oil prices below $50 a barrel!! still no price cut!!

PrinceGaz

mech wrote: »

There are a number of flaws in your reasoning.

The most obvious failure of logic lies in the assumption that you can turn one unit of natural gas into one unit of electricity. You can't. Average gas-fired power station efficiency is probably about 50%. Then approximately 7% of the electricity is lost in transmission, so 1 kWh of gas-fired electricity at your meter needs 2.15 units of gas.

Then you have to take into account that the retail price of gas is set at a single level for a sustained period, but wholesale prices vary considerably. The price for gas is based on a predictable consumption curve of central heating use. We can't assume the same curve applies to electricity generated from gas. Especially as gas generated power is one of the methods of generation which can be turned on and off to follow electricity demand. So a direct link between rises in retail gas prices and rises in the wholesale cost of gas used for electricity is not reliable.

Also, only about 40% of our total electricity is generated from gas. The second most common fuel for electricity generation is coal, so without knowing what coal prices did in the same period, we can't draw conclusions.

That's not my post you replied to, but I would like to respond to your reply anyway

mech: you know I love to spar with you, and this time you have disappointed me by leaving a hanging question without seemingly checking the answer yourself first, in case it would be in your favour to answer it.

The fact is that coal prices rocketed pretty much as fast as oil/gas over the same period, thanks to increased demand from China (which has been building coal-fired power-stations like crazy over the past few years).

This is a site I found which looks fairly official with coal prices from several sources of varying quality US coal over the last few years, and the more desirable coal followed oil prices fairly closely. The US is the second largest coal producer (behind China who probably use all of theirs themselves) so those prices are important. The low quality coal barely moved in price, but that sort of stuff would probably be unsuitable for use in any modern power station (probably best suited to being put on the fire over winter in a traditional pub that still has one).

http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html

Nuclear prices on the other hand have not changed much, primarily because the uranium fuel price it runs on is only a small part of the cost of running the plant as a whole. I'm therefore not even going to bother checking uranium prices, but the fact that France has now has very cheap electricity prices compared to the UK is all that needs to be said.

Unfortunately, only a fairly small (and reducing) amount of UK electricity comes from nuclear plants due to successive past governments being unwilling to give the go-ahead to a major new nuclear power plant initiative, and instead wasting money on subsidies for expensive to build and operate wind-power facilities. Wind-power might appease the green-campaigners, but nuclear-fission is the best long-term, consistent, safe (with modern nuclear plants), and relatively cheap to run option. They also generate very well-paid high-tech jobs nearby which is why I'd love the next new nuclear power station to be built in my backyard.

Therefore, based on both coal as well as oil prices, I'm afraid in having to side with you mech, that if the increases in gas prices were acceptable (and they were), the increases in electricity prices that occurred were also acceptable as most electricity in Britain comes from gas and coal.

However I still maintain prices of both gas and electric should be cut now by all the major suppliers ahead of the winter peak, as it is clear the price of oil/gas (or coal equivalent) is not going to suddenly rise above US$100/barrel anytime soon. A 20% cut in gas and 15% cut in electric prices by all the big six with immediate effect would help restore consumer confidence in them, while still allowing them to make healthy profits.

Cardew

PrinceGaz wrote: »

A 20% cut in gas and 15% cut in electric prices by all the big six with immediate effect would help restore consumer confidence in them, while still allowing them to make healthy profits.

I will leave you to spar with Mech on what you believe are viable figures.

However you are IMO completely mistaken if you believe that "consumer confidence" will ever be restored in the Utility companies.

There is a campaign waged against these companies that is bereft of any logic.

Prove that the companies only make profits of £tens per customer and it is claimed that the 'fat cats' take all the profit.

Prove that their profits do not compare with the big supermarkets or that that the 'fat cat' salaries are lower than the supermarkets and that is ignored.

Prove that we have the lowest gas prices in Europe - so what!

Read a lot of the posts on MSE to get just a flavour!!!

1carminestocky

I notice Ed Milliband has been threatening legislation again if the energy companies don't reduce prices to reflect the drop in wholesale prices. Why doesn't he just legislate NOW instead of these endless threats? Every sane person surely knows how to deal with these rip-off merchants.

I wonder why the views of a few members of this board are so out of kilter with the vast majority of the UK's thinking here, including Govt ministers, Consumer Focus, respected professors whose speciality is the energy industry? And we are expected to believe the musings of 2 internet self-appointed 'experts' (one of whom keeps changing his version of events to suit his arguments) whose main riposte to detractors is they are trolls and know nothing? I know Hugh Jeego just enjoys a virtual punch up (it's like oxygen to him) but mech's motives I'm still not entirely sure of...

Dreamnine

Self-appointed they are, but they aren't experts; makes you wonder what kind of employment they have, if any, to be on here at all hours.

Lynsey

Lots of squabbling, but prices are too high. I don't know the facts about the high prices, but I do know that poor people will be cold and possibly people will die due to not being able to keep warm - it's a disgrace.
The companies are obviously maximising profits during the winter months where the usage is the highest.

Lynsey

BettiePage

Our electricity has just gone up by another £40 pm. A year ago we paid £50pm now it's £140 pm despite taking a lot more care with our usage. Wish they'd put it back down to a more reasonable level.

Cardew

Dreamnine wrote: »

makes you wonder what kind of employment they have, if any, to be on here at all hours.

Or they could of course be posting from a different time zone to UK;)

mech_2

PrinceGaz wrote: »

mech: you know I love to spar with you, and this time you have disappointed me by leaving a hanging question without seemingly checking the answer yourself first, in case it would be in your favour to answer it.

