UK energy prices

[odysseus2000]

I have been trying to understand why UK energy costs are predicted to rise so much.

Folk say its a Sterling crisis, sure the £ is low but it has been this low before and has bounced up:

https://twitter.com/0_ody/status/156580 ... hXIkkq9AeQ

Another argument is that Natural gas has gone up tremendously, but the continuous contract shows it is not excessively high compared to peaks in the first decade of the 21st century:

https://twitter.com/0_ody/status/156580 ... hXIkkq9AeQ

Another theme is that renewables don’t work, but the UK is now producing over 45% of its electricity from from free fuel renewables:

https://assets.publishing.service.gov.u ... e_2022.pdf

I can not find any reasons why bills are supposed to rise to caps for domestic customers and to business ending levels for un-capped business.

What am I missing? What is the reason(s) for the massively predicted future prices of energy?

Regards,

[SalvorHardin]

I have been trying to understand why UK energy costs are predicted to rise so much.

Folk say its a Sterling crisis, sure the £ is low but it has been this low before and has bounced up:

https://twitter.com/0_ody/status/156580 ... hXIkkq9AeQ

Another argument is that Natural gas has gone up tremendously, but the continuous contract shows it is not excessively high compared to peaks in the first decade of the 21st century:

https://twitter.com/0_ody/status/156580 ... hXIkkq9AeQ

Another theme is that renewables don’t work, but the UK is now producing over 45% of its electricity from from free fuel renewables:

https://assets.publishing.service.gov.u ... e_2022.pdf

I can not find any reasons why bills are supposed to rise to caps for domestic customers and to business ending levels for un-capped business.

What am I missing? What is the reason(s) for the massively predicted future prices of energy?

Regards,

IMHO it's a mixture of:

1) Politics. Protect domestic consumers who vote, so stuff everyone else.

2) The demand for gas has rocketed in recent years mostly because the German government shut down coal and nuclear power plants and made themselves dependent on Russian gas. Lots of German politicians have been paid off by Russia IMHO.

3) Incompetence. All too common amongst our political and civil service classes, most of whom are scientifically illiterate and innumerable.

No-one said that our energy policy for the lastt 30 years should have been l run by lawyers and other PPE graduates who have trouble with basic arithmetic, let alone calculus and cost-benefit analysis. Yet that's who've been running the show.

4) Consumers wetting themselves with fear because they think that they have a human right at very little cost to have their central heating on at 22 centigrade 24-7 in winter whilst only wearing a vest and shorts.

Extra jumper and long johns for me, plus a hat and turning down the central heating in rarely occupied rooms this winter. And I can easily afford the forecast price rise

[odysseus2000]

This is an interesting video where I believe some serious errors are made (14mins 16s):

https://youtu.be/H26Ujv72q84

The presenter argues that future prices will apply which as I noted in my comments on the video is not realistic:

There are a number of issues with the analysis. First is that these are all future prices and are subject to demand. If prices were to stay high the assumption that people will pay them is wrong. For domestic users there are caps which is causing the industry to raise the price to business. It is impossible for many capped consumers to pay these predicted future prices and few business can continue to operate at the predicted prices. If future prices were to apply then either the generators have to keep providing power to users who can't pay or they cut off supply. If they do the former they go bust, if they do the latter, the generators lose income, many business collapse and the politicians will be forced to act. The politicians could do nothing, let the generators collapse then buy the assets for pennies on the dollar, not too unlike what was done with Railtrack. If they step in to help consumers in it is very likely that they will do so in ways that the generators and their shareholders will not find advantageous. Which ever way this eventually shakes out, the predicted high prices can not happen.
Further to this is the belief that a career in electricity is a good one to have. We are here dealing with a commodity product and the relentless lesson from business is that commodity products are never great places to work, there is no reason for any consumer not to take the lowest cost option, pushing prices and workers salaries downwards.
It should also be remembered that the UK is now producing over 45% of its electricity from free fuel renewables: https://assets.publishing.service.gov.u ... e_2022.pdf
There is the initial capital expenditure and maintenance of renewables but the fuel is free and this provides going forward relief from future prices of hydrocarbons.


