Martin should campaign to fix the broken electricity pricing model

fergie_

The energy market is one thing, but what is in the Government's gift is to educate people about how they use energy and also to help people not only insulate their homes better (apparently 30% of english properties have no loft insulation for example) but start producing their own power. Be it grants or interest free loans to work with approved suppliers (who have their charges controlled). I believe this is exactly what Italy is doing.

Alnat1

One big problem in this country is that landlords go for the cheapest/basic options just to get to get the EPC necessary to let the property, then there's no incentive to further insulate and improve.

Tenants are reluctant to spend on improvements as it's not their property and they might not be there long enough to see ROI.

Section62

Chrysalis said:

My thoughts on this are quite simple.  We shouldnt need to encourage private investors to invest in a supply of energy, instead we just invest ourselves as a state, so yes bring energy extraction to state ownership.  There would be a mandate where only excess energy that isnt needed by the UK can be sold off (exported).  Energy supplied for UK needs would be isolated from the open market and not affected by market costs.

I am not sure the private market is fixable, points have been made by others on here, we could remove this very strange pricing model, but the market would likely still end up with inflated prices with the trading that goes on.

An insular approach is Ok if people are willing to pay the additional costs associated with it.

Trading energy works to our advantage in that we can work with lower supply margins and can have a greater proportion of unreliable renewables in the system.  If there is plant outage, or (say) wind is only producing a marginal amount, then we can buy in the additional capacity from our neighbours.  We return the favour by selling energy to them when they are in need.

If we aren't willing to trade then we need the confidence that our own insular system has all the capacity required to prevent black/brownouts.

The CEGB spent billions on providing and operating standby and reserve generation capacity, at a time when relatively reliable and predictable coal generation was meeting much of our needs.

If we want to go it alone then we need to invest in the additional generation/storage capacity necessary to do that, and I'm not sure people want their bills to go up to pay for all of that.  Added to which, by the time the 'stuff' has been designed and built (say 10 years), the economics will almost certainly have changed significantly again.

pochase

Chrysalis said:

doodling said:

Hi,

ab1234567890abcdefgh said:

FreeBear said:

glynbristol said: That is why the cost of electricity (from all sources)  quadruples when the price of gas quadruples, even though the mix of gas in electricity generation may only be 15%.

You need to research your statistics a bit better.

https://www.energydashboard.co.uk/live shows that as of *now, 45% of electricity is being produced by gas - Other sites are showing slightly different figures.

They were giving an example.  It's fairly clear from the way they worded it.

Either way, paying everyone the rate of the most costly generator needs to end, it makes no sense at all.

Why doesn't it - that is how much the electricity is worth - there is nowhere you can buy it cheaper.

Are you really proposing to pay renewable generators less than their electricity is worth?  That doesn't sound like a good way to encourage investment in other energy sources?

My thoughts on this are quite simple.  We shouldnt need to encourage private investors to invest in a supply of energy, instead we just invest ourselves as a state, so yes bring energy extraction to state ownership.  There would be a mandate where only excess energy that isnt needed by the UK can be sold off (exported).  Energy supplied for UK needs would be isolated from the open market and not affected by market costs.

I am not sure the private market is fixable, points have been made by others on here, we could remove this very strange pricing model, but the market would likely still end up with inflated prices with the trading that goes on.

Stopping exports could work if we would be a net exporter. But we are not. So if we don't allow the export of energy what could happen.

Other government will react by not allowing energy to be imported by the UK. That would lead to black outs and even worse prices than we can expect now.

You can't inflict trade regulations and not expect other countries to react likewise.

[Deleted User]

Repetition -  but it is worth saying it again. The Government of the day privatised electricity and gas supply to put money into the Government’s coffers. It follows that re-Nationalisation would require the Government to make payments that will cost us £Bns with absolutely no guarantee that supply prices would fall.

Renewables and nuclear are areas where there could and should be more Government investment. That said, Government projects invariably do not come in on time and budget.

tpeppers

I doubt my suggestion will be popular with everyone, especially on this forum, but I might suggest a new fairer pricing model going forward.

At the moment, the system is largely based on luck - i.e. whether you were able to renew your fix at the right time, whether your energy supplier went bust and you ended up on SVT, whether you followed MSE's advice and didn't fix when you could have done, whether you took a gamble with a fix and it paid off etc etc. This ends up with the situation we have now where some people paying far too little for their fuel, meaning energy suppliers have to charge everyone else a lot more to make up for it. It's an unfair, unbalanced system - essentially akin to gambling - that is hitting the uninformed and unlucky the hardest.

I would suggest a new universal pricing system, at least temporarily until prices stabilise. All fixes would be removed, and the price per unit of electric and gas would be determined solely by the government. It would be similar to the price cap, except it would be less expensive as energy suppliers would no longer be losing money to those on cheap fixes. 

Whether the government would have the legal firepower to instigate that, though, is another question.

The current system is peculiar, unfair and confusing, and needs to be drastically overhauled. Something so basic like affording the fuel to heat and eat shouldn't be left to a gamble. 

ProDave

I was discussing this on another forum.

We know the price of gas it thtough the roof because of the Ukraine war.  but the cost of all other methods of generating electricity has not gone up, only that percentage generated by gas.

