Essay by Eric Worrall
According to The Guardian, a publicly owned company could overcome the impediment of private companies, which are reluctant to cut household energy bills by investing in renewables.
There’s a simple way to reduce the average UK electricity bill – and make energy cleaner
Christopher Hayes
Thu 6 Apr 2023 01.30 AESTRecent research estimates that a publicly owned generating company could reduce electricity costs by £252 per household a year
…
The price spike currently afflicting customers, retail suppliers and government alike originates in the domestic wholesale energy market. Despite 43% of our electricity being generated from clean energy sources, prices are determined by the most expensive source needed to satisfy 100% of the demand in a given period. The result is that energy derived from mainly clean sources is being slapped with a gas price tag. What then fills the yawning chasm between these generators’ lower production costs and the higher price they’re getting? Profit. Just look at British Gas-owner Centrica’s 60% profit margins in its generation business.
…
Public ownership of the UK’s clean energy generation, selling at cost without markup, is the only option that short-circuits the trade-offs that we otherwise take as given, such as the urgent need to decouple the price of clean energy from gas; and to supercharge investment in clean energy.
…
Read more: https://www.theguardian.com/commentisfree/2023/apr/05/reduce-average-uk-electricity-bill-public-ownership-clean-energy
To accept Christopher Hayes argument, you have to believe that private companies are refusing to invest in enough renewables to bring down the price of energy, because they don’t want to make a profit, and that public ownership is required to short circuit their reluctance to make money?
Or is Chris trying to hint that renewables are too expensive for private companies to afford, despite being the cheapest form of energy?
Perhaps WUWT readers can explain to me what Chris is trying to say.
There are a lot of simple souls at The Grauniad
“”Climate crisis causing more home runs in baseball, study suggests””
https://www.theguardian.com/environment/2023/apr/07/climate-crisis-more-home-runs-baseball-study
The imaginary climate crisis has addled their minds
It was once thought by some theologians that God is the “primary cause”. But now the consensus is that “carbon pollution” is the ultimate cause of everything.
Yup, it’s the secular religion.
I don’t think it’s the Climate Crisis® that has their brains addled. I think they have less developed brains that only function at half efficiency under CO2 concentrations greater than 350ppm
Since their brains appear to be primarily plant matter, wouldn’t they work better with enhanced CO2?
Plant matter which has been digested by a ruminant.
“The imaginary climate crisis has addled their minds.”
Too true.
For entertaining, detailed evidence of Australia’s Climate Council at work, read Tony Thomas in Quadrant Online.
https://quadrant.org.au/opinion/doomed-planet/2023/04/on-climate-the-media-is-the-massage/
Geoff S
Wholesale power prices are set by the marginal supplier, usually CCGT. Consequently other generators, mainly renewables, benefit from a higher price in conditions like now when gas is expensive.
However on top of these higher prices, most renewables still receive obscene subsidies as well, so consumers pay a double whammy.
However nationalising all generators would be much more difficult than it sounds, as wind farms and other renewables are owned by a vast array of companies, rather than the Big Six energy firms of public myth.
For instance, many are owned by foreign entities such as Orsted (Denmark), RWE (Germany), not to mention multiple banks and investment funds, so the legal complexities would be immense.
And, of course, the govt would have to pay to nationalise generators, as you simply could not steal them. That cost would certainly outweigh any savings on bills
The best solution would be to cancel all renewable subsidies immediately and abolish carbon pricing. Together this would save about £16bn a year, equivalent to about £600 per household.
In the longer term, the Electricity Market needs to be reformed so that the likes of wind farms have to sell at a fixed price, rather than the market price.
Gas in UK is expensive because government has made it expensive same as US government is doing. Seeing a pattern, yet?
World price of gas today is the cheapest it’s been in many years, at $2.01 … a year ago NG was at $7 headed toward a peak of $9 last summer … thanks largely to a huge boost in US production in response to the EU embargo on Russian gas, and “emergency” development and operation of European LNG terminals.
It’s the taxes and green subsidies loaded on…
Yes, governments are doing all they can to drive the price of gas up and to restrict its use. THAT is the point.
Governments cannot change world markets, ie supply vs demand. They can only manipulate prices within their own jurisdictions. If they artificially add cost to their own consumers, then that will only result in reducing world demand, resulting in lower prices in every other jurisdiction.
The markets always rule.
Governments can and do, have a huge impact on supply. When governments restrict consumption in their own country, by definition that impacts demand for the whole world.
LOL
Governments cannot change world markets, ie supply vs demand.
that will only result in reducing world demand
Gas is very cheap in the US as well as world wide. The US is nothing like the UK – we don’t have taxes on fossil energy – ie a “carbon tax” nor does the U.S. artificially depress domestic production of NG.
Indeed it is just the opposite case – in response to the reduced Russian supply of NG due to sanctions from the Ukraine war, the U.S. has surged its NG production more than making up for loss of Russian sales, such that NG prices are now the lowest they’ve been in years. The US is now the world’s largest supplier of NG.
Gas is expensive?
As of today the world market price of natural gas is $2.01, the cheapest it’s been in years.
If the Brits are paying much above that then they have a political problem not an energy problem.
“”they have a political problem””
Well spotted
Does the US use its own deposits of natural gas extracted by fracking? Yes.
Does the UK use its own deposits of natural gas extracted by fracking? No.
There’s tte answer. As well, the aim is to make electricity too expensive to use, since the political nitwits well know that the UK does not have the generating capacity, nor grid infrastructure to power EVs instead of ICE and ban domestic natural gas for heating and cooking – as planned for 2030.
There is no evidence that the necessary infrastructure – power stations of whatever type, work on the grid, the tens of millions of vehicle charge points needs is either planned or construction under way.
Electricity will become a luxury.
