As the Guardian notes this morning:
Two of the UK's biggest energy suppliers have thrown their weight behind a plan being debated in the industry to devise a fund that could freeze customer bills for two years.
The British Gas owner Centrica and Octopus Energy are understood to support a scheme that would create a multibillion-pound facility to spread the cost of an emergency funding package over a decade, the Guardian can reveal.
Their fellow suppliers ScottishPower and Eon have presented plans to ministers for the “tariff deficit fund” underpinned by a government guarantee.
Under the proposals, first reported by the Sunday Times, commercial banks would put cash into the state-backed fund, which suppliers could then draw on to fund measures to freeze customers' default-tariff bills at the current price cap, £1,971, for two years.
The cost of the scheme would then be paid back over 10 to 15 years through a surcharge on bills or via taxation.
You might wish to call me cynical, but I have my doubts about this scheme.
First, what it very clearly signals is that these companies will go bust unless people get support to pay unsustainable bills. What they are effectively doing, in that case, is acting as gatekeepers for those who want to keep the prices high, and this scheme supports the exploitation of the companies now making excess profits.
Second, a 'state backed fund' sounds like a guarantee is to be given to me, which suggests a high price should be charged for the capital that will, in effect be supplied.
Third, I very strongly suspect the devil will be in the detail. I would expect there to be clauses guaranteeing the continued private ownership of the energy sector in any detail, with big compensation agreed if that changes.
I sense a Trojan horse here, and something to most definitely be avoided unless of course, you are a Tory leadership candidate.
The reality is that if these companies cannot manage - and it is clear that they cannot - this sector needs state control, as I argued yesterday in 'Surviving 2023'.
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And if and when the cost of meeting the cap falls below £1971in the next two years? Doubles all round? As you say, Richard, the devil will be in the detail. Or, if the price of energy takes off skyward again for whatever reason, which in an unstable geo-political world cannot be ruled out, what scheme would the supply sector then recommend? Borrowing long for short-term needs was an old expedient of the Soviet bloc, in their case for deficiencies in their grain harvest–not exactly the soundest of economic principles.
You are right on the problems of short term borrowing to tackle systemic failure
Broadly speaking one can split the elec market into two bits: wholesale and retail – with the latter a price taker. Supplier to the whoelsale market are the generators. The overall structure can be summarised as: generators with retail operation and retaliers with no (or little) generation. The integrated players (SSE, SP EdF etc) are laughing all the way to the bank – make money on generation & it looks given the proposals – get a bung on the retail side.
On the generation side: one can segment things out as follows:
nuclear – get the marginal price (£200?MWh) actually levelised cost: = £60/MWh. Kerching! – windfall profits
RES using ROCs – as above with levelised cost varying but in the range £60 – £100/MWh: Kerching! – windfall profits
DRAX: coal & biomass – levelised cost probably £80 – £100/MWh: kerching! – windfall profits
Gas: forward buying of gas probably delivers an overall cost (including carbon pricing) of around £200/MWh: no Kerching & thus no windfall profits
RES offshore: mostly symmetric CfDs in the range £50 – £120/MWh: no windfall profits – but gov making money hand over fist (since the diff between wholesale – and levelised cost is passed back to….ta-da – the toyr gov. Hmm, one wonders what they are doing with the money? Doubtless paying for Mendacious Fatbergs hols or some such.
Generators do not want this current party to end – they are, mostly, making money hand over fist.
Thus the current proposals:
a) divert attention (away from fundamental reform)
b) keep the money go-a-round rotating at speed.
c) socialise citizen losses (due to high prices and gov compo) whilst keeping collossal profits private.
Do not think that “c)” is unique to the UK, it is being also played out in Germany, as I write (asymmetric CfDs are delivering loads of money to generators – some of which are players in the UK, btw).
I liked Ed Miliband’s piece in the Grauniad, this parapraph, speaking of Truss and Sunak, sums it up.
‘These candidates are stuck in the dogma of the past, believing the state must stand back and let market forces run wild, whatever the consequences. They believe we should measure the success and security of our country by the balance sheets of BP and Shell, not the bank balances of the British people.’
It’s just a shame Labour suffers almost all the same belief in markets then
Back in June the government hinted it would end the current market arrangement where electricity prices are determined by the marginal cost generator (gas), to allow consumes to benefit from the much lower marginal costs of renewables. It seemed like a rare glimmer of good sense. But it doesn’t seem to feature in subsequent discussions of how to address the cost of living crisis. Has it been forgotten?
Starting to remind me of trips to what was then the USSR in the late 80’s and watching it all fall down
I totally agree that these essential services should be brought back into public ownership.
There is now fairly solid support for this which I feel will be even higher once the bigger bills start to hit later this year. The unknown answer right now is if and when this crisis is over, will prices fall back to their pre-crisis level. I think not, mainly because these monopoly type private companies will be rolling in the cash then. We may see some reduction in our bills, but £4 grand a year average may become the norm, the days of £1200 average bills long gone.
The Tories have no answer to this. They are fighting old inflation type wars in trying to keep wage claims down. I will also guarantee that if a Truss Tory Government is elected, all the subsidies that are now being given and/or talked about will gradually be taken away. Those on means tested benefits at the bottom of the pile may get some help, but the majority will not get anything. Tories don’t like what they see as handouts so they will end it. So, if higher energy prices are here to stay, most will be forced into finding the money some how which will result in less spending in the wider economy or less saving, alongside widespread poverty.
