Which maniac agreed to this?

From the BBC:

The government plans to move nuclear and renewable electricity generators to lower price contracts to cut bills, Prime Minister Liz Truss has said.

"Renewable and nuclear generators will move on to contracts for difference, to end the situation where electricity prices are set by the marginal price of gas," Truss told Parliament.

The price paid to these companies is often set by the most costly generator. That is currently hugely expensive gas...

I thought the govt sold off the National Grid in 1995, so why they are now getting involved escapes me.

And why anybody - government or private - would sign up to such terms is a mystery to me. What's wrong with just setting a price of Xp per MWh (which will of course vary by time of day and seasons of the year) and buying from anybody willing to sell at that price? If that means paying France for their spare nuclear, so what?

Somebody who does these calculations for the National Grid once tried to explain it to me and had my head spinning. I am aware that we - as a society - want to have some slack or over-capacity in the system (electricity being as fundamental as it is; we could go a few days without mains gas, rubbish collection or the NHS, but not without leccy), so we have to pay generators simply for having things on stand-by. And we need a mix for security - renewables vs fossil vs nuclear; and domestic vs imported equipment and fuel, so better to err on the side of renewable/domestic, even if that means slightly higher prices (quite how much higher is a judgement call).

At least it explains why domestic prices for electricity went up so much. I thought - wrongly as it turns out - that the National Grid would simply buy much less electricity from the high-cost generators (using gas) until they have sorted themselves out and more from other sources.

Nobody move or the puppy gets it!

From ITV.com:

It's a grim time in the fun business. In Southend-on-Sea, the owner of Sealife says he may have to euthanise animals in his "zooquarium" because the annual cost of electricity has tripled from £240,000 to three quarters of a million pounds.

Philip Miller says keeping animals including monkeys, meerkats and tropical fish through the winter would be too costly, if the attraction was closed to save money.

"All these animals have to keep warm - or cold - or a combination of both*, and it's on 24/7, seven days a week. And they have to be fed, so it's a massive bill to maintain. They'll all have to euthanised or we find other homes but all the other zoos are going to be in the same boat, I'd imagine," Mr Miller said.

* I'm not sure what a "combination of being kept warm and cold" is in practice, but I hope he can sort something out.

High oil and gas prices - probably just a short term thing.

Sure, gas prices are stupid high at the moment; oil is high but coming down (and the government should do some short-term patching up for those on lowest incomes to help them through), but I have faith that 'capitalism' and 'free markets' will sort this out within a year and we'll wonder what the fuss was all about.

For a start, the Yanks could stop being so prissy about Venezuela and Iran, for some long-held grudges that date back decades and have no real substance (see also: Cuba). Or the rest of the world could tell the Yanks to go stuff themselves and recommence buying oil from Venezuela and Iran (who are no worse than the Saudis, I'm not picking sides here).

There was, until a few months ago, global demand/consumption for oil and gas of X and a global supply/production of X, give or take, with clearing price $Y. We could live with that. Both supply and demand are inelastic, the slightest change in supply or demand leads to large short term fluctuations in price, but it always reverts to some sort of equilibrium (extraction cost for higher cost producers + profit margin).

In the short term, Russia will be selling less to European countries and more to other countries; but in turn those other countries will be buying less oil and gas from 'wherever they used to buy it'; so European countries can start buying from 'wherever those other countries used to buy it'* and we'll get back to $Y, plus or minus a bit.

Of course, there are short term practicalities to sort out with pipelines and shipping, and on average, supply routes will be longer (hence more expensive) than before, but that's small change in the grander scheme of things.

As far as electricity goes, the UK can - short term - start using coal and oil again (in the power stations that haven't been completely wrecked yet), and longer term, continue/press ahead with nuclear power stations (these options not available to the Germans, who are the idiots who got us into this mess). There seem to be plenty of new wind farms sprouting up, maybe they'll work out something clever with wave or tidal power... The more diverse your sources are, the better.