There is no world market price for gas. At $2/MMBtu at Henry Hub LNG would cost about $5/MMBtu FOB Gulf Coast ports after covering plant and liquefaction costs. Then add shipping and sales tax. Shipping has not been cheap: at times over $300,000 a day and still $100,000 a day for a round trip of 35 days to Europe for say 0.8TWh of cargo, plus fuel. Delivered prices depend on logistic costs and inter regional demand competition. There have been massive margins for traders who anticipate those factors most accurately.
Gas is expensive to transport, especially when pipeline distances become prohibitive and LNG is the only alternative. The result is a series of heavily localised markets which can often remain isolated, but can also produce huge price dislocations if they have to bid for new supply.
There is a world market price for natural gas just as there is for crude oil, gold, wheat, pork bellies, and every other commodity traded internationally.
Whether governments attempt to manipulate the market withinin their respective jurisdiction, via taxes, fees, subsidies, surcharges, etc. that is another matter
Nope. There isn’t a world market in gas. There are regional and local markets. Most gas is not tradable outside its production pipeline system – there is no way to export it or expose it to other markets. Whereas oil trade accounts for 2/3rds of production, just 1/8th of gas moves as LNG in a free but limited market, as regas terminals are not ubiquitous. Here’s a chart of prices in selected US states that shows the enormous spread of prices and very different degrees of seasonality. There isn’t even a US single market, never mind a global one.
Most folks are under the mistaken belief that there is world market pricing for every commodity out there. This is simply incorrect. Large multi-national companies distort the markets to their benefit. A lime sold by a single company may be $1 in the US, 50 cents in Mexico and 25 cents in Venezuela. The same can be said about nearly every commodity we buy.
Another great example is the beef market. The price of beef per pound on the hoof has changed little over the past 20 years. However, the price of beef to the consumer has skyrocketed because the Big Four meat processors have cornered the market and raised prices by many times.
We have the illusion of “world” markets, but it is just not true.
The problem is actually precisely an energy problem. 20 years ago the UK had a small surplus of gas that it exported by pipeline. It also had about the cheapest natural gas prices in any major market in the world, including Henry Hub. Then the US got fracking while the UK started impeding further gas development, building LNG regas capacity instead. Its gas prices in winter started to be set by LNG import costs.
Natural gas is an internationally traded commodity whose market price is not tied to local production cost but is tied to supply vs. demand. Production cost may indirectly affect supply, as when prices fall below production cost from a particular source, then that source will produce less. Then the question is whether another source with a lower – ie profitable – production cost can make up the reduced output of the unprofitable source.
That is how all free markets work – supply vs demand.
A year ago world NG supplies were curtailed as a result of the Ukraine war and sanctions against Russia that eventually resulted in a EU embargo on Russian NG. Prices predictably soared. But then other sources, particularly the US, stepped up production of NG, and several EU member nations expanded their LNG terminal capacities. Additionally Europe experienced a milder than average early winter that depressed demand. Thus by last fall world NG prices plummeted as supply more than caught up with demand. Hence prices also plummeted from a high of $9 to the current price of $2.
There isn’t even a single US market in gas. High transport costs mean that arbitrage only takes place in extreme cases, and only where the necessary infrastructure to enable it exists. That infrastructure is not global. Import substitution by coal also limits the degree of price linkage between distant markets.
And a lot of that reduction is due to weather induced demand curtailment…Winter is over as is winter demand for heating fuel. When Demand drops, prices follow
I wouldn’t go down the fixed price route. Withdraw the subsidies, and make sure they are accountable for the costs of intermittency and extra grid capacity. No compensation for curtailment either. Then there is an incentive only to invest where it makes economic sense – which will be rare.
More like non-existent.
If the problem is that an entity is poorly run, the absolute last thing you would want to do is turn over control to government.
At least with a private entity, when they mess up, they go out of business. Once government gets put in charge, no matter how badly they mess up, they just raise taxes to cover the losses.
yes the firm supply = the marginal cost
imagine having to explain market principles to skeptics
Steven,
The bigger problem is success in explaining free market economics to the intellectually disabled, particularly those with irrational hate of it, like TDS.
Geoff S.
So the solution must be to remove the gas supply from the market.
Seems to be working so far…
In other news: A large plume of methane gas spotted bubbling to the surface in the Baltic Sea.
.
Philip, you mention bubbles.
“Life is mostly froth and bubble, Two things stand like stone,
Kindness in another’s trouble, Courage in your own” – Sir Walter Scott.
The quote is a reminder that in life, many things are fleeting and temporary, but there are two things that are constant and enduring: showing kindness to others when they are in trouble, and having the courage to face your own challenges.
Geoff S
Nationalizing an industry is well-along the route to Banana Republic status. Ignoring the reality of “renewables” failure to deliver energy 24/7 all year is probably something other than delusional, it is probably exposing a hidden agenda.
“hidden agenda”
I think you are on to something. Is the point for the government to buy up all the unreliable generation at a premium giving the developers and owners a massive profit then, when a truly conservative government gets in power, there would be no way to sell the crap into private ownership due to the great reduction in “value” due to reality kicking in and the years of lost “service” life while under government ownership.
The MSM really needs to push this fast, before, as mentioned in an above comment, the developers lose all their subsidies and first in line at the highest price forced purchase requirements which will make unreliables worthless. Hopefully this happens sooner than later, and all the banks that funded the crap can go under with their cronies. BUT a true conservative government would need to require the management of the failed banks could NEVER AGAIN work at a government “insured” bank of any sort.
I know, I have been dreaming again. The second part, not the first.
The UK energy market could be fixed. The idea that you pay wind and solar above their contracted rate because that’s the way the payment system was constructed is ridiculous.
If wind offered a fixed price that gives them a profit plus costs then that should be it.
If it is the cheapest form of electricity then lets get the benifit of that cheapness. /sarc
“then that should be it”
It can’t be. The NEM accepts and aggregates the bids. There is no basis for a differential price for either buyer or seller. The electrons are all the same.
…when they are available.
