because those sanctions lead to them being exploited by energy companies then we need cooperation now to end international exploitation.
Political economy says we can do that. We can reallocate energy supplies between nation states to stop the risk of energy rationing in some. We can use international tax laws - including some I helped create - to track down the profits of energy companies and tax them.
And we can also impose taxes on energy companies at home. There is a straightforward case for a massive increase in taxes on energy companies right now - to be applied to their excess profits, but nothing more.
But more than that, there is something else the government can do. Ofgem, a UK government regulator, does in effect set UK electricity prices. And it, in effect, prices that energy at the cost of the highest component element in the energy mix - which is gas.
What this means is that even though most electricity is not generated from gas in the UK, we pay for it as if it all is. So the price has skyrocketed even though we all know that the cost of creating renewables, nuclear, hydro and even coal power has not changed.
The government could change that regulation now and bring down electricity prices overnight. France provides evidence that this is possible.
Just as the govermment could also keep green levies fixed (but very definitely keep them, please). It could also cut the rate of VAT so that it takes no more money from us now.
However, none of these things, all of which are possible in the political economy, are happening. So there is a failure of our politicians to stand up to the power of energy companies here, nationally and internationally. And I am calling that out.
Finally as an addition, I know - and said - that the numbers may be a little simplified, but not much. But I would add, that's just fine. I am showing what can and cannot be controlled, and by who, and I am showing who is exploiting us. And that is deliberate.
This thread is in itself an exercise in political economy. Using the power of logic - and everything I have argued is logical and subject to minor simplifications likely to be as close to the truth as is needed to prove a point - I can show we're being exploited.
That's my aim. I want to use the power of Twitter to say that something different to what we are told is inevitable is in fact possible.
What could be different:
1) VAT could be cut
2) Excess profits could be taxed
3) The pricing formula used by Ofgem could be changed and the price of electricity could be cut, a lot
4) Standing charge increases can be challenged
5) International cooperation is possible.
What can you do? First, share this.
Second, write to your MP and ask them:
1) Why the gov't can't cut the rate of VAT on domestic energy to control prices, when Brexit permits this;
2) Ask why we can't have an excess profits tax on energy companies;
3) Ask why Ofgem can't change its electricity pricing formula.
Third, tell your energy company you are not happy. Ask them what they are going to do about this. Post the answers on Twitter.
Exploitation is not acceptable is the message we need to deliver. And right now we are being exploited.
Thanks for reading this post.
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Given that we have a potential 10% shortfall in oil & gas supplies as a result of excluding Russia from global markets, where are the energy conservation plans?
The reduction in speed limits and restriction on heating in commercial buildings we saw in the 1970’s?
Reducing the number of short haul flights?
‘slow steaming’ for ships?
Restricting or banning some wasteful uses if energy eg patio heaters, hot tubs, cruises?
More efficient use of synthetic fertiliser or better still replacing it with organic?
Excellent questions….
Those do not look like a progressive set of policies. In fact there are a great many energy users who being rich can afford the higher prices and would benefit from the VAT cut you propose.
We’ got a way of establishing which people are on low income, and it would be progressive to use that information.
I would recommend writing to your MP and asking them:
1) To increase the rate of VAT on domestic energy to incentivise energy conservation.
2) Increase the applicable amount of benefit claims by £25/week meaning that all on Universal Credit have an extra £1250 a year to spend on energy, jumpers, bicycles or whatever they value. Give them agency. Reduce the taper rate further too.
3) Ask why Ofgem can’t change its electricity pricing formula to a no limit one. Price controls lead to shortages, and for too long over the last year the rich especially as the biggest consumers have benefitted from the cap.
Yes, I know heating costs as a proportion of income vary with age and income level. It’s still true that the rich use the most in absolute terms.
Sorry, but to suggest anyone needs to be exploited in this way is absurd
Frankly, this is crass and utterly misses the point that there is mass exploitation going on
What is the official justification for the most expensive element of the electricity mix setting the price for everyone? That giving profits to people who produce more cheaply incentivises them to create new generation capacity at lower cost, reducing prices for the future?
The case for a windfall tax is almost unanswerable.