One swallow doth not make a summer, but it's still nice to see a swallow once in a while. Or, on a similar note, here.

* India is currently buying more from Russia and correspongly less from the Saudis, Russian oil being cheaper for them.

Get back to the office, you plebs!

From The Telegraph:

Home workers are likely to be driven back to the office en masse this winter, experts have suggested, because of the added cost. Ofgem, the energy regulator, confirmed on Friday its energy price cap would jump by 80 per cent to £3,549 per year in October.

As a result, average monthly energy bills will hit £789 in January for home workers compared with £580 for those going into work, according to price comparison site Uswitch. This equates to £209 a month and £2,508 a year. Remote working will still add £131 to energy bills each month from October, Uswitch found.

Sure, for a single person in an average home, which they could leave empty and unheated during the daytime, and whose extra commute costs would be materially less than £2,500 a year, this might tip the balance towards going to the office.

That is a small subset of all workers. What if there is another adult who would be at home most of the time (working from home or raising kids)? Or kids who come home early from school every day or are an school holiday? Or whose extra commute costs would be materially more than the vaunted £2,500 utility saving (if you include cash cost plus time wasted each day)? That's a lot of people.

That's the beauty of LVT - reply to Doonhamer

Doonhamer left this comment on the subject of the Scottish government's auction of offhore wind turbine licences:

Yes, but what is the guaranteed price for all those expensive kWh?
And what do they get paid for NOT producing kWh when the wind is too strong?
And who pays for all the interconnecting copper?*
And who pays for the clean up when the rusting stumps and sea bottom concrete are no longer useful?*
And who pays for the fossil fuel back up when the wind speed is too low or too high?

No, I jest. I already know who will pay.

Let's assume the kWh price is 'too high' (which it almost certainly will be, to "kick start the Green Economy" and suchlike bullshit) and all the other costs are borne by consumers and taxpayers (who are largely the same people).

That means that the future profits will be correspondingly higher - but with a properly run auction (the English/Welsh method; not the Scottish method) that doesn't matter too much. Competing businesses will be willing to submit higher bids for the licences, so the government has more money available to pay all the costs and doesn't need to make consumers/taxpayers pay all over again via taxation.

The same general principle applies to all forms of Land Value Taxation. If the actions of government and society in general benefit particular areas or businesses, the beneficiaries pay the value back into the pot (which hopefully covers the direct costs with some left over to be spent on 'everybody') and those who don't benefit aren't forced to contribute via income tax etc.

* In an ideal world, the National Grid would still be state-owned, so it would have to bear these costs anyway, which it would more than recover by charging generators for transporting electricity. The generators should all be private, competing businesses. Fancy owning a power station? Raise some money, build one and hook it up to the Grid. The most efficient forms generators will win out, the inefficient ones go to the wall and society as a whole benefits.

Green hydrogen - seems completely pointless.

From Forbes:

In the long-term, 'blue' hydrogen is seen as an intermediate step towards the cleanest form of H2, 'green' hydrogen — so called because its production emits little or even zero carbon.

'Green' hydrogen can be produced by separating hydrogen from water via electrolysis, though other technologies are emerging. When the electricity used to perform the process comes from renewable sources, green hydrogen becomes truly zero carbon.

It will surely be far more efficient to use the electricity (whether from renewables or not) to power things directly than to use the electricity to split water into hydrogen and oxygen first and then power things by burning hydrogen again. And a lot less dangerous.

And there are plenty of other ways of storing electricity (particularly important if you intend to rely on 'renewables') which are a lot cheaper and safer. Like pumping water uphill or pressurising air.

So who is behind this nonsense?

Last month, the EU set out a renewable hydrogen strategy, sketching a roadmap for how the world’s largest trading bloc intends to develop hydrogen production and usage through 2050. Also last month, the German government announced it would invest €9 billion ($10.7 billion) in its own national hydrogen strategy.

