The article is based on the Twitter thread on energy pricing that was posted here on this blog. The Mirror said to me that it's the best idea to solve this crisis that they've seen as yet. There were strong hints yesterday that the EU is looking at measures like this. let's hope so.
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Superb, Richard.
At last, a major article in a mainstream media outlet. Let’s see if there is any rebuttal by establishment apologists. If your solution gains traction in the media, which side will Labour take in the ensuing debate?
It’s one of quite a number in the Mirror this year
And one of 5 or more in major newspapers in the last fortnight or so
Well done, this is exactly what we need, so if my electricity is made from gas I pay 50p for it, if my electricity is made from wood I pay 25p for it, if it is made from wind I pay 15p for it, me the consumer pay what the supply actually costs.
No, you’d pay a price that mixed those costs given you can’t buy your electricity from just one source
Nice on Richard.
I’ve been arguing with people about this today
I looked at the national grid’s live statistics on real time electricity production by source.
Link:
https://grid.iamkate.com/
Right now renewables and nuclear account for 43.7%. Gas is 53.5% and as I understand it a fair proportion of that is from the north sea.
So that represents probably more than half of the electricity right now being generated from UK sources – i.e. not subject to being imported from overseas.
Given that, we could, for that substantial proportion of fully-UK sourced electricity production, set pricing at a national level based on cost+ reasonable profit margin, instead of market based pricing.
Granted this is only electricity, but it seems so obvious a solution??
It is
Supported by CEOs in the Times today
Unfortunately our government sold licenses to big oil to manage the resource.
They own the material and sell it back to us at World Market price.
The Norwegian’s idea was to have Statoil in partnership with big oil and so they get 2 bites at the material.
If there is a war on they should use their huge majority to suspend the licences and go onto a war footing of Cost plus a reasonable profit.
We have to declare a state of emergency
Richard, you are on record as having reluctantly concluded we are on the road to fascism. I share your concern and I fear that giving this lot the powers conferred by a state of emergency (surely beyond what they could already assume under the Civil Contingencies Act) might propel us across that threshold.
Mr Stewart,
“If there is a war on they should use their huge majority to suspend the licences and go onto a war footing of Cost plus a reasonable profit.”
Part of the problem is the complexity of the “market” devised by Government. Sir Dieter Helm has written extensively on this; the complexity (which he emphasises is a major problem), I suspect is partially deliberate. Confusion reigns, nobody sees the whole picture, or can understand it; so the deep flaws are partially, and for the Government, very conveniently hidden; until the system is obviously collapsing and everyone can see it for themsleves, in the absurd scale of price increases they are faced with paying.
Nor is the market what it seems. In the critical renewables sector the driver is not the “market”, but the LCCC; a Government company that manipulates prices through the defined rules of CfDs. Nobody notices; the public is completely flummoxed (I referred to CfDs in another thread at greater length, and have written about CfDs, complexity, and Helm’s criticisms in the Bella Caledonia Blog).
In addition may I say (as a non-engineer), it is perhaps more obvious to me that when you write about about ‘overload’, ‘unit tripping’ , ‘spinning reserve’ and OCGTs; pertinent as it is, even the selection of the public that reads you here; self-selected as those among us eager to be informed and learn the facts, will not perhaps follow all the nuances and implications of your argument (even if imagination may help with basic metaphors); without either explanation, sources or link. Forgive my candour; it is intended to be helpful. The public needs all the help it can find in this crisis.
Agreed
If I recall John, your brush against the complexity of the present market system was during that last storms and in your efforts to get repairs?
The requirements of having clear layers of ‘legal entities’ now in services like utilities and transport (hang on- – transport is a utility) makes things more difficult (except for lawyers of course).
I remember doing my work experience in my housing degree at Westminster City Council (yes THAT Westminster City Council). There had been a separate management buy out of the housing management and the repair service to achieve cost efficiencies. What had under the Council been an effective working arrangement had been turned into a more adversarial relationship with the tenant in the middle. Even the staff could not believe the change but that is because the emphasis was turned into cost management as a priority and an over-rigorous application of contract specifications.
The spirit of co-operation in other words went right out the window because of the obsession over cost.
Thankyou for that useful contribution John.
I shall paste links here to aid the ease of finding by others.
