The Alternative Green Energy Thread

JKenH

1961Nick said:

QrizB said:

1961Nick said:

michaels said:

1961Nick said:

I fail to see how giving an energy subsidy to a household is subsidising the fossil fuel industry? The only beneficiaries are the consumer & the government.

You probably didn't study economics

https://www.economicsonline.co.uk/competitive_markets/subsidies.html/

Actually I did study economics.

You'll be familiar with price elasticity of demand, then?

I don't know how elastic energy demand is, but you would expect making it cheaper (via the EPG) would increase consumption. This was the whole point, to ensure that Granny would be able to heat her house despite wholesale energy prices being unusually high.

None of the traditional modelling works because demand for energy is very inelastic, prices are fixed, there's zero competition & the profit margin is dictated by the regulator. 

And on a related note we are all familiar with how price elasticity of supply works with wind and solar - very inelastic. I wonder how the retail electricity market will work when we are  100% reliant on renewables. Demand is very inelastic so without intervention price will respond to supply leaving the less well off (who can’t afford batteries) severely disadvantaged. 

michaels

1961Nick said:

michaels said:

1961Nick said:

I fail to see how giving an energy subsidy to a household is subsidising the fossil fuel industry? The only beneficiaries are the consumer & the government.

You probably didn't study economics

https://www.economicsonline.co.uk/competitive_markets/subsidies.html/

Actually I did study economics.

The first paragraph of the linked article explains why this is not a subsidy as the money was clearly not to "encourage production & consumption". The money was given directly to households - deducting it from the energy bill was the easiest & most cost effective way of doing that in most cases.

A subsidy is an amount of money given directly to firms by the government to encourage production and consumption. A unit subsidy is a specific sum per unit produced which is given to the producer.

There were two subsidies:
agree the £400 that could be spent on anything should not theoretically have impacted the energy market but suspects many consumers did see it a reducing the cost of energy usage and thus consumed more than they would have without it
however the main cost of energy support was the price guarantee that was very much effectively a subsidy as it filled a gap between the price paid by the consumer and the price received by the supplier, thus increasing the market quantity and producer surplus - just as per the classic economics diagram

HtH

1961Nick

michaels said:

1961Nick said:

michaels said:

1961Nick said:

I fail to see how giving an energy subsidy to a household is subsidising the fossil fuel industry? The only beneficiaries are the consumer & the government.

You probably didn't study economics

https://www.economicsonline.co.uk/competitive_markets/subsidies.html/

Actually I did study economics.

The first paragraph of the linked article explains why this is not a subsidy as the money was clearly not to "encourage production & consumption". The money was given directly to households - deducting it from the energy bill was the easiest & most cost effective way of doing that in most cases.

A subsidy is an amount of money given directly to firms by the government to encourage production and consumption. A unit subsidy is a specific sum per unit produced which is given to the producer.

There were two subsidies:
agree the £400 that could be spent on anything should not theoretically have impacted the energy market but suspects many consumers did see it a reducing the cost of energy usage and thus consumed more than they would have without it
however the main cost of energy support was the price guarantee that was very much effectively a subsidy as it filled a gap between the price paid by the consumer and the price received by the supplier, thus increasing the market quantity and producer surplus - just as per the classic economics diagram

HtH

It's hardly a "classic economics diagram" when the price the supplier receives is set in advance by the regulator to cover costs plus an 'acceptable' profit margin. I'd wager that electricity demand isn't particularly elastic & is even less so at these elevated prices with much of the excess usage having been curtailed long ago. Energy supply is currently as close to being a nationalised industry as it is possible to get without actually being part of the public sector. Shareholder returns at around 5% are less than you get on a 1 year savings account backed by the FSCS guarantee so on that basis shareholder capital is too cheap & you could argue that the consumer is being subsidised by the industry as well as the government.

michaels

1961Nick said:

michaels said:

1961Nick said:

michaels said:

1961Nick said:

I fail to see how giving an energy subsidy to a household is subsidising the fossil fuel industry? The only beneficiaries are the consumer & the government.