Regards,

[odysseus2000]

SalvorHarding
IMHO it's a mixture of:

1) Politics. Protect domestic consumers who vote, so stuff everyone else.

2) The demand for gas has rocketed in recent years mostly because the German government shut down coal and nuclear power plants and made themselves dependent on Russian gas. Lots of German politicians have been paid off by Russia IMHO.

3) Incompetence. All too common amongst our political and civil service classes, most of whom are scientifically illiterate and innumerable.

No-one said that our energy policy for the lastt 30 years should have been l run by lawyers and other PPE graduates who have trouble with basic arithmetic, let alone calculus and cost-benefit analysis. Yet that's who've been running the show.

4) Consumers wetting themselves with fear because they think that they have a human right at very little cost to have their central heating on at 22 centigrade 24-7 in winter whilst only wearing a vest and shorts.

Extra jumper and long johns for me, plus a hat and turning down the central heating in rarely occupied rooms this winter. And I can easily afford the forecast price rise

To me it all looks like a re-run of the vaccine fear state. If the current predicted future prices were to occur then the country would collapse. I believe that prices will come down a lot, but still be painful and the politicians will tell us how we are so lucky that the prices are only painful and that anyhow the generators need more profits to build more renewables and that we are so lucky to have such good leaders.

Coming shortly afterwards will be the long awaited re-build of the grid which every generator has wanted for 30+ years with lots of storage and higher energy bills to pay for it.

The higher energy bills will be sold as being the cost of the war with co2 to save the planet and this does seem like a prudent thing to do. I would hope that the young children being born today and those born in the future will have the sweet air that comes from replacing all fossil fuel transport with much cleaner battery transport and that predicted climate volatility will slip into a never happened alternate time line.

Regards,

[servodude]

Comparing the all time charts for natural gas and UK gas show that the previous large swings (pre 2008) are not seen in the UK series (but are in the natural gas)

https://tradingeconomics.com/commodity/natural-gas

https://tradingeconomics.com/commodity/uk-natural-gas

Not sure quite what the difference is but it might suggest there's more exposure now than there was before

[SalvorHardin]

To me it all looks like a re-run of the vaccine fear state. If the current predicted future prices were to occur then the country would collapse. I believe that prices will come down a lot, but still be painful and the politicians will tell us how we are so lucky that the prices are only painful and that anyhow the generators need more profits to build more renewables and that we are so lucky to have such good leaders.

Coming shortly afterwards will be the long awaited re-build of the grid which every generator has wanted for 30+ years with lots of storage and higher energy bills to pay for it.

The higher energy bills will be sold as being the cost of the war with co2 to save the planet and this does seem like a prudent thing to do. I would hope that the young children being born today and those born in the future will have the sweet air that comes from replacing all fossil fuel transport with much cleaner battery transport and that predicted climate volatility will slip into a never happened alternate time line.

Regards,

Might not be so bad. People are very adaptable, when they have the right incentives, particularly price signals.

I'm lucky to have been brought up by parents who were growing up during World War Two, and then rationing. So I don't get too worked up about a lot of things (but I keep a lot of tinned food at home)

If it gets cold, put another Jersey on. And if colder, a bobble hat. And stop whining.

[scotview]

The higher energy bills will be sold as being the cost of the war with co2 to save the planet and this does seem like a prudent thing to do. I would hope that the young children being born today and those born in the future will have the sweet air that comes from replacing all fossil fuel transport with much cleaner battery transport and that predicted climate volatility will slip into a never happened alternate time line.

Regards,

That para gives a distinct and very graphic impression that you think there is an invisible CO2 barrier around the UK. The reality of the situation is that you need to take a much, much wider world view if you really believe and fear climate change. Otherwise you are kidding yourself.

To answer your original question, I don't know the answer but I don't understand why UK gas isn't at cost+ and why wind generators are getting paid at rates equivalent to gas prices. There's a bit of urgent legislation in there somewhere.