Although my supplier says it is 100% renewable , my electricity unit rate has increased by 41%. Why has the standing change also increased, by 56%? For comparison, the gas standing charge has gone up by 4% and the unit charge by nearly 80%.
The policy is based on microeconomic theory of marginal costing
It is simply wrong, as is the theory itself, which replicates nothing known in the real world
We are fortunate enough to have been able to afford to have had solar panels installed on Thursday. Since then, including a day of rain, we have generated over two thirds of our usage.
What is the government doing to encourage take up?
Not much….
Very little
Here in very rural north Scotland, where thefts and burglary are almost unheard of there were two thefts of heating oil from domestic tanks in the village last week.
Desperation and/or opportunism.
Both, I suspect
Pedant warning Nicholas. You, or anyone else in Scotland would have a job being burgled, since that crime doesn’t exist. It’s called Housebreaking, Still, we’re used to that inaccuracy being portrayed almost everywhere.
And what about the significant numbers of households, mainly in rural areas, who are off the gas grid and depend on oil for their heating? No dual fuel deals. There doesn’t appear to be support for them.
Agreed
There isn’t
Richard:
Well done and thank you for the Twitter input.
A relative who has oi fired heating pointed out that per KWH, the output from a heat pump would still be more expensive than his oil fired heating.
That was before the recent price hikes but the current price for eating oil is probably about 15p/unit generated which is still slightly cheaper than via a heat pump.
John Boxall opened the comments with the astute observation “…where are the energy conservation plans?” – Building insulation standards for new builds have dramatically improved since the 1960s, but the national retrofit and upgrade policies of that time were phased out and been notably absent since, leaving it to the homeowner to fund such upgrades privately.
As commented previously, phased additional insulation to my own 2013 house (final phase ongoing) since August 2017 saw an initial dramatic drop in gas consumption, and has been steadily declining ever since (final phase ongoing).
Combining power and gas kWh data for overall energy usage see annual figures of 2016 – 54,890kWh (baseline original house), 2021 – 23,808kWh.
If a 57% saving can be achieved on a modern if modest sized house in winters which can be brutal, 60%+ savings are entirely achievable for the bulk of the UK’s older housing stock – The secondary advantage is that the UK could be entirely self-sufficient for energy, reduced emissions, and extended life of gas reserves.
What is MIA is the political will to do so in preference to exploitation of the consumer, this latest scam being but the latest in a long and scandalous history for HMG.
Thanks
Impressive, and the right diagnosis
Bob, if it would not be took much of an intrusion, could you outline the sorts of insulation measures you have introduced (walls, roof, windows, doors, etc), approximately how much they cost to instal, and (based on the savings) how long you anticipated it would take to recoup the expenditure. The answer to the second and third may be “it does not matter” but on a national basis we would also have to think about the energy used to make and instal the insulation.
That would be good Bob
Sure, but my apologies for the length –
Original house construction – Ground floor reinforced concrete frame with 250mm brick infill (earthquake requirements), 50mm polystyrene outer skin with cement stucco finish. Upper floor timber coombed ceiling construction. Floor area ca 100m2.
Once access hatches to top and side lofts had been cut, investigation found all ceilings suspended on light metal framing, and upstairs walls formed on light metal channel fixed between timber columns and rafters to which light plasterboard had been fixed.
The only insulation found was 100mm glass wool between the upper loft floor joists continued down the underside of roof between the rafters, but with roof sarking gapped and a breathable “membrane” (cheap rubbish), it’s the most ridiculous design of a “hot roof” I’ve ever encountered. Support timbers atop the membrane act as anchorage for the metal roof.
Having already remote monitored gas use since 2016, monitoring was augmented with one wire temperature sensors installed to all downstairs rooms at ceiling level, upstairs rooms at head height, east and west lofts, and 2 external sensors – This helped inform what was going on via a monitoring system (Domoticz), with the two side lofts exceeding high 40s on sunny days, the upper loft I twice measured with a laser at 52.
2016 was the last full year of the original house, hence that is the datum by which gas consumption was evaluated.
Phase 1 – Install 200mm glass wool between ceiling joists in side lofts, and staple a curtain of aluminium foiled 100mm glass wool to the loft side timber wall posts.
Both floors warmer in winter, upstairs still varying to external temps, cooler in summer, ca 35% reduction in gas.