You probably didn't study economics

https://www.economicsonline.co.uk/competitive_markets/subsidies.html/

Actually I did study economics.

The first paragraph of the linked article explains why this is not a subsidy as the money was clearly not to "encourage production & consumption". The money was given directly to households - deducting it from the energy bill was the easiest & most cost effective way of doing that in most cases.

A subsidy is an amount of money given directly to firms by the government to encourage production and consumption. A unit subsidy is a specific sum per unit produced which is given to the producer.

There were two subsidies:
agree the £400 that could be spent on anything should not theoretically have impacted the energy market but suspects many consumers did see it a reducing the cost of energy usage and thus consumed more than they would have without it
however the main cost of energy support was the price guarantee that was very much effectively a subsidy as it filled a gap between the price paid by the consumer and the price received by the supplier, thus increasing the market quantity and producer surplus - just as per the classic economics diagram

HtH

It's hardly a "classic economics diagram" when the price the supplier receives is set in advance by the regulator to cover costs plus an 'acceptable' profit margin. I'd wager that electricity demand isn't particularly elastic & is even less so at these elevated prices with much of the excess usage having been curtailed long ago. Energy supply is currently as close to being a nationalised industry as it is possible to get without actually being part of the public sector. Shareholder returns at around 5% are less than you get on a 1 year savings account backed by the FSCS guarantee so on that basis shareholder capital is too cheap & you could argue that the consumer is being subsidised by the industry as well as the government.

Consumers would have just found £1000+ to carry on consuming at current levels without the price guarantee cap? There are a lot who simply can't afford that whether they want to or not.  We are not all middle class for whom high prices are an inconvenience rather than a heat vs eat choice.

QrizB

1961Nick said:

It's hardly a "classic economics diagram" when the price the supplier receives is set in advance by the regulator to cover costs plus an 'acceptable' profit margin.

The supplier is only a middle-man. The price the generator receives is set by a much freer market.

1961Nick said:

Shareholder returns at around 5% are less than you get on a 1 year savings account backed by the FSCS guarantee so on that basis shareholder capital is too cheap & you could argue that the consumer is being subsidised by the industry as well as the government.

My Centrica shares (with extraction and generation assets, as well as BG the supply arm) are up 200% on 2020. I don't see anyone offering that sort of return in a savings account.

Cardew

QrizB said:

1961Nick said:

It's hardly a "classic economics diagram" when the price the supplier receives is set in advance by the regulator to cover costs plus an 'acceptable' profit margin.

The supplier is only a middle-man. The price the generator receives is set by a much freer market.

1961Nick said:

Shareholder returns at around 5% are less than you get on a 1 year savings account backed by the FSCS guarantee so on that basis shareholder capital is too cheap & you could argue that the consumer is being subsidised by the industry as well as the government.

My Centrica shares (with extraction and generation assets, as well as BG the supply arm) are up 200% on 2020. I don't see anyone offering that sort of return in a savings account.

On Friday they were 141.9p against a low of 31.84p on 03 April 2020, However to put it in perspective they were 395.8p in 2013. 

1961Nick

michaels said:

1961Nick said:

michaels said:

1961Nick said:

michaels said:

1961Nick said:

I fail to see how giving an energy subsidy to a household is subsidising the fossil fuel industry? The only beneficiaries are the consumer & the government.

You probably didn't study economics

https://www.economicsonline.co.uk/competitive_markets/subsidies.html/

Actually I did study economics.

The first paragraph of the linked article explains why this is not a subsidy as the money was clearly not to "encourage production & consumption". The money was given directly to households - deducting it from the energy bill was the easiest & most cost effective way of doing that in most cases.

A subsidy is an amount of money given directly to firms by the government to encourage production and consumption. A unit subsidy is a specific sum per unit produced which is given to the producer.