One thing I know, for sure, in California we were paying PG&E 11-13¢/KWH prior to the implementation of Ruinables. Today with the advent of Sonoma Clean Power (Wind Solar and Geothermal (we have the geysers Calpine)) we are and have been paying 22-26¢/KWH for what was originally sold as 100% renewable sourced power.
Today From SCP…
In other words, the cost is HIGHER because of a greater concentration of COSTLIER renewables in their generation mix
Nick, we all have a sneaky idea that each generating source, be it coal, gas, wind or solar have a sneaky kW/MWHr meter attached to their outputs. How else would the grid know how much each source delivered?
There may or may not be any basis for it, Nick, but it is certainly forced upon us by government-mandated purchases and subsidies. Without that there probably would be ~zero input to the grid from solar and wind.
Giving the original politicians the benefit of the doubt (unusual, I know), they were probably told that the cost of unreliables would fall dramatically once the industry was jump-started.
It’s clear those politicians were not advised by real engineers and scientists.
Doesn’t apply to rooftop solar though. And you are ignoring subsidies assessed at over $19bn p.a.
https://quadrant.org.au/opinion/doomed-planet/2021/10/australias-obscene-green-subsidy-machine/
“subsidies assessed at over $19bn p.a.”
Your link exaggerates, of course. But even then, it says subsidies are $6.9bn p.a. The rest is nebulous claims about how more economically a FF-only system would run.
There is nothing “nebulous” about those claims, just actual historical data.
And Nick, why are you in favor of building expensive redundant unreliable generation capacity when the money could be spent on housing, schooling, feeding, etc. for poor people.
Why do you hate the poor so much Nick. They are the ones who suffer the most from the excess costs in the electricity market, the profits being given to government cronies, and you support this corruption!
OK, Nick, this is not just for you: Anybody miss the regulated investor-owned electric utilities with a obligation to serve in a specific natural-monopoly area? They were government-regulated with a mandate for reliable and cost-effective service. Prudent, government approved investments were made in generation, transmission and distribution systems to serve anticipated consumer needs without gouging the ratepayer. Private investments for technological improvements was encouraged.
Then the money-men came along beginning in the 1970s, convincing gullible politicians that they could create “markets” in electric generation (your ‘effed-upped NEM, Nick) to save consumers money and spur innovation. What actually occurred was a series of economic and social disasters engineered by Leftist ideologues and crony capitalists (AKA fascism) market manipulators and green energy profiteers.
Early on I and a number of other utility experts warned them of the readily foreseeable consequences, but were ignored. [I failed to secure one GM/CEO job because of my honesty; the board of directors was wrapped up in the fashionable but unsupportable deregulation fantasy.] The early disasters in California deregulation were also ignored until the whole scheme has now become “too big to fail.” Well, its now failing with severe consequences to our collective economic wellbeing; real life and death issues to the poor.
And nobody is being adversely affected by the profiteers’ climate change boogieman.
Natural monopolies are the myth that government uses to justify their desire to control the economy.
Then explain the failures of government-manipulated wholesale electric energy markets vs the rate stability and reliability of the old PUC regulation. Currently its crony capitalism (AKA fascism) writ large. Public utility rate cases were open to scrutiny by everybody, with clear and enforceable rules. Current subsidies and backdoor deals are hidden.
As you stated, government manipulated.
As to why the old PUC was more stable, yes, when government sets the price and guarentees that everybody involved will make a profit, things are quite stable. Highly costly and inefficient, but stable none the less.
Mark, are you telling me that the current Leftist governmental-dictated crony capitalist (AKA fascist) system has proven more efficient and cheaper than the old?
“Then the money-men came along beginning in the 1970s, convincing gullible politicians“
It was 90’s here, and who they mainly convinced were conservatives (who are the ones that love markets, remember?). Labor governments resisted.
All electrons are equal.
But some electrons also get first pick, plus massive subsidies.
They are not the same. Wind and solar produce at the whim of the weather and time of day in the case of solar, unpredictaby and inconsistently; oil, gas and nuclear can produce consistently 24 hours a day, 7 days a week.
Gigantic difference. The value of the power from fossil fuels and nuclear is far more valuable and far more useful. Not to mention fossil fuel power is a NECESSARY addition to make the crap power from wind and solar usable for the grid.
“Perhaps WUWT readers can explain to me what Chris is trying to say.”
Yes. It is a technical point about the way grid auctions work. For each time slot, they call in bids. They accept, starting from cheapest, enough bids to cover demand. Then the price is set at the highest of those bids.
So if gas is in the bid mix, the price will be that of gas. Wind would have bid less, but gets the higher price. It is necessary that all electricity in the spot market sells for the same price.
This is built into the viability of each form of generation, so can’t be abolished with a pen stroke.
Viability
That is funny. They’re only viable with huge subsidies
They don’t get huge subsidies. In the UK, subject of this article, the subsidy mechanism was a CfD. This put a floor under the price, but if elec prices went up, money had to be paid back. Many new operators are proceeding without support of CfDs.
Yeah, yeah
“”The project, which could power 93,000 homes, will now hope for subsidy support from the UK government before it can move to the next stage.””
https://news.sky.com/story/pembrokeshire-floating-wind-farm-gets-welsh-government-backing-in-wales-first-12830487
Notice the word “hope”? They are looking for special support because of the novelty of floating wind farm.
Notice you were wrong?
“”Huge Hornsea Three offshore wind project wins government renewable subsidy backing””
https://www.business-live.co.uk/economic-development/huge-hornsea-three-offshore-wind-24421978
Different project. But what they got was a CfD, strike price £37.5/MWh. That basically fixes the price for them. It would have meant a big loss for them in the last year.
Actually since they have no obligation to exercise the CFD they would have done nicely.
Why would the novelty of the floating wind farm be relevant to justify a subsidy? As someone said (recently), the electrons are all the same.
Fossil fuel developments [used to] get tax breaks.