“Losers are good at picking governments”
https://bellacaledonia.org.uk/2022/08/31/losers-are-good-at-picking-governments/
“Energy bills soaring because of government failure not Ukraine, says ex-Tory adviser”
https://www.independent.co.uk/independentpremium/uk-news/energy-bills-privatisation-sewage-ukraine-b2155886.html
” Cost of energy: independent review
Independent review undertaken by Professor Dieter Helm CBE puts forward his proposals on how to reduce costs in the power system in the long-term whilst ensuring the UK meets its climate change targets.
”
https://www.gov.uk/government/publications/cost-of-energy-independent-review
Mr Warren, responding to your comment on “market complexity”.
1. My business partner worked for HMG at the time of “liberalisation” of the elec market. It was designed to be (overly) complex – for a range of reasons.
2. “The market” does two things: First: balance generation against load in real time Second; put a price on a MWh.
In the days of CEGB things were quite easy. There existed a list of dispatchable generation – ranked by efficiency (= cost = price). Most efficient go first and one works up the list to the less efficient. The final price was a composite of what was connected.
Once generation was broken up into different units – one has to find a way to make them compete – hence marginal pricing. We can have an argument about did the Tories & the energy industry deliberately make it more complex than needed (our view is yes). But this is like two bald men arguing over a comb. The game changer is renewables (and in fact nuclear which is also CAPEX intensive) which has zero marginal cost – and thus as more comes into the system – marginal pricing is destroyed. Thus the discussion is: market reform in a way that delivers: balance (keeping in mind that the tech landscape has change – large-scale storage is possible) and pricing on the basis of fair costs.
I was in Berlin on Friday, listening to some imbeciles (led by a guy called Proff Hirth) claiming that the market is just functioning fine – & thus we move into the realm of metaphysics and belief systems. Pathetic is not the half of it.
“Part of the problem is the complexity of the “market” … I suspect is partially deliberate.”
It’s reminiscent of the Gordian knot, which according to Phrygian mythology, was so designed that any attempt to untie it entangled it more. As Alexander the Great realised, the only way to loosen it was to cut it in half. The same needs to be done with the energy “market”. Small scale tinkering may offer temporary relief but will not solve the problem in the long term.
Mr Parr,
Thank you for that; you are right, but I don’t think we disagree. I am not sure, however I quite see the fake UK domestic energy “market” as a redundant comb, but rather as a redundant Gordian knot; as Mr Hurley’s classical allusion, and his robust Macedonian solution suggests.
No tinkering; just cut the knot and rebuild a viable domestic energy service that actually serves the British people with a single objective – to provide energy, when required at a price the public can afford. We shouldn’t need this debate in the 21st century; it speaks volumes for the rank stupidity of government..
Agree,
Today the grid electrical load is around 35GW on an installed capacity of 55GW, it’s a warm day but not too warm.
You do realise that turbo alternator steam units are about 35% efficient, that means that a plant like Sizewell which generates 1200MW actually produces 3GW of heat, the rest dumped into the atmosphere.
Where are the district heating schemes on your list of solutions?
What the winter will bring is a horror story.
I looked at them a lot more than a decade ago
They work in the right place
Been to Sizewell?
Never been there as you say , it’s like Dounreay, miles from populations so district heating very costly. There are and were stations built in populous areas and lots of ways to increase the dumping of condenser heat to reduce the load on the grid.
Thinking of places like Portobello that had it’s power station in the town.
Gas turbine stations are quick to commission but very noisy, the locals would complain.
Inverkip, oil fired, was built near a fairly large population at the time and the area has had a fairly large increase in new build very close before it was taken down. A modern station of nearly 2000MW.
Hunterston nuclear has been closed, all 4 units.
The HVDC cables are currently delivering 1 GW every day there’s wind to Angelsey, derived from a huge on shore wind farm that runs from Newton Mearns to Lothian, hundreds of 2MW wind turbines.
Your point is?
There have been a lot of power stations shut down in recent times with a big reduction in installed capacity and hence overhead to deal with unit tripping, the spinning reserve will be much more costly to provide by OCGT units.
Please can you explain, in layman terms:
Overhead to deal with unit tripping
Spinning reserve
OCGT units.
Many thanks.
OCGT is an open cycle gas turbine, just like an aircraft engine but connected to drive an alternator.
