Why is no one asking "Who sets the prices?"

What_time_is_it

jimjames said:

Seajays said:

I don't know how the wholesale energy market works, and I haven't managed to see any clear description of how it works.  I know "energy" is traded in an open market , but somewhere someone/something must set prices for energy, my question is how does that happen?

No different for energy to any other product. Supply less than demand will increase prices. Look how much people were prepared to pay for toilet rolls. Exactly the same thing.

Not me. I had a sliding scale of items ready to go, ranging from old dishcloths right the way down to my own 2 hands. 

sienew

wittynamegoeshere said:

I suspect that the vasty majority of countries that have much lower energy costs than us do not subsidise but control their prices.  There's a vast difference between the two.

That isn't the case. Our gas prices have consistently been among the cheapest in the EU (and most of the world) for the past 20 years. One of the reasons we have had such a large % rise compared to other similar countries is because we started at a much lower rate. Our previously free market worked very successfully, just like the US is with their very low energy costs.

jj_43

The government has attempted to design the energy industry to be an open and liberal market, often it is stated that the price is set by supply/demand, costs and “competition”, or now by the Ofgem price cap.

Open and liberal means that energy can be traded between multiple parties, both national and international, ultimately the customer pays for interconnectors, LNG ports, gas pipelines, the infrastructure that allows energy to be moved around. For example there are proponents that argue we should have invested in gas storage.

However, the customer won’t see any benefit from this open and liberal approach. The industry is designed at every level to provide optionality for the energy companies, their trading divisions while the costs are passed onto customers. If we had gas storage in the UK, and if this gas was sourced at a cheaper price, the customer won’t see the benefit of this, if it served the energy companies purpose they would load this gas onto a LNG ship for Japan if that was more profitable. Therefore the price of energy is linked to the prices on the international markets.

It not just supply and demand setting the prices, it a market designed to pass the costs onto customers, while energy companies can profit from optionality.

Section62

jj_43 said:

However, the customer won’t see any benefit from this open and liberal approach.

The customers who took advantage of switching to good deals - including zero standing charge ones, and tarrifs designed for EV owners (for example) - have benefited quite well from the open and liberal approach.

Not to mention the individuals and organisations who did quite nicely from encouraging people to ditch and switch.

fergie_

Before the price cap, non-switchers subsidised market savvy regular switchers. A bit like how the banks use 'switching bribes' to get new customers.

So when the price cap was introduced, that limited how much suppliers could charge everyone else. Fairer for the non-switchers, but at the cost of switchers.

Take it a stage further (as we have seen in the last year), the cap being set at a level below the cost of the supplies has forced almost all 'non-producers' to fold. Therefore there is now no competition in the UK energy market - apart from who can charge the most for a fixed rate deal.

its certainly scared me into looking at my usage and cutting right back (where practical), but its industries such as crypto-mining that really need looked at as well as the way Americans use petrol for fun in their 8 litre cars. As others have said. if demand out strips supply, prices go up - unless you can control the cost of the supply. Not so easy to do in a capitalist world.

tghe-retford

At a time where the masses are being lectured and shamed into rationing energy, told to boil in summer and freeze in winter for their own good, turn everything off and stare at a blank wall after selling off all their possessions to pay the standing charges and commanded to pay all your wages to energy companies from people posting on social media accounts whilst flying on private jets for whom an energy bill is either paid for by the taxpayer or paid for by the petty change, I do have to question the ethics and morality of those who are defending and rationalising this.

We are not all in it together. I fear the cost that will be borne by those who will be asked to bear the greatest rations and pay the highest price.

Section62

tghe-retford said:

At a time where the masses are being lectured and shamed into rationing energy, told to boil in summer and freeze in winter for their own good, turn everything off and stare at a blank wall after selling off all their possessions to pay the standing charges and commanded to pay all your wages to energy companies from people posting on social media accounts whilst flying on private jets for whom an energy bill is either paid for by the taxpayer or paid for by the petty change, I do have to question the ethics and morality of those who are defending and rationalising this.

