So the CON is in the wholesale price calculation?

BikingBud

jj_43 said:

wrf12345 said:

I have been "told off" many times for saying there is a con in the way wholesale energy price is calculated but from what Ms Truss said it seems that the frightening chart of electricity rising, almost exponentially, is not the average electricity price but actually a chart of the max price paid for a source of electricity on any particular day - so if it comes from a gas generator, for instance, at 60pkwh that is what appears on the chart rather than the averaged down price to take into account much cheaper sources. She seemed to be saying that if one producer of expensive electricity was paid Xpkwh that all the other producers would also get X regardless that it might have cost them a fraction of that price to produce electricity.

This is so unfair to the consumer, to such a mind warping extent, that I will be happily corrected, but if it is correct then it is decades of being ripped off! 

Your understanding is correct. But let's take a step back. We have electricity produced using a variety of methods, some high cost (gas), some low cost (wind) and one price (electricity from sources all is treated the same). There are many goods that are produced in a number of different ways, some high cost, some low cost. Competition and the profit motivate to reduce costs should direct production using a lower cost method. This is the basis of the economic system that you experience every time you buy or sell something. This price setting method isn't the problem but the impact on customers is clear.

Yes the low cost producer will be doing very well as the price is set by the requirement where demand equal supply (currently gas). What this should do is encourage electricity production by these low cost methods (solar, wind, flexible demand) so more demand can be provided by these methods.

But it takes time to build wind farms, solar, nuclear and there are a lot of vested interests which preferring directing investment to high cost production, gas, ignoring the price signal.

What and kill the golden goose?

I do not see the comparison between buying other commodities and goods where we have a number of choices, quality, cost, need or desire, availability etc and essentials for living like power, water etc. Trying to make those comparisons infers that we have a choice to go elsewhere and clearly we do not.

jj_43

"What and kill the golden goose"? I guess you mean that electricity production from these low cost methods won't increase as the current beneficiaries want to protect their high profits. maybe in some cases. But what would you do as a greedy capitalist? you would produce more or lobby for decoupling.

The underlying principles are the same, I get your point. The principle of price setting in this way applies to everything, how else would you allocate resources? quotas?

BikingBud

Perhaps that's the difference I'm not a greedy capitalist!  

And I do feel we should protect the consumer, of fundamental services, from greedy capitalists. The collapse of a segment of the market shows it doesn't work, especially offering long term fixed selling prices without getting an assured price from the supplier. At the end the company collapses after profits are taken by directors and we are back to Law No 1 the consumer always pays!

As a comparison setting a price for motor fuel is interesting where some independents have made a stand and are selling much lower than main brands and supermarkets.  One outlet near us was historically higher than most around. They had prime position on a busy dual carriageway but were typically 5-8 p/l more than the supermarket, but a couple of pence below the nearest on the road. Hence, they caught the passing traffic but locals knew where the price was cheaper.

They had a change of outlook and dropped quite significantly, today offering at £1.609/l. We now use those as we have a choice when and where to buy that we do not have with gas and electric. 

I suppose the point I'm making is that for gas and electric we are in essence now having to work with a de-facto fixed price yet the suppliers and producers have the full leeway to continue to play the market and generate lots of profits. If we could tie into the cost of wind or solar power at a few points above true cost, or even an average price that was more reflective of the blend of sources, and were not force to pay the overhead of covering other generating methods then suppliers would be forced to adapt. 

Consumers would then get a better deal.

Ectophile

Section62 said:

new_owner said:

jj_43 said:

But it takes time to build wind farms, solar, nuclear and there are a lot of vested interests which preferring directing investment to high cost production, gas, ignoring the price signal.

Especially when more wind and solar have been refused planning in 2022 than ever before.

What's the context for that?

Could it be that more (inappropriate) applications for wind and solar have been under consideration in 2022 than ever before?

Could it be that war in the place where a significant proportion of Europe's grains, seeds and food oils come from have led to some re-evaluation of the need to protect agricultural land?