Labour and the LibDems should put clear daylight between them and the Tories on this issue. Public ownership of an essential service is the answer.
The price rises that we are seeing and will see show that competition doesn’t work, especially when part of your supply comes from countries that can hold us to ransom. It’s still a monopoly with the regulator Ofcom (con) working not in the interests of consumers but the energy companies.
Once nationalized more emphasis can and should be placed on saving energy. How about the people who use less get a discount on their bill for saving energy? We can also get rid of the standing charge con. The state will be able to respond quicker to potential crisis than the private sector, who basically can only put up prices or go bust.
It is clear (was it ever not the case?) that energy and it’s availability is both a necessity and a security issue. I think the opposition are missing a vote winner here. Energy security and national security really go hand in hand and it is only public ownership that can guarantee it IMHO.
I agree
It’s all very simple to me.
Privatisation creates an extra mouth to feed. Operational surpluses that could be reinvested are given away to shareholders or to CEOs or to do share buybacks. This is where the problem starts.
And like the cuckoo in the nest, the new owners and their funders soak up all the resources that could be used to improve infrastructure and subsidise prices because the law makes sure that they come first and that they get their returns.
Whether it’s gas, electricity or water – privatisation dams up investment and spirits it away.
Yes – there are other factors as Mike Parr points out in the energy sector – but this investor led model is useless in my view for public utilities and services.
Another example is the railways. There used to be a certain amount of redundancy (or spare capacity) with say rolling stock to cover contingencies like break downs or over overcrowding (relief trains were provided – remember them?). Local depots used have their own breakdown trains etc. Now – if the train fails (breaks down) it’s usually cancelled.
I heard an Alstom engineer talking to a guard on my local train the other talking about the new trains coming on stream. They were all DOO (driver operation only) so the guard was worrying about his future (the CoLC seems to have no effect on capital’s desire to cut the wage bill). The doors of the new trains have camera censors meant to check passengers including if they get on the wrong train. Apparently these are not working well in testing.
But the most telling thing I heard was how cramped the new trains are. They are designed to cram in as many people as possible with very little leg room. To carry the most number of passengers per coach/unit.
In other words to maximise revenue. When you consider the space standards of a humble British Rail Mark 1, 2 or 3 coach, you realise just what a grip profit has on our services and how little things like comfort and style mean so little.
I find it disgusting personally. We are nothing but a source of income to the rentiers who dominate our world today.
Consider this a follow on to MarP’s comments.
Previous discussions on this site concerning (privately owned) utilities have often included claims that “better regulation” is needed.
My counter argument, is that “better regulation” cannot work due to information asymmetry (between the regulated – who hold vast amounts of data and the regulator who lacks data and knowledge).
There is also the “regulatory capture” aspect – where the regulator regulates in favour of the regulated and not in favour of UK serfs.
Conveniently we have an almost perfect example of this – albeit in the water industry (Turds-r-us?)
https://twitter.com/paulwaugh/status/1559441923797987329
Ofwat (one feels that there is a “t” missing which if present would perfectly describe the org) has been captured by those that it regulates. Ofgem (no jewel itself) is the same.
We are thus left with the need to: nationalise water, gas and elec networks, appoint citizen boards (board members chosen by lot) with a modest support teams (of experts and lawyers) for the citizens. They would then provide oversight of the nationalised networks – which, with the exception of National Grid, tend to operate on a regional basis. Think of it as status-quo ante – back to 1988 with a few bells and whistles. Furthermore, ownership would be vested with local governments. Making it very difficult for any future tory-vulture governments to re-privatise. Of course, if the United Serfdom had a constitution, such ownership could be enshirined in said constitution.
Oddly, in 1988, my old state-owned DNO experimented with energy efficiency in-lieu of network reinforcement – scheme was a great success and ………following privatisation nothing else happened.
Concluding: I swam in a beautiful cold, clear river in Belgium on Sunday, clean water, swans, fish, silence. By all accounts almost impossible in Turds-r-us England – bizzare.
The dispensing of raw sewage into our rivers by privatised water companies is a heinous crime and should have led to the offenders being dismissed. All it has done is keep the operating cost down for the water companies. It also pushes back hundreds of years of knowledge about public health which is in itself unbelievable and totally unacceptable.
I think that the point I made above was made weakly at the end though.
What is happening is that most if not all public utilities in my view are just being ran exploitatively.
The way public utilities are ran is redolent of intensive cattle and animal farming and how the bones of the cattle were ground down to be fed as protein to the next lot ready for slaughter as well as well enabling them to live in their own filth. It has own sort of internal logic to exploit and can only end in catastrophe. And here we are expected to pay high costs and swim in and even consume our own excrement.
The other factor of course is the wonderful oxymoron of ‘self regulation’. Regulation is all about objectivity and self regulation has none of that. It just does not work because what it actually is, is ‘self-interest’. It seems that a lot of those much vaunted EU emissions standards for cars were actually created with or by the car builders!!
Yep – privatisation is the biggest con that Thatcher foisted upon this society for sure. End it now.
I think the public health point key
We have polio back
What next?