Renewables are subsidised
Needless to say, the former adds value to the state’s coffers
The only “tax breaks” that fossil fuels ever got, were the same ones that all other companies get.
Legitimate business expenses are always deductible. Even when the industry is one the left hates.
OK, the as someone said line made me LAUGH OUT LOUD. Thank you.
And why ]does nick and all the subsidy miners hate the poor so darn much?
The Hywind floating offshore wind farm has been operating since 2017. Not much of a novelty.
Hywind was very expensive. Very few floating farms have been constructed since. The novelty will be getting the cost down.
Perhaps there is not much cost reduction to be had. Equinor have had a very expensive sweetheart deal on 3.5ROCs/MWh worth over £200/MWh on top of market prices, but they have been quite profitable at that level.
“…5GW of floating wind generation by 2030.”
GW is the unit of energy not consumption, which would be GWh. They pull this trick all the time, and it is a lie because those 93 000 homes want electricity 24/7 not just now and then every few days or so.
Wrong again. But I suspect you know that perfectly well. This is Paul Homewood’s latest account of UK renewables subsidies. See also his post of 2022 featured on his site and also here.
https://www.conservativewoman.co.uk/the-climate-scaremongers-the-concealed-cost-of-wind-and-solar-power-subsidies/
OK, let’s look at his table
The big item is ROC. But that is historic; ROC’s have not been available for new projects since 2017, when they were replaced by CfDs. Note that they expect generators with CfDs to pay back in 2023/4. Capacity market is mainly a payment to gas generators for being around. The RHI is not concerned with electricity generation; the feed-in tariffs I think mainly refer to home solar.
ROCs are still paying out and will be for a long while yet. They are not over: consumers must pay for them. It is no longer the case that CFDs are expected to pay back to consumers in 2023. The LCCC has been busy securing collateral from retailers to ensure that CFDs get paid out.
The figures exclude the costs of UKA allowances, and make no allowance for their impact on electricity prices which is of the order of £8bn.
They get paid substantially to leave the grid if they are able to supply electricity but the demand is not there, so as to make their business viable, since they cannot often produce and sell electricity when needed.
In most instances they can only sell electricity by displacing gas or nuke, that is grid controllers tell gas-power/nuke stations to disconnect or reduce input to allow wind power to contribute. The gas stations still have to burn gas to be ready to reconnect at short notice. That’s a subsidy too, since gas power stations (and thus consumers) are paying the cost to allow wind to sell its output.
“They get paid substantially to leave the grid if they are able to supply electricity but the demand is not there”
That sounds like a muddled reference to curtailment payments. In fact those payments occur when the generators have made a deal, but the grid is unable to carry the electricity. Both partners get compensated.
The majority of renewables output is still under the ROC scheme. The CFDs for generators in operation average at such a high strike price that only during last year’s peak prices was there any net repayment by generators. The LCCC is once again imposing interim levies on retailers, anticipating that CFDs will on average ve subsidised by consumers for the next two quarters that they look ahead.
I think you misunderstood my question Nick.
I understand about the bidding process, what I don’t understand is Christopher’s explanation of why public ownership is needed to address the shortage of private investors who want to make more money.
Maybe the private investors realize they won’t make more money?
UK market puzzles me no end, the renewable sector seems to have a win-win-win situation.
Preferential treatment when available, paid to switch off if over supply, allowed to sell at market rate, with backup of CfD. There are 28+GW installed wind, and getting on for 20GW solar, more than enough for today or any other day.
Why do we need more? Why aren’t these companies investing in storage rather than more generation, so they supply 80% of demand continuously? Storage is miniscule even if Coire Glas gets built.
My theory is that the UK is Treasure Island for operators and they don’t need to invest in backup because generation is where the money is and the government will keep paying for more.
The back up is provided by third parties – gas and nuke who also have to carry the cost. That’s why.
“allowed to pay at market rate”
The Moray East offshore wind farm delayed taking up its CfD last year and earned an extra £500m. It has now delayed for a further 12 months
and will earn an extra £100m this year. It can delay again next year.
UK Ofgem etc are such brilliant negotiators!
That just shows that CfDs now are not a subsidy, but a bad deal. They made that £500m by selling in the market, without subsidy. It isn’t “extra”; they would have lost £500m with the CfD.
Nick,
In the days when hydrocarbon fuels dominated, I cannot recall that we in Australia had bidding for supply prices, curtailment payments, contracts for difference or all the other newspeak economic terms whose main raison d’etre seems to be to facilitate payments to a few recipients with near-guaranteed provisions against loss and near-guarantees of profits.
Can I suggest that your comments here might address the big question of whether the current system is better than the one it is intent on edging out? I mean better in a real sense, not better in the sense that it reduces carbon pollution and related word salads.
For example, I judge better in terms of whether we as a nation are attracting or losing investors using major plant that uses cheap, reliable electricity. We are poorer without them.
Geoff S
“In the days when hydrocarbon fuels dominated”
Geoff,
In Victoria we never had that. We had coal and the SECV (and a bit of Snowy), and rather frequent occasions when we were told to use only two lights.
Nick wrote:
(quoting Geoff S) “In the days when hydrocarbon fuels dominated”
(Nick’s reply) “Geoff, In Victoria we never had that. We had coal”
Nick, what do you think coal is? That’s an awfully poor job of reading comprehension, or possibly chemistry comprehension, even for you.
It’s strictly a pedant point. Coal is a carbon lattice, without any hydrogen
CFDs offered a free option, and with government promises to support electricity prices via carbon allowances it was a no brainer to sign up, allow the government and the green press the pretence that it meant the electrcity from renewables was cheap (even before these wind farms were built).
Having been criticised for the laxity of the contracts the government is now trying to impose much harsher terms on the next CFD auction. That includes having the right to force that the CFD be honoured as soon as commissioning is complete, and the right to determine that commissioning is complete, as well as cancelling support any time prices go negative. We will see how many are prepared to bid against a loss making ceiling price for bids on a hope that the government doesn’t exercise its rights, or that the hole system will be torn up and replaced under REMA with lavish compensation payments all round. I think I would be telling a board to sit this one out. The terms next year will have to be softened substantially because there will be a capacity shortage panic on.