I think the reasons behind this statistic will be complex.

It's mostly because the government has caved into the NIMBYs.  It's almost impossible to get permission to build an on-shore wind farm in England.  And large scale solar isn't looking too good either.

Which is a pity because on-shore wind is about the cheapest source of electricity you can get at the moment.  Off-shore may be more efficient, but it costs a lot more to install.

phillw

[Deleted User] said:

But that only applies to spot trades.  Anything done with a CfD, or a PPA, or a future purchase contract, or any one of the other "not spot" arrangements will be at whatever price was decided in the contract.

I'm not sure how much energy is being bought ahead of time, because the producers know they don't need to offer a good price ahead of time.

[Deleted User]

phillw said:

Deleted_User said:

But that only applies to spot trades.  Anything done with a CfD, or a PPA, or a future purchase contract, or any one of the other "not spot" arrangements will be at whatever price was decided in the contract.

I'm not sure how much energy is being bought ahead of time, because the producers know they don't need to offer a good price ahead of time.

Most of it.

edit: Not necessarily a long way ahead, but not at spot.  Similarly for the fuel supplying the generation.

wrf12345

But the point is, Ofgem point to the energy prices in the graph to justify massive increases whereas the actual average cost bears no relationship to this (be it spot or hedged) so surely that is treating consumers with contempt?

[Deleted User]

wrf12345 said:

But the point is, Ofgem point to the energy prices in the graph to justify massive increases whereas the actual average cost bears no relationship to this (be it spot or hedged) so surely that is treating consumers with contempt?

I don't mind where they point.  The costs used in the cap calculation have (until Liz's magic) been directly mathematically linked to the different wholesale markets in relation to the amount purchased on each sort of contract.

Section62

Ectophile said:

Section62 said:

new_owner said:

jj_43 said:

But it takes time to build wind farms, solar, nuclear and there are a lot of vested interests which preferring directing investment to high cost production, gas, ignoring the price signal.

Especially when more wind and solar have been refused planning in 2022 than ever before.

What's the context for that?

Could it be that more (inappropriate) applications for wind and solar have been under consideration in 2022 than ever before?

Could it be that war in the place where a significant proportion of Europe's grains, seeds and food oils come from have led to some re-evaluation of the need to protect agricultural land?

I think the reasons behind this statistic will be complex.

It's mostly because the government has caved into the NIMBYs.  It's almost impossible to get permission to build an on-shore wind farm in England.  And large scale solar isn't looking too good either.

Which is a pity because on-shore wind is about the cheapest source of electricity you can get at the moment.  Off-shore may be more efficient, but it costs a lot more to install.

Not really, for those who believe food security is more important than people having limitless access to cheap energy.

peter3hg

Section62 said:

Ectophile said:

Section62 said:

new_owner said:

jj_43 said:

But it takes time to build wind farms, solar, nuclear and there are a lot of vested interests which preferring directing investment to high cost production, gas, ignoring the price signal.

Especially when more wind and solar have been refused planning in 2022 than ever before.

What's the context for that?

Could it be that more (inappropriate) applications for wind and solar have been under consideration in 2022 than ever before?

Could it be that war in the place where a significant proportion of Europe's grains, seeds and food oils come from have led to some re-evaluation of the need to protect agricultural land?

I think the reasons behind this statistic will be complex.

It's mostly because the government has caved into the NIMBYs.  It's almost impossible to get permission to build an on-shore wind farm in England.  And large scale solar isn't looking too good either.

Which is a pity because on-shore wind is about the cheapest source of electricity you can get at the moment.  Off-shore may be more efficient, but it costs a lot more to install.

Not really, for those who believe food security is more important than people having limitless access to cheap energy.

On-shore wind doesn't take up much agricultural land at all. Look at the largest Euorpean on-shore wind farm in Romania ( https://goo.gl/maps/pTsb8J3cM41TdZqy5 ). The turbines take up a tiny % of the agricultural land and provide power for the equivalent of about a million homes.
Solar is a different story of course.