Spinning reserve is the method of having machines running at lower load to pick up another machine tripping off line load. It takes many hours to bring a steam driven unit up to full load, gas turbines minutes and pumped storage machines can achieve full load in a minute.
The overhead is the installed capacity over the expected maximum load. We used to have 30% higher capacity than the maximum demand seen in winter. This appears to be around 5% now, the back up being imported energy from Norway, Belgium, France and Netherlands through DC cables.
One of the French cables UK based conversion sites had a fire earlier this year, still not in service.
Our problem is that the EDF company is French, the EoN company is German and Scottish power is Spanish, we have sold off the plants to them.
Hope this helps with the question.
Please can you explain, in layman terms, your post. I would ask specifically which comments but the blog won’t allow me.
Many thanks.
Many thanks, Dave. Very interesting.
As good as it is to see you in the Daily Mirror, I am profoundly disappointed that the Guardian has not given you more of a platform. I won’t be subscribing to them until I do I’m afraid.
Zero interest there
Just to pick up on one thing.. under Sustainable Cost Accounting every wouldn’t every single gas supplier be insolvent?
Yes
Because they are
Totally agree,
If your customer can’t afford to buy the product it’s only a matter of time.
If the grid is collapsed it takes days to restart it, some stations rely on the grid to actually start, their are ‘Black Start’ stations, Cruachan is designed as such for Scotland.
No filling stations, no internet, no banks, no traffic signals, shops will be throwing out chiller food and probably only accept cash if their system accepts in short time frame.
Good to see you are getting coverage in newspapers and accessing a wider audience. Dale Vince (founder, Ecotricity) has also made it into the Express (not a paper I ever read by the way!) at https://www.express.co.uk/comment/expresscomment/1663659/energy-crisis-market-rules-government-inflation-dale-vince
Well prices aren’t set so that gas producers can make a profit, no. They’re set so that enough people come forward to supply the energy desired at that price. There is no Fat Controller setting prices that is – there’s bidding for however much electricity people are willing to pay for. It’s an important difference. There is no price setter here, no planner.
But leave that aside. So, in a static system this might even seem a little odd. Now add in the idea that we’re in a dynamic system. Folk can go build more energy generation infrastructure. We’re in a game with repeat iterations here.
So, given that pricing, what’s going to happen? Folk will be falling over themselves to build wind, solar, nuclear, hydro, maybe tidal, wave and all the rest, power systems to get themselves a Great Big Bite of those luvverly profits. And so the electricity price will fall because that very expensive gas production is competed out of the market. Or maybe it still exists, but only at night, in still weather, in a drought, at neap tide and the Channel being mirrorpond.
That also explaining why we use marginal pricing – because it produces that pressure to expand lower cost production methods at the expense of higher cost. Because we are in a repeat game here, the universe is dynamic
It takes the most massive stupidity to write that comment about a profoundly regulated market that is entirely artificial and where the return is government guaranteed for man6 participants
Politely, please stop wasting people’s time
Response to Mr Evans
“why we use marginal pricing – because it produces that pressure to expand lower cost production methods at the expense of higher cost”
Sadly, no. For generation, marginal pricing works with cost inputs – a transformation process – and then an electricity output with a cost that reflects the input plus the efficiency of the transformation process. marginal pricing cannot work when there is no cost input – which applies to nuclear (the fuel cost is tiny), hydro (rain does not usually send a bill) or renewables in the form of wind of PV (ditto no bill from sun or wind). Zero marginal cost systems such as these undermine the functioning of marginal cost systems – which is why, increasingly (until the recnet gas price rise) wholesale prices were driven lower when lots of renewables were around.
Renewables are funded in the Uk and elsewhere using auctions and contract for difference which is a reasonable process for identifying the levevlised cost of production for a given renewable at a given location at a given time. That previous sentence is provable – empirically, both in the Uk and across mainland Europe. This process (& it is a process) has exactly zero to do with marginal cost.
Mr Parr,
I defer to your insider’s, technical systems knowledge. I merely wanted to underscore your response to Mr Evans by observing that the LCCC and CfD’s cannot be described as operating a competitive “free market”; they are rather examples of a regulated system.
The guff about “free markets” in UK energy finally has to stop, and the real world acknowledged.