Missing the point is one of Nick’s specialties.
His goal is to confuse and distract.
Plus le change, plus la meme…
But this is not any sort of normal auction.
e.g.If me/you and a lot of others go to an antiques sale to bid at just the one item there is on offer and if no-one reaches the reserve price, we all go home empty handed and it’s not the end of the world.
If everyone went home empty-handed from an electricity auction – it is the end of the world
So they buyers (sellers actually) self-organise into an unofficial & unspoken cartel and put in silly high ‘bids’ knowing that they have to be accepted in order to prevent ‘The End Of The World’
Effectively there is only one thing on offer and only one buyer.
The buyers are perfectly trapped – the folks wanting the electric just have to pay the silly prices
It’s because it is all so transparent – the perfect example being Farm Subsidies in the EU.
Everybody knows everybody else’s bid, how much money they have and how desperate they are for whatever’s on sale.
These ‘auctions’ are the very definition of A Complete Sham
Yes the farmers seemed to get shed loads of money from the EU, but all the farmers’ suppliers and all their buyers knew exactly how much each farmer was getting and the exact date when it was paid.
The same unofficial unspoken cartels struck up – the price of tractors, seeds, fertiliser and chemicals skyrocketed and prices paid to farmers dropped off a cliff
Yet the entire 40+year long EU farm subsidy debacle, which:
ramped up food pricesdestroyed farmerswhile Cronies got richbureaucratic hierarchies blossomedlawyers had a field daytaxes went uplittle people paid/sufferedis all being repeated here.
Oh now I see Nick. It’s just like how I buy gasoline/petrol. When I fill up at the lowest price pump, I insist on paying the highest price charged by their competitors.
It is after all an iron law of nature that the price of every drop of fuel be the same. What would happen if that wasn’t the case? Pandemonium, rampant capitalism!
You admit that this scheme is critical to ruinable power’s viability, yet deny that it is a form of subsidy. Ok it may not properly be called a ‘subsidy’ as in a direct government payment or tax deduction. It is a regulation that forces consumers to pay a premium to preferred suppliers. The price that they bid is a fiction that they know that they will not be required to honor. Comparing the bid prices of natural gas vs wind in that case is comparing reality vs fantasy.
The usual Stokes Sophistry.
“When I fill up at the lowest price pump”
There is only one pump.
That is not how the the GB system works. It relies on bilateral contracts that can trade anything up to years in advance. Once a generator has made a sale, perhaps locking in a margin by acquiring fuel if necessary it is obligated to supply. It can only purchase alternative supply, and indeed must do so if e.g. it suffers an unanticipated inability to supply because of breakdown or lack of fuel/wind/sun. Should it fail to square its position, it will be charged very expensive imbalance prices. Other than for grid operational reasons (constraints, need for ancillary services etc.) the system is self-dispatch and actually operates an inverse merit order in practice because renewables only get their full subsidies if they produce. The larger the subsidy the greater the incentive to keep producing.
Nick, please explain the economic rationale behind paying everybody the highest bid price for any given energy transaction time period. Traditionally, schedulers would stack in the appropriately-configured resources with the cheapest available prices first, adding in higher and higher-priced and differently-configured resources as required to support total, varying loads at any given time. The current scheme just maximizes consumer costs, providing windfall profits to the favored few crony capitalists (AKA fascism).
It is absolutely outrageous that consumers must foot the bill for the inability of wind and solar providers to plan their generation to meet anticipated loads in a truly competitive marketplace. It would be a different matter if wind and solar providers would have to firm their bids and provide for all ancillary services related to their unreliability of operations and technical limitations on quality of power generated.
“Nick, please explain the economic rationale behind paying everybody the highest bid price for any given energy transaction time period.”
I didn’t invent the rule, but it is followed by most markets. The reason is that there isn’t time for people to revise their bids. When you bid for shares on the stock exchange, for example, you do so knowing recent prices. This establishes a de facto uniform price. You might have been prepared to pay a much higher price, but you only have to pay the going price. Sellers also might have been prepared to sell at a much lower price, but they can sell at the going price.
Electricity markets, because they have 5-minute intervals, establish the going price by rule. It can’t be less than the highest bid in the range, or they won’t have enough power.
Nick,
So you are saying that the problem of high prices for the consumer comes in part from the adoption of a less-than-perfect system design, or to be blunt, a hopeless mess. Geoff S
In the UK settlement periods last 30 minutes.
Those are not markets, Nick. They are ideologically manipulated governmental interventions in things that should never be subject to irrational “market” manipulation. Let publicly regulated private utilities and municipalities and cooperatives buy energy or operate their own generation sources to meet anticipated needs in reliable and cost-effective methods possible. Allowing ideologically motivated Leftist governments to destroy the sane operation of energy systems has proven to be the disaster for consumers it was predicted to be.
There is a reason for 5 minute intervals. The unreliability of unreliable wind/solar generation.
If bids were taken for guaranteed hourly commitments or even longer, the bid prices taken could be easily stacked by lowest first. The problem that unreliables would have, is paying others to fill in the gaps of production. Too bad, so sad. That would let everyone see who has the highest cost of electricity and let consumers know also.
As Dave Fair points out, 5-minute windows paying everyone the highest bid is a perfect solution for paying the highest amount to everyone. It only takes the price of the highest marginal provider to allow earning money hand over fist for everyone else.
If guaranteed power provision at the lowest cost is the ultimate goal, then the design of a market should be to provide it. Doing otherwise is simply a way to subsidize unreliables by hiding behind an excuse of “it’s not my fault”!