Now, the U.K.’s Hydrogen Taskforce, a coalition of companies and industry bodies, has called on the government to recognize hydrogen as a key component for a “green recovery” from Britain’s historic recession.

The usual corporatists, in other words.

Fun with numbers - what if we all had electric cars

Qs - would we have enough electricity generating capacity if each household in the UK had one electric car? And would we have to reduce the number of miles we drive every year?

A - I don't know, but here's how I would guesstimate it.

(Feel free to pile in if you have better info, or just skip to the conclusion in my later post.)
---------------------------------------------
Typical daily electricity usage per household - 9.25 kWh (from here).

Check: Total electricity generated/used in the UK per annum 335 TWh (from here), 30% of which is domestic (from here) = 100 TWh. 28 million households x 9.25 kWh x 365 days = 94 TWh.

That's (say) 16 hours a day, grid running at near full capacity.

That leaves (say) 8 hours where not much electricity is being used, in which time power stations, if they continued running at near full capacity, could generate (say) another 40% x 335 TWh = 134 TWh, = about 13 kWh per household/car per day.

A typical electric car, like a Nissan Leaf has a 40kWh battery and a 100 mile range* (from here). 40 kWh divided by 13 'spare' kWh per household per day = people can recharge their cars every three days. It would have to be staggered; if everybody plugged them in Sunday at midnight, there wouldn't be enough electricity to go round. So instead of Economy 7 electricity, which is cheaper in the night time, there would have to be a massive premium on electricity in the night from Sunday to Monday, or something.

* Check: Electric cars can do 2.9 miles/kWh (from here).

About half of all car miles are commuting, and the average journey (one way) is less than 10 miles, so most of us would be OK for commuting and a weekly shopping trip, with just one overnight charge per week (in a normal week).

Check: Total miles driven in the UK per year (car, van, taxi) = 658 billion km = 409 billion miles.(from here). 100 miles every three days (max capacity, from above) x 28 million households/cars = 340 billion miles/year, so miles driven would have to come down by about a fifth.

So ball park, yes, if we ran power stations 24 hours a day, and reduced overall miles driven (more public transport, more car sharing, work nearer home or from home, don't go on holiday by car, no driving round just for the joy of it* - a problem which solves itself), we could just about manage.

It's still a ridiculous idea, for many other reasons**, but on this narrow point***, I think the idea just about passes the feasibility test.
---------------------------------------------
* Most of the miles I drive, to be honest.

** Negative impact of CO2 on climate has been exaggerated ten- or a hundred-fold; it will he hugely expensive to upgrade all the transformers and sub-stations in residential areas; there isn't enough copper for the cables or rare metals for the batteries; it will take decades to switch over; the number of people run over will increase because you don't hear them coming; and electric cars are no fun, but hey.

There's also the point that one of the many reasons why fuel duty is such an excellent tax is because it trebles the actual real cost of the fuel (a few pence per mile). Electricity only costs a few pence per mile simply because there is no tax on it (and not because it is inherently cheaper or more resource efficient), and electric cars use hardly any electricity while stationary, so the number of traffic jams might well increase.

*** Judged on its own terms, the exercise is fairly futile. Retail petrol and diesel sales are 37 bn litres/year (with another 9.5 billion litres for commercial, i.e. lorries, construction equipment, trains, tractors, who are definitely not going to go electric). So in theory we could stop burning 37 bn litres of fuel on the road.

If electricity generation goes up 40% and half of that is gas, oil or even coal, we simply use half of that 37 bn in power stations, a net saving of 19 billion litres.

We could achieve much the same reduction by simply moving to hybrid cars (as recommended by Bayard), which can achieve 80 or 90 mpg. They can do 10 - 50 miles on battery alone, so you could turn off the petrol or diesel engine while in town, thus reducing pollution where people live (Mombers' argument in favour of electric cars, about the only valid argument in favour of them IMHO). This requires absolutely no changes to our infrastructure and the shift could happen organically.