Phase 2 – 100 foiled glass wool in upper loft (in addition to existing 100mm glass wool, changed all radiator thermostatic valves to Heimeier constant flow types with new heads, a replacement Lounge radiator (had been undersized) then completely balanced the heating system after playing around with the pump speeds.
Upstairs even cooler in summer, room temperature variation downstairs in winter altered from +/-1.5c to +/-0.75 but upstairs still varying and affected by outside temps. Despite one heating cycle extra in winter, gas reduced a further 15%.
Phase 3 – Fixed 50mm timber framing to upstairs interior walls and coombes with 50mm polystyrene between then new plasterboard in the north facing bedroom. The coombes insulation had greater impact on room temperatures in winter, so much so I had to reduce flow to the radiator or it would skip alternate heating cycles. Gas reduction a further 7%
Phase 4 – Ongoing, same lining for 2nd upstairs bedroom, but following Phase 3 I’m convinced closing this final part of the envelope will see overall gas reduction breach 60%.
A further 100mm glass wool will be installed this Spring or Autumn for the side lofts.
OT – An intriguing find in operating a condensing boiler. I had previously let the boiler work away at a set temperature, bumping it from 50 to 55 in cold weather and 60 when it occasionally fell below -10 outside.
After adding sensors to the boiler feed and return, when the boiler was displaying 50, 55 etc it was in error and non-linear. For 50 and upwards it was in reality 45, 50, 53, 57, 61 and 65.
Hence in January I began an experiment – Knowing all but the Lounge radiators were oversized, and that the Lounge had a cycle time of 17-18 minutes, I varied the boiler setting according to the expected outside temperature, achieving a cycle time of 17-19 minutes, giving a return temperature consistently at 30-33 even when it was -12 out.
The 17-19 minute cycle was catching the return temperature on the rise hence was operating for most of the cycle at max efficiency.
At a setting of 70 (real 61) when -10 outside, the boiler cycled using 0.3-0.4m3 LESS gas than at 55 (real 50), unfortunately the deep freeze didn’t last long enough to extend the experiment to 75 (real 65) but now I know for the next Siberian winter. 😉
My apologies to Andrew, but forgot to address his additional points.
Labour is my own hence it was only materials costs – I met my target of funding Phase 1 and 2 from the first year’s savings which would be ca 350 euro.
For Phase 3 and 4 it has probably been around the 500 euro mark, but I didn’t keep records as I was past caring at that point.
The house is double glazed with only front and back entrances triple glazed, the windows only have venetian blinds but internal granite cills which push most of the heat roomward.
Were I to add 50-100mm further external insulation I’d seriously consider changing the windows.
For a national scheme the greater cost would be manpower, but a) a crew could do multiple homes much more rapidly than an old fart working slowly, and b) by comparison with the cost of a developing new gas well to feed existing demand it’s a no-brainer.
Thanks, Bob.
Impressed at the large impact of the first phase. It really is a no brainer, isn’t it.
Do I understand that the house was built in 2013, and with c.£1000 of investment for some pretty basic modifications, you have cut the heating input by over 50%?
In answer to to your latest question Andrew to which I cannot directly reply essentially yes is the answer, but it was 350 yoyo in materials including the radiator, a taller towel rail, the valves and heads as well as the insulation to reach 50% reduction, and at the end of Phase 2. That was unchanged for 3 years.
Bear in mind the quirks of construction here, particularly the slotted roof, nobody would construct that and remain in business in the UK, but you don’t get 40+ summers there either, which is what I guess propelled this bastardisation of a hot roof design.
Associated, the aluminium foiled insulation reflects heat thereby reduces the effect of heat radiation from the metal roof but for double the cost of standard glass wool. You wouldn’t need that in the UQ, so in theory you should be able to double the insulation depth or area for the same cost.
I can only guess at >60% savings following Phase 4, but after 3 years of savings since Phase 2 this more than covers the additional outlay for the 3rd and 4th phases.
It would be rude not to really, 600 quid total energy bill for a year is not a bad place to be these days…
This empirical data accords well with our own reasearch (and those of others – in other countries – e.g. Germany). 50% is easily (ish) achieveable.