Yep, there are 3 market segments in the electricity market
baseload – the minimum amount which is required all the time
shoulder – longer, predictable increases in demand above baseload (daily, weekly, monthly, seasonally).
transients – short-term increases in demand
Well, 4 if you include emergency supplies, but these are usually provided by the consumer.
Supplies are built so the cost structures (and for efficiency reasons, response times) tie in to this. The regular high volume product is cheapest, with the costs rising for lower use. It can’t be any other way, because if the shoulder or transient supply tech was cheaper, it would become baseload.
In most markets (the economic models are vast simplifications), long-term contracts would be in place all down the supply line to cover the known mi minimum, then probably options for the shoulders, and, as a last resort, the spot market for transients.
As Dave described, the utilities were doing this internally with their own equipment.
From the various descriptions, most current artificial “markets” seem to work in very short time increments, which put the high volume, slow response technologies at a major disadvantage.
One way to handle this would be to use medium or long term supply contracts with guaranteed volumes e.g. a 3 month contract for 24GWh/day, delivered at a rate of 1GW, with a 5 9s uptime requirement and meaningful penalty clauses. It doesn’t matter what the tech is, but the supplier is on the hook if it isn’t met. Steam turbines, CCGT, OCGT, PV, wind, hydro, geothermal or a mix – doesn’t matter as long as you deliver as contracted.
This used to be standard in IT Data Centre and outsourcing contracts, and it worked well. It was typically a 5 year contract with a series of extension options. The profit was always in the extras which the customer never paid sufficient attention to.
Christopher Hayes is a moron, a willfully ignorant moron. Gas is THE renewable energy of the future. Solar and wind are failures. Only leftarded morons still push solar and wind.
“If your only tool is a hammer, everything starts to look like a nail.”
Like FDR with his “Brain Trust”, central planning seems like the perfect solution to all man’s ills. Stalin with his five-year plans and state-run industrial farming. That led to the Holodomor.
Add in some pseudo-science, Lysenkoism for example, and you have the perfect recipe for societal collapse. Maybe that is what they think they want, but the new society that grows from the ashes will have little use for them and their crazy ideas. Ask Trotsky.
They call themselves progressives, but their ideas are as old as the Gracchi. And just as successful.
When you ignore the complexities of the real world, everything seems so simple.
That’s the reason why government “experts”, who rarely know more about an industry than you read in the newspaper can come up with these great plans, that according to them can’t fail.
They just leave the details of how to make “the plan” work, to the little guys.
And it’s always the little guy’s fault when the plans fail.
That the government should take over power production, just as they did the National Health Service, because that has worked out so well.
Government is taking over the High Streets
“”New energy standards will make 91pc of all retail space including high street stores and shopping centres across UK city centres unlettable by 2030 without urgent and costly action, according to Savills estate agent.
The Government intends to ban commercial properties from being rented out unless they are assessed as having a minimum energy performance rating of C by 2027, and B three years later.
Experts warned that vast swathes of buildings will be unable to meet this requirement without major improvement work. Victorian town and city centre buildings are likely to need expensive insulation to reach the target.
Tom Whittington, commercial research director at Savills, said: “It’s a disaster waiting to happen. There’s not enough money or enough time.””
https://notalotofpeopleknowthat.wordpress.com/
I’m reminded of the EPA which passed a regulation requiring oil companies to start using an additive that didn’t exist. Then they started fining the companies for failure to use this non-existent additive.
In court the EPA argued that they gave the oil companies 2 years to develop this additive, and the only reason the oil companies failed was because they didn’t try hard enough.
Maybe you are thinking of the mandatory inclusion of cellulosic ethanol into gasoline?
From Wikipedia:
https://en.wikipedia.org/wiki/Cellulosic_ethanol
from that same piece, ref [7]
Wald ML (January 25, 2013). “Court Overturns E.P.A.’s Biofuels Mandate”. The New York Times. Retrieved January 26, 2013. wishful thinking rather than realistic estimates
Basically the 2011 EPA reg was thrown out in court in 2013.
We still let EPA exist, even though they keep pulling the same stunts.
I’ve lost track of the number of leftists who have proclaimed that once they get rid of those greedy capitalists, how everything will become so cheap that it’s practically free, and quality will go up as well.
But it worked so well for Stalin!
More socialist fantasy from the Grauniad.
Actually, renewables are pushing up the price of CCGT generation by reducing the quantity of electricity generated by the CCGT fleet, while still requiring that it remain available for generation during periods of low/no solar and wind availability. Capital, operating and maintenance costs, profit and standby fuel cost must be recovered from reduced output.
Renewables also benefit from the protectionist tariff known as carbon taxes. Currently worth about £30/MWh, added straight to the bottom line, and paid for by consumers.
It’s whatever sticks excuse writing.
“Perhaps WUWT readers can explain to me what Chris is trying to say.”
Hello Eric,
What I believe Chris is saying is “Mmph mmm m mmmf mmt mm mmf mmm mmmpht mmm mmf.” Roughly translated, that’s the sound he makes because his head is so far up his bottom.
ROFL 🙂
Looks like they think subsidized prices are free manna from Heaven.
Socialism works, so long as you don’t run out of people who are willing to work but not be compensated.
There is an old saying about that!
What he said was government should own everything including everything you have and that will fix it.
It seems very clear what Hayes and the Grauniad are saying: the author is a moron and the institution is a farce.
IF the price of fossil fuels are raising the price of “Green” energy then, drill for more gas and oil, mine more coal and use them.
Supply and demand.
Under socialist economics, they demand and you supply.
“Despite 43% of our electricity being generated from clean energy sources, prices are determined by the most expensive source needed to satisfy 100% of the demand in a given period.”
Because, not despite. And 43% is not from ‘clean energy sources’ – the link goes to ‘renewables’ which are: wind, solar, hydroelectric and bioenergy. Bioenergy is wood (most of which comes from California) and farmed plant mass which emits more junk and CO2 than coal and is heavily subsidised. It accounts for over 20% of electricity. Hardly ‘clean’.