That 19 billion litres saved is only a fraction of total fossil fuel usage in the UK. 19 billion litres = 172 TWh, and current gas usage (domestic and power generation) is 869 TWh. Then there's the 9.5 billion litres of commercial diesel = 92 TWh, plus various other bits and pieces. See various charts and tables here.

I'm assuming here for simplicity that CO2 emitted per TWh is approx the same whether you are using gas, petrol, diesel or coal; whether you are using it in a car engine or in a power station to generate the electricity to run the car. On this basis, UK's CO2 emissions would come down by about one-sixth.

Interestingly, UK CO2 emissions have been dropping by a compound average of 1.5% a year since the peak in 1975 and we're already back at the level of 130 years ago (from here), so we'd achieve that one-sixth saving in ten or fifteen years anyway if this trend continues.

Fun With Numbers - energy efficient vacuum cleaners

Over at Physiocrat's blog.

He reckoned that the EU vacuum cleaner regulations would reduce total electricity usage in the EU by 1/100,000. He updated the post for my calculations saying it would be about 1/500.

Neither of claims to be accurate within +/- 50% or so, but clearly, at least one of us is wrong by a few orders of magnitude!!

Comments here disabled, leave comments under his post.

Carbon Brief: Why the UK’s CO2 emissions have fallen 38% since 1990

Fascinating.

From Carbon Brief:

The most significant factors include a cleaner electricity mix based on gas and renewables instead of coal, as well as falling demand for energy across homes, businesses and industry...

* Emissions would have been twice as large today if underlying factors had not changed. Electricity-sector emissions would have been nearly four times higher.
* The largest driver has been a cleaner electricity mix based on gas and renewables instead of coal. This was responsible for 36% of the emissions reduction in 2017.
* The next largest driver is reduced fuel consumption by business and industry, responsible for about 31% of the emissions reduction in 2017.
* Reduced electricity use – mostly in the industrial and residential sectors – was responsible for 18% of the emissions reductions.
Changes in transport emissions from fewer miles driven per capita and more efficient vehicles accounted for around 7%...

Lest anybody jump to the conclusion that industry's falling CO2 emissions is because we manufacture less and import more, they've covered that as well:

* Domestic emissions reductions were largely offset by increased CO2 embodied in imported goods until the mid-2000s. However, reductions since around 2007 have not been offset by CO2 in imported goods.

All good stuff, in other words.

"LED lights making dent in UK energy demand"

From the BBC:

The new analysis of government figures comes from the environmental analysis website Carbon Brief. Its author says EU product standards on light bulbs, fridges, vacuum cleaners and other appliances have played a substantial part in reducing energy demand.

Provisional calculations show that electricity generation in the UK peaked around 2005. But generation per person is now back down to the level of 1984 (around 5 megawatt hours per capita).

It’s widely known that the great switch from coal power to renewables has helped the UK meet ambitions to cut carbon emissions. The report says the use of renewables reduced fossil fuel energy by the equivalent of 95 terawatt hours (TWh) between 2005 and now. And last year renewables supplied a record 33% share of UK electricity generation.

But in the meantime, humble energy efficiency has contributed to cutting energy demand by 103 TWh. In other words, in the carbon-cutting contest, efficiency has won – so far. And what’s more, efficiency is uncontroversial, unlike wind and solar.

All good stuff, as far as I can see, even if you put the climate change wibble to one side.

Whether the UK government would have imposed the same product standards as the EU is unknown, but there is no reason to assume it couldn't have done so; whether consumers and manufacturers would have responded the same way in the absence of such standards is also unknown, but hey. Higher electricity prices (with or without taxes on top) will tend to have this effect all by themselves.
-----------------------
On a vaguely related topic, a few years ago, I bought some cheap roller blinds from IKEA for the windows and back door in our kitchen, so that I could reduce the glare of the winter sun shining directly on the telly and blinding me generally when it reflects off the sink and work surfaces.