There were two subsidies:
agree the £400 that could be spent on anything should not theoretically have impacted the energy market but suspects many consumers did see it a reducing the cost of energy usage and thus consumed more than they would have without it
however the main cost of energy support was the price guarantee that was very much effectively a subsidy as it filled a gap between the price paid by the consumer and the price received by the supplier, thus increasing the market quantity and producer surplus - just as per the classic economics diagram

HtH

It's hardly a "classic economics diagram" when the price the supplier receives is set in advance by the regulator to cover costs plus an 'acceptable' profit margin. I'd wager that electricity demand isn't particularly elastic & is even less so at these elevated prices with much of the excess usage having been curtailed long ago. Energy supply is currently as close to being a nationalised industry as it is possible to get without actually being part of the public sector. Shareholder returns at around 5% are less than you get on a 1 year savings account backed by the FSCS guarantee so on that basis shareholder capital is too cheap & you could argue that the consumer is being subsidised by the industry as well as the government.

Consumers would have just found £1000+ to carry on consuming at current levels without the price guarantee cap? There are a lot who simply can't afford that whether they want to or not.  We are not all middle class for whom high prices are an inconvenience rather than a heat vs eat choice.

Well consumers have recently absorbed a 150% rise in electricity prices & a 200% increase in gas prices without a noticeable drop in consumption. At it's peak those figures were 200% & 300%. It's true that a lot couldn't have afforded another £1000 pa, but it's also true that most could have & would have paid it. There are also various schemes that the industry has to operate by law for those in fuel poverty & this is another reason why standard economic models don't work for the energy supply businesses. What other businesses have to offer welfare payments?

1961Nick

QrizB said:

1961Nick said:

It's hardly a "classic economics diagram" when the price the supplier receives is set in advance by the regulator to cover costs plus an 'acceptable' profit margin.

The supplier is only a middle-man. The price the generator receives is set by a much freer market.

1961Nick said:

Shareholder returns at around 5% are less than you get on a 1 year savings account backed by the FSCS guarantee so on that basis shareholder capital is too cheap & you could argue that the consumer is being subsidised by the industry as well as the government.

My Centrica shares (with extraction and generation assets, as well as BG the supply arm) are up 200% on 2020. I don't see anyone offering that sort of return in a savings account.

The original supposition of this discussion was that the EPG payment - which appeared on the supplier's bill - was a subsidy & that standard economic modelling could be applied to these suppliers.

Centrica do lots of things in addition to the retail supply of energy & the BG arm was not a contributor to the share price increase as it's barely made any profit since 2020. The profit driving the share price increase from the pandemic low has come from oil, gas, nuclear & the LNG import business.

Centrica also supply a lot of business energy which was not subject to the same price controls & subsidies as domestic energy - you could probably apply standard economic models to that side of the business.

I see that the projected dividend yield for Centrica is just 2.7%... hopefully you will continue to see a capital gain because that's poor by FTSE100 standards.

JKenH

Just out of interest I did a comparison of average electricity price and demand from 2012 to 2022. The p/kWh is the average  net selling value of electricity to all consumers scaled to 1990 GDP (pence/kWh). https://www.gov.uk/government/statistical-data-sets/historical-electricity-data

The average daily demand and £/MWh are from https://www.electricinsights.co.uk/#/dashboard?period=1-year&start=2019-01-01&&_k=27kznw

There has been a gradual downward trend in demand which was interrupted by the COVID crisis of 2020 and 2021. Statistically there is a negative correlation between rising prices and falling demand from 2012 to 2020 but please remember correlation is not causation. What we can see from 2020 to 2022 is a positive correlation between rising prices and demand but again this is not evidence of causation.

What one might reasonably conclude is that (ignoring the Covid interrupted years of 2020 and 2021) the 2022 demand figure continued the downward trend exhibited from 2012 to 2019 and there was no significant drop in demand related to the doubling of electricity prices in 2022 as might be expected from conventional economic models, i.e. electricity demand exhibits very low price elasticity.

michaels

Without a counterfactual there is little that can be taken from those figures - for example during hat period that has been a large uptake of EVs and a more limited uptake of heat pumps (remember they are supposed to break the grid) and yet demand is down - perhaps strip those new uses out and demand has been considerably price elastic.....