Gas determines prices because when coal – which supplied 50% to 60% of demand until 2015 – was replaced by wind power, it was ‘suddenly’ noticed wind power could not supply enough power to replace coal power, could not provide base load, was intermittent, unreliable, etc.
Therefore gas powered stations were required to be in continual back up, dropping out when wind power came on line, reconnecting when wind power went off line – frequently.
Since gas power stations still have to burn gas when waiting to relieve wind power, and since wind power provides less than 20% of demand, gas will dominate the pricing. And the price of gas, unlike coal, is more volatile and expensive.
Plus: since wind and solar cannot provide power continuously, or in aggregate, revenues from them are insufficient – even with subsidies – to give satisfactory return on capital and cover operating costs. The companies therefore price their output to match gas prices as it is the only way they can make any money.
These folk cannot get it through their heads that it not a lack of wind and solar power generation, it is a lack of wind and sunlight – and no amount of investment can resolve that.
Germany which had invested hundreds of billions of €uro over the last 20 years, and with 30 000 wind turbines, cannot be said to lack investment and capacity, but is now building coal-fired and gas-fired power stations, not wind and solar.
Reason: you cannot operate a stable electric grid and meet demand with wind and solar.
John XB,
I think that you may be confusing the abbreviation ‘CA’ as meaning California rather than Canada. A lot of Drax pellets come from Canada, as well as from southeastern US states and Brazil. I doubt that any come from California. Think of the adverse logistics as well as Cali’s treehugger anti-logging regulations.
Heaven forbid that any tree gets cut down in California.
“Perhaps WUWT readers can explain to me what Chris is trying to say.”
Sorry, I can’t. I’m pretty sure he doesn’t know himself. Thinking is not his strongest suit.
The irony is that gas prices took off because offshore wind failed to meet prediction so not enough gas was stored. In the US gas is very cheap now. Note too that solar at night and wind when it does not blow are infinitely expensive, that is not available at any price.
Renewables are dragging up the cost of gas.
Anti-fossil fuel policies in general, actually. But yes, that’s the right way to express any relationship between “wind and solar” vs. “gas” prices.
Christopher Hayes, The Guardian said: “Public ownership of the UK’s clean energy generation, selling at cost without markup, is the only option that short-circuits the trade-offs that we otherwise take as given, such as the urgent need to decouple the price of clean energy from gas; and to supercharge investment in clean energy.”
Ed Reid of WUWT’s readership said: “Actually, renewables are pushing up the price of CCGT generation by reducing the quantity of electricity generated by the CCGT fleet, while still requiring that it remain available for generation during periods of low/no solar and wind availability. Capital, operating and maintenance costs, profit and standby fuel cost must be recovered from reduced output.”
Here are some general observations concerning the current renewable energy socio-political landscape:
— The additional costs of dealing with wind and solar’s intermittency are now being carried by our legacy gas-fired, coal-fired, and nuclear sources of power generation. This has the effect of making wind and solar appear to be cheaper than they actually are.
— In an electricity market warped by the presence of unreliable wind and solar power generation, the demand for reliable resources of electricity rises, thus allowing those resources to be marketed at a higher price with a higher profit margin.
— Within the current energy policy ecosystem, it is the acknowledged role of those who own and operate our legacy gas-fired, coal-fired, and nuclear sources of power generation to accept public anger and blame for the rising price of electricity.
— Utility CEO’s knowingly and routinely accept public anger and blame which would otherwise be assigned to the politicians and the regulators who funded and approved energy projects which are clearly destined to fail.
— Absorbing pubic anger and blame for the rising cost of electricity is now part of the job description of a modern utility CEO. It is a role and responsibility which these CEOs knowingly accept, in return for which they are handsomely paid.
— The downside for politicians if they nationalize the power grid and all sources of power generation is that they must accept public anger and blame for the rising price of electricity. (Assuming that the voting public chooses to hold them accountable.)
Concerning this last point…. Would the UK voting public hold their politicians to account for the rising price of electricity if the power grid and all generation resources were to be nationalized?
IMHO, it isn’t at all certain the UK’s voting public would do so.
If the voting citizenry of the UK is like that of the US Northeast, New York State, and California, these people have been drinking millions of gallons of renewable energy Kool-Aid for two decades.
I am being decidedly pessimistic here in believing these millions of people will never come to grips with the true causes of the energy starvation mess they will soon find themselves in.
If the government were to own all of the power grid and generating plants, they will charge for electricity, what the citizens want to pay, regardless of actual costs.
They will just raise taxes in order to make up the difference.
You have described every socialist-run shithole country that has ever existed on the face of the earth. Communists and other autocrats think they can get the populace to fall in line by using the gun to control them. To date, only North Korea has been able to make that work; even the grand Soviet Union failed to enforce economic insanity over time.
That’s why Nut Zero will fail in the West.
Wait a minute, N. Korea works?
Government run anything is a recipe for disaster.
North Korea works very well for the ruling Kim family and their cronies.
Actually, no.
First off, prices are determined by the average of all the power generated, not just the last bit needed.
Secondly, he seems to be upset that peaking power costs more than base load.
Thirdly, what is it with socialists and their belief that no matter what the problem, the solution is always more government.
In particular when it is government that creates most of the problems to begin with.
Electricity prices in most markets work about the same as oil prices do. The marginal producer sets the market price for everyone.
With electricity, each area clears their own price, and each hour.
New Zealand is an exception. Each generator bids. If the get selected, they get paid what they bid.
The author is suggesting a system closer to NZ’s, where renewables bid into the market at their cost, and get paid that much.
It would be a good way to discourage renewable energy investments.
The GB system relies on bilateral contracts and subsidies. The generator gets to choose whether to generate or to try to buy generation from someone else once they have made a sale, which can be anything between an hour and many years ahead. Only the small volume of balancing trade inside the one hour gate closure is actually traded with the grid at prices that can reflect desperation at trying to keep the lights on, or in dealing with oversupply on a windy day. Since the subsidies are only paid against actual production there is a strong incentive to keep producing that increases the bigger the level of subsidy – and hence of cost to consumers. It is an inverse merit order system for renewables.