Generally speaking, a UK semi of circa 100m2 will consume around 18,000kWh of gas per year – perhaps a bit more depending on how toasty the inhabitants like to keep the place. With modern double glazing, 240mm loft insulation and cavity wall insulation (& a bit of draught proofing), we would expect this figure to drop to perhaps 10,000kWh/year maybe a bit less. Bravo Bob btw.
Yes please Bob, that would be brilliant!
Absolutely brilliant stuff Richard; not the analysis and thought (which is great as usual) but the summary set of actions on what we can do to get the message out.
Thanks.
Alan
The Government has Legislation at its disposal that could be used to rapidly impact the crisis.
The Warm Home Discount Regulations 2011, renewed every year since, is a mechanism by which the Government can instruct the Energy Companies to give up to £2,000 of debt relief to customers who are at risk of Energy Poverty. So this is entirely possible, in existing legislation, for the Government to lay this before Parliament and, a month later, for that to be “the law of the land”. The Government have found no problem in doing this with The Hydrocarbon Oil Duties (Miscellaneous Amendments) Regulations 2022 (Laid before Parliament 8th March 2022, Effective 1st April 2022). It really is just an an administrative process to restate the Warm Home Discount Regulations and to indicate to the Energy Companies how much they must dispense to people in risk of Fuel Poverty.
There is even a definition of Fuel Poverty. Before 2013 ifyou spend 10% or more of your income on Energy then you are in Fuel Poverty. In 2013 However, in June 2013, the Department for Energy and Climate Change (DECC)* published ‘A framework for future action’ which set out a new definition of fuel poverty for England.
This new definition states that a household is said to be in fuel poverty if:
They have required fuel costs that are above average (the national median level), and
Were they to spend that amount they would be left with a residual income below the official poverty line.
The Office For National Statistics gives a handy chart that indicates the median fuel costs for a home in England with a D rating is £1,279 compared with £1,057 for an A-C rating and £3,071 for G rating. It is clearly easy to see that a proposal of £3,000 places everybody except a G Rated property into the position of Fuel Poverty. A G Rated property would, under the regulations, already be entitled to funded mitigations. Broadly the whole of the Bill Paying Public fall into the first criterion of Fuel Poverty according to DECC (2013). Which leaves the question of how many people would fall below the “Official Poverty Line”.
The “Official Poverty Line” is a term that Governments dislike being clear. There is a constant desire for it to flatter ministers. There is always a lot of nonsense about “absolute” and “relative” Poverty, but for the purposes of Legislation and such, the accepted Criterion is “60% of Median Income for the Year”. For the year ending 2019 this amounts to 60% of £29,600 or £17,760. By the DECC 2013 Criterion for Fuel Poverty, anybody whose Income minus Fuel charges falls below £17,760 is in Fuel Poverty. Which, for the purposes of
The Warm Home Discount Regulations 2011 means that the Energy Companies can be instructed to give up to £2,000 debt relief via the Regulations.
No new laws. Nothing to do except renew the regulations with some updated figures and clarify to the Energy Companies what the updated figures and renewed regulations oblige them to do.
It could be considered a Windfall Tax, of sorts, which simply returns £2,000 to Customers. Beyond that, it has value in being a practical examination of measures which increase the amount of money available in the Economy. It also has a huge attraction to the Chancellor because the transactions are not out of the Treasury but out of the Energy Companies. There are, clearly, going to be tax implications in that the Energy Companies will seek to set the £2,000 debt relief per customer against liabilities but that is an issue for another day. Perhaps the day where a Chancellor explains that Share Dividends are not guaranteed but contingent on performance and that Shareholder Funds are there to support companies through the bad times as well as giving handouts to Shareholders.
The entire sketch, above, is only possible if there is a political will to reduce Poverty. It is a practical scheme that, given political will, would work. The alternative, in my mind, is nationalisation without compensation. Which would deprive Shareholders of more than £2,000 per customer.
INCOME: https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2019
POVERTY: https://commonslibrary.parliament.uk/research-briefings/sn07096/
WARM HOME: https://statutoryinstruments.parliament.uk/instrument/uPwQBUYG/
ONS: https://www.ons.gov.uk/economy/inflationandpriceindices/articles/energypricesandtheireffectonhouseholds/2022-02-01
Thank you