I left them down in the evening and was surprised to see that they have really good insulating properties as well. They're just thin bits of white cloth with small gaps around them, but they do make the room noticeably warmer, even when I leave the back door open a couple of inches for ventilating cigarette smoke.

So a doubleplusgood investment of about £10 per window plus a couple of hours faff.

"Electricity bills expected to rise with uptake of 4K television sets"

It's Big Scary Numbers Time in the Express and Star who dutifully rehash the CEBR's press release:

Two million homes are expected to own a 4K, or ultra high definition, TV by the end of this year, with that figure soaring to nine million by 2019, the upcoming British Gas Home Energy Report 2016 says.

However, the bonus of more pixels and therefore greater picture clarity requires a third more energy than an HD TV, with UK consumers predicted to pay an extra £82 million in electricity costs by 2019, the study, based on data analysed by the Centre for Economics and Business Research (Cebr), claims.

First, I don't like this "by 2019" nonsense, that's just adding together a random number of years, it is far better to express things as annual figures, and the relevant figure is the per-household (about £3) or per television one (£1?). So now we get down to it:

The report shows that the average household spent £14 in 2001 on powering its TV for a year, increasing to £20 in 2008. The cost then declined over the next seven years to £18, driven by more energy-efficient TVs.

£18 a year? I am pleasantly surprised it is that cheap. Does anybody even care about £8 a year, or £21 a year or £30 or whatever?

The Electricity Trilemma

From a recent City AM:

Margaret Thatcher’s former energy secretary [Lord Howell] said that with coal stations being phased out by 2025 and nuclear coming online “10 years beyond that”, the UK faces a huge energy gap.

“Wind can come on when the wind is blowing, and we can get up to quite a high percentage of green electricity, but there’s still a big gap.”

He also slammed successive governments’ attempts to address the country’s energy “trilemma” – reconciling affordability, supply security and decarbonisation – dubbing policy on this front a “failure”.

“We’ve got some of the most expensive energy in Europe, even more expensive than Germany. That hurts people, particularly the poorest, and hurts industry and undermines our steel industry. We’ve got the most unreliable system.”

Fair enough, that is the trilemma, those are your three constraints (reliability - cost - "greenness/sustainability"), to which different people attach different importance*.

Minitrue resolves the trilemma by sticking its fingers in its ears and whistling:

A DECC spokesperson told City A.M.: “Our priority is crystal clear – to ensure our families and businesses have access to the secure, affordable and clean energy supplies they can rely on now and in the future.”

* My view is:

1. Security is paramount - which probably means slight overcapacity; which in turn means slightly higher costs and probably prices to consumers. Electricity is so fundamental to so many things, society grinds to a halt without it, but in terms of input costs it is only a tiny percentage unless you are an aluminium smelter or steel forge (which raises the question, why don't they build their own power stations and tell the government/generators to go hang?).

2. Cost - of course, for a given capacity, we should use whatever generation method is cheapest in pence per kWh. Whether that is solar, wind, nuclear, gas, coal or hydro is a separate topic. We have to ascribe monetary values to pollution and potential loss of output and factor them in, this is important albeit difficult/subjective.

3. Greenness/sustainability - is a subset of "cost" IMHO. We could have 100% solar/wind/hydro by tomorrow if we wanted, All we would have to do is shut down everything else, but then you have the add back the cost of economic collapse/sky rocketing electricity prices.

George Osborne: Knows sweet FA about how prices are set

From The Daily Mail:

The Chancellor insisted it was ‘vital [that the fall in the price of crude oil] was passed on to families at petrol pumps, through utility bills and air fares’.

‘The Government is conducting studies of industries like the utilities and the airlines. We are examining if any action needs to be taken,’ a Treasury spokesman said.

How much the price of a) petrol, b) domestic energy bills and c) air fares fall when oil prices fall are three entirely separate topics.

a) Petrol is the easiest. The market is highly competitive, and falls in the price of oil are passed on in lower prices almost immediately (even though demand is fairly price-insensitive).