Renewables income operates in essentially two regimes. Some are entitled to an index linked subsidy per MWh on top of whatever they manage to sell their output for under the bilateral trading system. Some of them choose to sign up for a multi year PPA for at least a tranche of their output. Others may instead opt for short term trading in day ahead and similar markets – particularly if their output is too uncertain to guarantee, potentially making buying altenrative supply very expensive if the wind isn’t blowing.
The CFD market guarantees a fixed, indexed price, with payments benchmarked for intermittent generators against hourly day ahead prices, which encourages them to sell on that pricing basis. They can sell on a different basis, but expose themselves to the difference in basis.
It’s worth noting that OFGEM encouraged retailers to hedge a year forward – at least until hedging collateral became too much of a stretch to balance sheets in volatile markets. Now the hedge is for the next quarter only, but still this encourages forward fixed price sales and purchases.
Hedging increases costs on average, because hedgees have to cover their costs and make a profit. When investing I would always try to avoid any “fully-hedged” company. Hedging is really a form of insurance, it can protect against unbearable losses. Just as any company should only insure things it can’t afford to lose, so it should only hedge enough to ensure its survival.
Correct. Consumers have paid dearly for the government hedging mandate, with bank commodity trading operations being among the main beneficiaries. A number of fly-by-night startups decided to run unhedged, taking advantage of falling prices that were a guaranteed result once the hedging mandate (actually orchestrated by Miliband, who called for fixed prices at the top of the market) was implemented – the OFGEM “cap”. That worked well until prices started rising in 2021, and they all went bust. OFGEM’s lack of oversight was woeful, but their reaction was to ensure that the wind farms all got their full ROC and CFD subsidies as the top priority, with surcharges on bills. Now we have government subsidising consumers to pay the subsidies, but of course it all comes back in higher taxes, now at a post war record.
That (higher taxes) or by printing money, which is nothing but a hidden tax.
Anything where wind and solar are not preferentially crammed down the throats of the utilities, awarded “tax credits” against no actual profits that can be sold or transferred to other businesses that actually produce something useful, or offer payments for power they produce on the occasion where they produce it when it isn’t needed would be a good way to discourage squandering money on (I hesitate to call it “investments” since the ability to feed from the government trough is not really an “investment in renewable energy” at all) renewable energy.
It doesn’t matter what Chris is trying to say, he doesn’t know what he is talking about. Chris is just one more in a long line of low information individuals making excuses for failed renewable energy. Renewables don’t work now and wasting more money on them will not make them work in the future. They are the definition of a dead end.
I note that the Henry Hub gas price has come down from $9 in Sep to $2 now, and the US price of electricity has continued to go up.
2 + 2 = ?
You convince yourself that the correct method is the average of 30 people you ask this question to.
A couple say 4, more say 5, even more say 6 and some give answers all the way up to 11.
The average ends up being 8.
The answer is obviously 8.
The wisdom of the group is paramount. Checking individual answers would be a heresy and “not on narrative”.
Anything is possible.
The arithmetic mean is 8. The geometric mean is 7. The median is 6. Michael Mann applied a novel statistical method and found the answer was 12.
The answer is obviously not 8, it is 12.
Or is Chris trying to hint that renewables are too expensive for private companies to afford, despite being the cheapest form of energy?
Perhaps WUWT readers can explain to me what Chris is trying to say.
marginal supplier sets the price.
Price = the marginal cost, for gods sake
As I said to Nick, that is not what I asked, I understand the marginal cost system.
I’m asking for help to understand Chris’ explanation that private companies don’t want to make money, by investing in more renewables.
They simply want guarantees of bigger subsidies. Government has tried to wind them down a little, now that they begin to see how expensive it’s all going to be. But they will end up in blind panic with a capacity shortage and high blackout risk, at which point they will agree to anything to keep the lights on. Even diesel generators.
marginal supplier sets the price.
Price = the marginal cost, for gods sake
That’s fundamental economics but we don’t have a level playing field with the electrons consumers rightly demand here- Namely those that can be reasonably guaranteed 24/7/365 (ie short of unforeseen mechanical breakdown) at the required frequency and voltage. Have a guess which ones are short changing the consumer and actively dumping to their long term detriment?
Ipso facto that requires all sorts of regulatory gymnastics to control an utterly phoney and corrupt marketplace in order to keep the lights on. The bovine excrement PR to try and explain away why unreliables actually equals expensive power to the end consumer inevitably follows.
Actually, it’s the other way around (though it can be expressed either way), and it only applies in perfect competition.
It’s probably more correct to say that profit is maximised when marginal revenue == marginal cost (== price in a perfectly competitive market.
https://biz.libretexts.org/Courses/Lumen_Learning/Book%3A_Microeconomics_(Lumen)/10%3A_Module_8-_Perfect_Competition/10.11%3A_Profit_Maximization_in_a_Perfectly_Competitive_Market
Monopolies also maximise profit when MR == MC, but price will be higher than MC.
https://biz.libretexts.org/Courses/Lumen_Learning/Book%3A_Microeconomics_(Lumen)/11%3A_Module_9-_Monopoly/11.16%3A_Profit_Maximization_for_a_Monopoly
Oligopolies are more complicated, because all the sellers are reacting to each other
https://socialsci.libretexts.org/Bookshelves/Economics/Book%3A_An_Interactive_Text_for_Food_and_Agricultural_Marketing_(Thomsen)/07%3A_Imperfect_Competition_and_Strategic_Interactions/7.05%3A_Section_5-
In a poorly run market that is designed to benefit certain suppliers.
If consumers were driving the market, it would be designed to supply reliable power at the LOWEST COST. If you couldn’t do both, don’t apply.
I had ecoloons tell me that