[88V8]

German chap on't wireless this morning commenting that gas prices are now 8-10X last year and expected to double again.

The UK govt does not own 'our' gas, what little there is, and its owners are not charities and cannot be expected to sell to us below MP.

Like Salvor said, the message should be wear a woolly and stop bleating. A shame that our so-called public service broadcaster seems to broadcast little but whining.

As I commented elsewhere, I spent two days in the attic topping up the insulation. I've done a bit more draught proofing - there's a fine line between 'draught' and ventilation - and I'm now working on curtains for four of our hard-to-curtain windows (period house), but perhaps that's more a LBYM subject. If everyone looked hard enough at their usage, we could make a macro difference in demand.

V8

[odysseus2000]

Scotview
That para gives a distinct and very graphic impression that you think there is an invisible CO2 barrier around the UK. The reality of the situation is that you need to take a much, much wider world view if you really believe and fear climate change. Otherwise you are kidding yourself.

co2 is a world wide problem.

Whether climate change is happening as a result of co2 or other factors is not absolutely certain and can't be with existing science but there is enough data to verify that co2 levels have increased since the industrial revolution and that the climate is becoming more volatile as predicted by climate models.

The UK alone can't impact climate change by what we do here to directly reduce co2, but if we can transition to net zero co2 we can then tell anyone who wants to sell us stuff that net zero is possible, we have done it and unless they can demonstrate that what they want to export to us has been made with low co2 technology that we will put a large import duty on it. That will have clear global impact and steer other nations towards low co2 technology.

Regards,

[scotview]

If everyone looked hard enough at their usage, we could make a macro difference in demand.

V8

All good points and I have similarly done much to minimise our energy bills which we can certainly pay.

Just another point. I saw a facebook post this morning from an owner of a small, local gift shop. Her latest SSE monthly leccy bill nearly £750. She says her wee shop isn't viable and winter isn't here. Lots of other small shop/gallery/cafe owners commenting also very, very worried.

Now, I am not generally for government intervention which I see as transfer of wealth but something is going on just now which is giving me an uncomfortable feeling.

[mc2fool]

What am I missing? What is the reason(s) for the massively predicted future prices of energy?

Vladimir Vladimirovich Putin.

[scotview]

What am I missing? What is the reason(s) for the massively predicted future prices of energy?

Vladimir Vladimirovich Putin.

Has Vlad also pushed up the cost of wind generation, I thought that cost was fixed, if not virtually free.

[Mike4]

What am I missing? What is the reason(s) for the massively predicted future prices of energy?

Vladimir Vladimirovich Putin.

Has Vlad also pushed up the cost of wind generation, I thought that cost was fixed, if not virtually free.

No he has not pushed up the cost of wind generation, but he appears to have pushed up the price of the leccy so generated.

Quite a feat in my view, and one which required the cooperation of the UK government, much to my disappointment.

[mc2fool]

What am I missing? What is the reason(s) for the massively predicted future prices of energy?

Vladimir Vladimirovich Putin.

Has Vlad also pushed up the cost of wind generation, I thought that cost was fixed, if not virtually free.

I do believe the price of electricity being driven by the marginal cost of generation, which is most of the time by gas, has been explained numerous times on these boards. Probably as many times as you've expressed your disagreement with that pricing model.

[scotview]

Probably as many times as you've expressed your disagreement with that pricing model.

Yes, you are correct and I'm sorry.

But maybe a last comment from me, why should a price model mean some pensioners will have an absolutely miserable winter. I just cannot see why it is such a sticking point.

Now, I'll try and stay quiet on this subject.

[odysseus2000]

Before we get too carried away with price we need to remember that all the current fuss is about future prices which have a huge amount of speculation in them.


As things now are renewables are > 45%, nuclear is 16%, so 61 % is not impacted by Putin who has been selling gas to China & India who have then been reselling to Europe.

Further although house holders can wear more clothes their bills are capped, but the putative prices for business are so far in excess of last year that many business are no longer viable including schools & universities & councils etc etc. if the price rises were to happen the entire economy would collapse including the generators.