My take is that it's unanswerable. My only point was that reactor's calculation was not a realistic way to make a judgemnt. Given that prices for most forms of energy are linked to oil, it's probably not worth assessing how expensive the electricity is to actually generate anyway. Maybe we could estimate its profitability for generators, but ultimately I'm not that interested. It's going to be far more complicated than modeling the utility companies' wholesale gas costs at the day of supply and that was hard enough. It's not just the formulas, it's the sheer quantity of data.

The fact is that coal prices rocketed pretty much as fast as oil/gas over the same period, thanks to increased demand from China (which has been building coal-fired power-stations like crazy over the past few years).

This is a site I found which looks fairly official with coal prices from several sources of varying quality US coal over the last few years, and the more desirable coal followed oil prices fairly closely. The US is the second largest coal producer (behind China who probably use all of theirs themselves) so those prices are important. The low quality coal barely moved in price, but that sort of stuff would probably be unsuitable for use in any modern power station (probably best suited to being put on the fire over winter in a traditional pub that still has one).

http://www.eia.doe.gov/cneaf/coal/page/coalnews/coalmar.html

Not really a surprise. But now you need an up-to-date figure on the UK's average coal fired power plant efficiency level. And carbon credits hit coal harder than gas, so that ought to be factored in. Coal is easy to store as well (you just stick it in a big pile), so you also need to know how far ahead of burning it it is bought and how much of it is traded on the futures markets and what happened to those prices. I can't be bothered, TBH.

Nuclear prices on the other hand have not changed much, primarily because the uranium fuel price it runs on is only a small part of the cost of running the plant as a whole. I'm therefore not even going to bother checking uranium prices, but the fact that France has now has very cheap electricity prices compared to the UK is all that needs to be said.

Not really. The economics of French nuclear power are not transparent. The state still has involvement and figures for subsidies are not publicly available. The French certainly have to trade a lot of electricity with their neighbours though, because nuclear is strictly baseload. This is good when we're comparing it with windmills, but not good when you have such dependancy on it that you have to buy energy from neighbouring countries to balance electricity demand. Central Europe operates effectively as one homogenous electricity market as far as I'm aware.

Unfortunately, only a fairly small (and reducing) amount of UK electricity comes from nuclear plants due to successive past governments being unwilling to give the go-ahead to a major new nuclear power plant initiative, and instead wasting money on subsidies for expensive to build and operate wind-power facilities. Wind-power might appease the green-campaigners, but nuclear-fission is the best long-term, consistent, safe (with modern nuclear plants), and relatively cheap to run option. They also generate very well-paid high-tech jobs nearby which is why I'd love the next new nuclear power station to be built in my backyard.

I'm not sure they're cheap. The build cost is large and has to be recovered. The timescales are long. They are reliable for the moment. But if every other country has the same idea, uranium prices could become more of a factor. Currently less uranium comes out of the ground than is consumed. Unless a lot more mines are opened we're in for either sky-rocketing fuel costs or interruptions in supply. Britain can't control its supply as it doesn't have any uranium deposits.

Therefore, based on both coal as well as oil prices, I'm afraid in having to side with you mech, that if the increases in gas prices were acceptable (and they were), the increases in electricity prices that occurred were also acceptable as most electricity in Britain comes from gas and coal.

Well I'm not sure if they were acceptable - hedging for fuel for electricity generation might follow a totally different pattern to that which I have tried to establish with domestic gas supply. The demand curve will certainly be different.

Besides. The rises might have been OK, I dunno, but I stay off the topic of electricity because Ofgem has stated more than once that a minority of electricity-only consumers are subsidising gas consumers through utility company profits being unfairly weighted towards electricity. The fuel poor are disproportionally electricity-only customers, so retail gas prices may need to provide a larger share of profits in future to redress this. The cross-subsidy isn't new, so the rises may have been in the right proportion to maintain the status quo. Whether the status quo was fair in the first place is another question.

However I still maintain prices of both gas and electric should be cut now by all the major suppliers ahead of the winter peak, as it is clear the price of oil/gas (or coal equivalent) is not going to suddenly rise above US$100/barrel anytime soon. A 20% cut in gas and 15% cut in electric prices by all the big six with immediate effect would help restore consumer confidence in them, while still allowing them to make healthy profits.

You will have to state how you established their current daily profit margins. My model shows them either making a small loss or barely breaking even, depending on their fixed costs.

Either way, price reductions now, in winter, have a larger effect on their profits. Summer prices don't really matter. Low consumption pales any losses into insignificance. Even if they're not making a significant loss right now, they would if they reduced prices 10%. Technically the winter peak is in the second half of January and they would probably be able to cut prices around then. Maybe the middle of January. Is that good enough?

If I have got this figured out correctly, they could reduce gas prices by 10% on say 20th January and by the end of February still be able to drop them further. By the end of March they could be 27% to maybe 35% lower than now. I can't see much possibility of prices lower than that for the rest of next year. A 27% reduction would make average retail prices slightly lower than spring 2008 prices, but more than late 2007. 35% less than now would be pushing it and still not as low as 2006 levels. Between maybe 2.5 and 2.9p/kWh (in familiar units).

Now the fun bit. Let's see what actually happens...

Mazio_2

The other factor I have been thinking about if you added all the profits from all the utility companys together I would think they would be in the billions the profits seem smaller now becauce we are splitting them up into the 6 just think if this was one company (like it was in the past).
I would think it would also have the resources it needed to deveolpe new power stations / infrastructure and still have a healthy profit.

1carminestocky

I actually wouldn't mind paying these prices if I knew ALL the profits were being ploughed back into improving the infrastructure, seemingly the only way to guarantee that would be to re-nationalise. All this b******** about needing to invest in industry resources, if you look at our record since privatisation took place it's not exactly awe-inspiring, is it? Capacity for 3 weeks gas storage, is it? How many months in France? Power stations on their last legs etc...