If it were a true open market, all the renewable, nuclear etc generated electricity would still sell at the same price and only the gas produced electricity would cost more, and energy companies would buy as little of that as possible and the electricity bills would rise a lot less.

THE MARKET IS BROKEN.

MattMattMattUK

Chrysalis said:

doodling said:

Hi,

ab1234567890abcdefgh said:

FreeBear said:

glynbristol said: That is why the cost of electricity (from all sources)  quadruples when the price of gas quadruples, even though the mix of gas in electricity generation may only be 15%.

You need to research your statistics a bit better.

https://www.energydashboard.co.uk/live shows that as of *now, 45% of electricity is being produced by gas - Other sites are showing slightly different figures.

They were giving an example.  It's fairly clear from the way they worded it.

Either way, paying everyone the rate of the most costly generator needs to end, it makes no sense at all.

Why doesn't it - that is how much the electricity is worth - there is nowhere you can buy it cheaper.

Are you really proposing to pay renewable generators less than their electricity is worth?  That doesn't sound like a good way to encourage investment in other energy sources?

My thoughts on this are quite simple.  We shouldnt need to encourage private investors to invest in a supply of energy, instead we just invest ourselves as a state, so yes bring energy extraction to state ownership. 

Unfortunately simple rarely works. The cost of bringing it into state ownership would be on the order of several trillions, totally unaffordable for the UK.

Chrysalis said:
There would be a mandate where only excess energy that isnt needed by the UK can be sold off (exported).  Energy supplied for UK needs would be isolated from the open market and not affected by market costs.

How would you set the cost if it was not set by the market? How would you buy the gas needed when you are not willing to pay the market price demanded? Remember that only around 45% of the gas the UK needs is extracted in the UK, that varies from 75-80% in summer to around 20% in a particularly cold winter, so without that imported gas the lights would go out.

Chrysalis said:

I am not sure the private market is fixable, points have been made by others on here, we could remove this very strange pricing model, but the market would likely still end up with inflated prices with the trading that goes on.

The private model is not broken as such, it is functioning as a market would, bar the price cap artificially holding prices down, although it might not be working the way people want it to (eg. cheap/free electricity).

The only way out this in the medium to long term would be for the government to finance and build 80-120 nuclear power plants with additional investment in wind, solar and energy storage, combined with hydrogen production from spare capacity at night. That would involve significant tax rises on everyone and evidence shows again and again that the UK population are not prepared to pay taxes at anything approaching a level that is paid in most EU countries, so it will not happen. 

MattMattMattUK

tpeppers said:

I doubt my suggestion will be popular with everyone, especially on this forum, but I might suggest a new fairer pricing model going forward.

At the moment, the system is largely based on luck - i.e. whether you were able to renew your fix at the right time, whether your energy supplier went bust and you ended up on SVT, whether you followed MSE's advice and didn't fix when you could have done, whether you took a gamble with a fix and it paid off etc etc. This ends up with the situation we have now where some people paying far too little for their fuel, meaning energy suppliers have to charge everyone else a lot more to make up for it. It's an unfair, unbalanced system - essentially akin to gambling - that is hitting the uninformed and unlucky the hardest.

I would suggest a new universal pricing system, at least temporarily until prices stabilise. All fixes would be removed, and the price per unit of electric and gas would be determined solely by the government. It would be similar to the price cap, except it would be less expensive as energy suppliers would no longer be losing money to those on cheap fixes. 

Whether the government would have the legal firepower to instigate that, though, is another question.

The current system is peculiar, unfair and confusing, and needs to be drastically overhauled. Something so basic like affording the fuel to heat and eat shouldn't be left to a gamble. 

Energy providers are not losing money on those cheap fixes, they used the guaranteed revenue from those fixes to hedge a certain amount of future supply. They will still be making money on those fixes due to the nature of hedging. 

doodling

Hi,

ProDave said:

I was discussing this on another forum.

We know the price of gas it thtough the roof because of the Ukraine war.  but the cost of all other methods of generating electricity has not gone up, only that percentage generated by gas.

If it were a true open market, all the renewable, nuclear etc generated electricity would still sell at the same price and only the gas produced electricity would cost more, and energy companies would buy as little of that as possible and the electricity bills would rise a lot less.

THE MARKET IS BROKEN.

No, that is not how a market works. With a scarce fungible commodity,  it's price in a perfect market will be the same for all sellers.

The problem we have is not the short term behaviour of the market which is pretty much as expected but that the commodity is scarce.

If things stay as they are then in theory in a perfect market those able to generate more cheaply will expand pushing gas out of the market  at which point the price would plummet.

There are however several fundamental problems:
1. Society has reached a point where simply not buying electricity isn't a viable response for most - if people chose not to consume then the price would drop.
2. There are a whole load of barriers to the market responding to the price - I'm unlikely to get planning permission to flood most of Wales for hydro power or cover the North Downs with solar panels for example.
3. The market outcomes may not be acceptable for other reasons - e.g. people don't seem keen on coal for power generation.
4. The future is sufficiently uncertain that funding assets with a long life is difficult, even if politicians weren't continually changing the rules.

All of the above means that there needs to.be government intervention in some form - the question is how much.  I think it's probably better for the government to attempt long term interventions rather than to attempt to control day to day pricing.