In round figures

July 2014

Pump price £1.32, knock off VAT = £1.10, knock off 59p fuel duty and 10p profit margin for the transporters/retailers = residual cost of actual oil = 41p/litre.

Crude oil $110/barrel, convert to £ at 1.70, divide by 159 litres = 41p/litre.

January 2015

Pump price £1.10, knock off VAT = £0.91, knock off 59p fuel duty and 10p profit margin = residual cost of oil = 22p/litre.

Crude oil $55/barrel, convert to £ at 1.55, divide by 159 litres = 22p/litre.

b) With domestic energy, it is nigh impossible to calculate by how much prices will fall for umpteen reasons which have nothing to do with the price of oil. Generators also use coal, gas and nuclear; generators and customers are locked into various fixed price contracts, there is little ease of substitution etc, so let's not bother.

UPDATE: VFTS in the comments reminds us that according to Energy UK, only 1% of UK electricity is generated from oil. i.e. in practical terms none at all.

c) Air fares are set according to what the market will bear.

This bears very little relation to costs in the short or even medium term. Some flights are run at a loss because the airlines don't want to forfeit their landing rights (they hope that things will pick up in future); some flights are hugely profitable.

International travellers will pay a lot more to land at a London airport than elsewhere in the UK, even though the total distance flown is much the same, etc. UK travellers have to pay a lot more to fly to a major European city rather than somewhere in the back of beyond.*

If this were not the case, then landing slots at London airports would not be bought and sold for such huge amounts of money. What the purchaser is paying for is the scarcity-monopoly-rental value. Airlines just try to sell as many tickets as possible for the highest price possible using a variety of auction methods (i.e. trial and error).

So the overall impact on air fares will be minimal, although we would expect a modest reduction overall; it will be negligible at London airports and larger at regional airports which are running at two-thirds capacity on average.

* Thanks to the miracle that is the internet, we can quickly establish that flights from Leeds-Bradford to Geneva start from £86 (British Airways); a similar distance flight from Heathrow to Munich starts from £141 (also British Airways).

U- and Z-Turns Of The Day

U-Turn

From the BBC:

Telecoms giant BT is in talks with Telefonica about buying the O2 mobile network from the Spanish firm...

The irony is...

In 2002, BT spun off O2, then called BT Cellnet. In 2005 it was acquired by Spain's Telefonica for £17.7bn.

Taking irony to the next level...

[O2's] value is around half that paid by Telefonica. Deutsche Bank values O2 UK at £9bn, while UBS values it at £9.6bn.

Z-Turn

From the FT:

Germany has made a dramatic appeal to Sweden to help it out of an energy dilemma that threatens Europe’s biggest economy as it shifts away from nuclear power and fossil fuels to renewable energy.

Oops, caught with their trousers down after they overreacted to the Fukushima meltdown.

And what does the German government want 'Sweden' to do..?

Sigmar Gabriel, Germany’s vice-chancellor, warned Sweden’s new prime minister Stefan Löfven last month that there would be “serious consequences” for electricity supplies and jobs if Sweden’s state-owned utility Vattenfall ditched plans to expand two coal mines in the northeast of Germany.

I'm not sure what level of irony we're on here. Waving the Greenie flag, the Germans want to go from nuclear to renewables... but first they're taking the retrograde step back to coal, and the coal which they want to use was theirs anyway before they sold it off to foreigners.

Squaring the circle, we get this...

Angela Merkel’s cabinet is due to meet next week to discuss mothballing some coal-fired power stations as a means of helping the country reach its carbon goals.

But Berlin’s lobbying of Stockholm underlines a view held by some in the German government that coal-fired generation is vital to the security of the country’s power supply.

"Government Electricity Rebate"

At the bottom of my latest gas and electric bill is a line saying "Government Electricity Rebate" and a credit of £12.

Seriously?

Yes.