As far as I can tell the future prices are impossibly large & have to fall back to similar levels to last year.

Regards,

[mc2fool]

Before we get too carried away with price we need to remember that all the current fuss is about future prices which have a huge amount of speculation in them.

As things now are renewables are > 45%, nuclear is 16%, so 61 % is not impacted by Putin who has been selling gas to China & India who have then been reselling to Europe.

Yes, but your topic title is "UK energy prices", however here you are only considering electricity.

If you look at the chart of gas usage on page 9 of your previous link, https://assets.publishing.service.gov.u ... e_2022.pdf, and draw a line through the seasonal peaks and troughs then UK demand for gas averages out at around 170-180TWh.

Of that only ~50TWh is electricity generation. Eyeballing I reckon the bottom three on the chart (electricity generation, industry and others) average 100-110TWh, meaning that ~70TWh is domestic use; space & water heating and cooking.

Compare that with the electricity chart on page 11 which shows a total average demand of ~75TWh of which ~30TWh is domestic.

If we add the ~175TWh of gas to the ~75TWh of electricity we get an average of ~250TWh of UK energy use, of which 13.5% is renewables and 4.8% nuclear, so it's just 18.3% that is not impacted by Putin. And that's without including oil in the mix.

(Possibly we should subtract some of the ~50TWh of gas used for electricity generation from that. If we assume 100% efficiency and subtract it all, we get ~200TWh of UK energy use, of which ~23% is not impacted by Putin. Still not including oil.)

[scotview]

(Possibly we should subtract some of the ~50TWh of gas used for electricity generation from that. If we assume 100% efficiency and subtract it all, we get ~200TWh of UK energy use, of which ~23% is not impacted by Putin. Still not including oil.)

Thanks mc2, for taking the time to compute those energy figures. It's maybe the first time I've seen some real, actual numbers presented like that. If you overlay that with the chart below, of UK gas price, then maybe we see where the cost is derived from.

So, wind isn't as significant as I imagined. Not sure what is coming over the horizon. Putin has shut down Nord Stream1, so we'll see what happens to this graph on Monday.
Chart derived from https://tradingeconomics.com/commodity/uk-natural-gas

[88V8]

If everyone looked hard enough at their usage, we could make a macro difference in demand.

I saw a facebook post this morning from an owner of a small, local gift shop. Her latest SSE monthly leccy bill nearly £750. She says her wee shop isn't viable and winter isn't here. Lots of other small shop/gallery/cafe owners commenting also very, very worried.

Yes, it's too easy to forget that businesses are fully exposed to energy prices.

Mind you, there's a win-win there for supermarkets, if they lower the temperature in the shop they won't use so much energy keeping their chill cabinets cool.

V8 clutching at straws

[Mike4]

If everyone looked hard enough at their usage, we could make a macro difference in demand.

I saw a facebook post this morning from an owner of a small, local gift shop. Her latest SSE monthly leccy bill nearly £750. She says her wee shop isn't viable and winter isn't here. Lots of other small shop/gallery/cafe owners commenting also very, very worried.

Yes, it's too easy to forget that businesses are fully exposed to energy prices.

Mind you, there's a win-win there for supermarkets, if they lower the temperature in the shop they won't use so much energy keeping their chill cabinets cool.

V8 clutching at straws

The big food retailers will all raise their prices to cover whatever their new, higher costs are and the higher prices will stick because people have to buy food. It is the small businesses selling optional products that will be going bust when the customers simply decide not to buy at higher prices reflecting the new higher prices covering their quadrupled energy bills, e.g. the gift shops and the pubs, restaurants etc.

In fact in a total finger-in-the-air guess, I reckon my local pub with its restaurant probably spends £20k p.a. in gas and electricity together. Assuming this quadruples to £80k, I think they'll put the price of a pint up from £4.60 to about six or seven quid shortly to have a chance of surviving. People will pay it here as there is a groundswell of support for the village pub but this won't apply to all pubs. Plenty will go under I reckon.