Bear with me while I try to understand how any of that relates to the real world situation.

Where can I view/listen to one of these lectures about people being "told to boil in summer and freeze in winter"?

Is there anything ethically or morally wrong in trying to explain facts, or highlighting the point that we cannot continue to consume freely yet still meet targets such as net zero?

Chrysalis

Seajays said:

I don't know how the wholesale energy market works, and I haven't managed to see any clear description of how it works.  I know "energy" is traded in an open market , but somewhere someone/something must set prices for energy, my question is how does that happen?

We're seeing massive profits for producers of gas/oil, so somewhere they must be benefiting from the hugely inflated prices - so how are they able to set those prices in the first place?  Why has the "market" seemingly failed, in that consumers are having massive price increases, whilst at the same time massive profits are being made?

The media seems to be ignoring this very fundamental question, and seems to be focussed on getting government support to pay the hugely inflated bills (which would appear to be going straight into the overinflated profits!), with an unquestioned assumption that the huge price increases are somehow justified - but I've seen nothing other that simplified "global problems = higher price". 

Can anyone help me understand, or point me to something that goes into a bit more details about all this?

The media seems intentionally dumbed down in this country.

Think of all the following questions that could be asked.

Q - If wage increases cause a inflation spiral then why do France and Germany have much higher wage inflation than us but lower cost inflation.  (proves that wage inflation spiral is a myth).
Q - Why are we only storing 1% of gas as reserves vs 33% in Germany and over 100% in Austria.
Q - Why do we allow energy to be traded on the open market
Q - Is there any plans to regulate the energy market (not just the suppliers who are selling us energy that have already paid a lot for on the market)
Q - What is ofgem's mandate.
Q - Why is ofgem allowing energy companies to recuperate their losses faster and ignoring human rights impact when setting their cap.
Q - Are credit balances currently secured.
Q - What is the breakdown of the circa 4.5 billion annual revenue of standing charges expenditure, (where does the money go).
Q - Should parent companies of energy suppliers be taken into account when considering their allowed profit. Centrica vs British Gas for example.
Q - What plans are been actioned for long term energy supply owned by the state given its clear privatisation has failed.

Some tv news presenters are clearly angry and asking some ok questions, but the media is still very light touch and insular on the type of questions they ask in particular there seems to be a lack of comparing us to other countries which could stumble ministers.

pochase

tghe-retford said:

We are not all in it together. I fear the cost that will be borne by those who will be asked to bear the greatest rations and pay the highest price.

You are referring to the people who are paying the taxes and finance all the handouts?

jj_43

I will answer: Q - Why are we only storing 1% of gas as reserves vs 33% in Germany and over 100% in Austria.

For background in the UK the approach is to have an open and liberal energy market with interconnection with Europe and elsewhere via LNG. Our own sources from the North Sea have reduced with greater reliance on imports from Norway and elsewhere. 

Historically, gas storage, (Rough is the largest, was closed) was never a strategic reserve to be used in times of shortage. It's use relied upon a seasonal difference in the gas price, if you were a gas purchaser you could commit any excess gas during the summer into storage. This was purchased at a lower summer price and then withdrawn and sold onto customers during the winter at a higher price. 

Now we rely upon price signals to bring sufficient gas via the various interconnections and LNG into the UK. And so the seasonal difference in the gas price that existed cannot be relied upon to make gas storage economical. Its is effectivity stored in the pipes, interconnections, and LNG ship that may arrive.

Gas storage is often given as a solution. However several points need to be made. There is not a shortage of gas, yes there is demand, and high prices but physically gas is reaching the UK. Having gas storage would not provide cheaper gas to customers, it will be sold onto the highest bidder by the traders.

Gas storage could work if our energy market was closed, we reduce demand to our own North Sea production and had greater price signals with the UK.