The Department of Energy and Climate Change explains:

Rising energy bills have been causing concern for many households. Rising wholesale gas prices have contributed most to higher energy bills in recent years.

However, the costs of energy and climate change policies also make up a proportion of domestic bills. The policies bring a number of benefits to consumers and the economy. For example, by increasing the proportion of renewable energy we reduce our dependency on fossil fuels and by improving the energy efficiency of homes we reduce consumption and household costs. Without government policies, average household energy bills would be higher.

Government is taking action to make these policies more affordable.

The Government Electricity Rebate (GER) is a £12 government contribution to help lower the impacts of these Government environmental and social policy costs on consumer energy bills.

Round the clock of silliness

From City AM:

Business groups have slammed politicians for failing to take action on energy supply shortages, despite 15 years of warning signs... Spare capacity will be close to four per cent, compared with around five per cent last year and 17 per cent three years ago.

Dan Lewis, energy policy adviser at the Institute of Directors, commented: “This has been in the offing for 15 years, and it really didn’t need to happen.” He called on the government to “start thinking hard about how to find renewable energy we can realistically integrate at a reasonable rate”

The acute lack of spare capacity is because a lot of perfectly good coal and oil fired power stations were forced to shut down in the last few years. Blaming it on not having enough "renewable energy" is completley bonkers. That's like giving your car away and explaining to your boss that you're late for work everyday because they haven't invented teleportation devices yet.

I used this circular argument in the comments here yesterday for a joke, but it appears that even relatively pro-market groups like the IoD can't see through it.

And what's this?

An energy department source told City A.M.: "Labour simply didn’t invest in the energy infrastructure we need. Under Labour, the energy system was creaking but we’re turning that around with £100bn investment and more than enough reserves this winter."

For sure, the government has to play a role in all this (pollution and safety standards, and without the government, the National Grid would never have happened, being a natural/land monopoly), but it doesn't need to invest a penny in power stations.

Isn't that what private companies are supposed to be doing? There's plenty of demand for electricity and it can be produced profitably provided the government doesn't interfere too much and taxes sensibly (i.e. on the natural monopoly element).

Preparations being put in place include plans to incentivise businesses to reduce energy demand. Lewis commented: “Now they are actually proposing to pay people not to work. It’s the last thing the economy needs.”

Amen.

"We won’t face winter electricity blackouts, insists energy minister"

From The Evening Standard:

Fears that the UK is facing a winter of electricity blackouts were dismissed by the Government today.

Energy Minister Matt Hancock insisted the lights would stay on despite the country facing its biggest energy crunch in years.

But he accepted the need for emergency planning including potentially firing-up mothballed power stations or asking factories to close.

It came as a report from the National Grid revealed Britain may need the emergency measures if we are hit by extreme weather or an international energy crisis.

Greenies don't do physics

Once again, there is more evidence that Big Green and the Brussels bureaucrats acting at their behest don't understand the basics of physics.

It started with the ban on powerful lightbulbs. This was understandable; there was a "greener" alternative in the form of compact fluorescent bulbs and it seemed a logical move by the manufacturers of these compact fluorescents bulbs to lobby for the competing product to be banned. However, it saved almost nothing in the way of power in the grander scheme of things.

This new move, to ban the more powerful hairdryers and vacuum cleaners, is completely bonkers. Not only does there not appear to be anyone who could gain out of such a ban, but it takes the same amount of energy to dry someone's hair, regardless of the rate at which that energy is supplied.

So less powerful appliances will have to be used for longer. No energy will have been saved, the same amount of CO2 will have been produced and the same number of polar bears will be left swimming around looking for an ice floe to stand on.

That OFGEM Consultation in Full

From OFGEM:

There is evidence that customer switching has been falling over recent years despite increasing prices and significant savings available for consumers that change supplier. There was a significant spike in switching in late 2013 but it is not clear whether this trend will be sustained, and we note that the switching rate has materially decreased in January 2014. Crucially, consumer trust has fallen significantly in recent years with the last survey showing that 43 per cent of consumers did not trust energy suppliers, an increase of 4 percentage points from the previous year. 

I've been on various price comparison sites for electricity and while there are savings for switching, the amounts barely warrant my time and trouble calling someone, changing my direct debit and so forth.

Previous analysis suggested that incumbent energy suppliers in both electricity and gas all have a relatively high proportion of customers who never or rarely engage in the market. These suppliers are able to charge higher prices to these "sticky" customers whilst making cheaper deals available to more active customers. 

So, some customers can be bothered to switch on a regular basis and others can't. If some customers can switch, how is this not a functioning market?

Previous analysis showed evidence of weak competition in the market due to aligned pricing strategies of the six larger suppliers. Ofgem would stress that it found no evidence of explicit collusion between these suppliers. But tacit coordination can have the effect of reducing competition between suppliers and worsening outcomes for consumers.

The Assessment has found further evidence of possible tacit coordination and indeed that this pattern of behaviour may have become more entrenched over recent years. It has found evidence of strong alignment of pricing announcements, in both timing and extent, as well as a pattern of suppliers raising prices more rapidly and to a greater extent in response to an increase in costs than they reduce prices in response to a fall in costs. This is a sign of a lack of competition. 

Well, as the energy companies are all buying from a commodity market the prices are going to stay pretty much the same. Gas isn't like cars where you can buy Suzuki gas or Rolls-Royce gas with each special properties. It's just gas. If someone's flogging it for 10 dollars a cubic litre, you can't flog yours for 11 dollars a cubic litre.

And it's a sign of real competition. You see it when Tesco and ASDA decide to have a price war over petrol or oranges. One announces a price fall followed by someone else doing the same. In the cloud hosting market you see the same thing. Amazon drop the price of EC2 servers and Microsoft announce something a week later.

Many stakeholders highlighted barriers to entry and, particularly, expansion in energy markets. These include low wholesale market liquidity, credit and collateral requirements, suppliers’ pricing strategies, regulatory barriers and reputational risks. While there has been recent growth in new entrants who now have a 5 per cent market share, there is no evidence of sustained expansion at a scale which would provide a disruptive competitive threat. 

I've checked these companies on the price comparison sites and again, they aren't much cheaper than my current supplier. Certainly not to the point where I can be bothered switching.

There has been evidence of increasing average profitability in the six larger suppliers over the last four years. The Assessment has not come to a conclusion as to whether excess profits are being made but notes the recent increases and questions the suppliers’ contentions that five per cent is a fair margin. It also notes that there is variation in profitability amongst the large suppliers, and that there has been no clear evidence of efficiency improvements that might be expected in a strongly competitive environment.

While the evidence of profitability is not conclusive, the rise over the last few years allied to no clear evidence of increasing efficiency is indicative of a possible lack of effective competition. 

Really? 5%? I'm pretty sure you can tuck money away in bonds at about 3.5%, so 5% hardly seems like that much of an excessive return on investment.

But OK, let's strip out that 5% profit margin. Let's imagine no profits at all. That still doesn't account for the 37% rise in the past 3 years, does it? So, why have bills risen in that time?

And that's what this exercise is really about - it's not about a serious investigation into these companies because the report contains nothing but suggestion about their activities. It's a political exercise to keep the blame on the electricity companies to distract attention from the government having an utterly failed energy policy.

Manufacturing the enemy

Every day, it seems, the "news" media produce another hate figure for their readers and listeners.

Sometimes it's immigrants, sometimes it's multinationals like Amazon and sometimes it's energy companies, but there nearly always turns out to be a reason behind it and it usually has to do with the Government.

Lately I've been wondering why the Tories have been having a go at the energy companies in particular, but then I read that the government is planning a big price hike of its own to comply with the carbon emissions target for 2020, and the penny dropped.

The only good thing about being cynical about politicians is that you are so often proved right.