Martin, I do enjoy reading your posts - keep up the good work! However, on this one I do want to highlight that your analysis of what is driving UK electricity prices is slightly off. Yes, our reliance on gas is key. But this dwarfs any renewables subsidy element, as shown for example by this analysis from Carbon Brief:
"The first of the Government’s claims [that gas prices are the primary determinant of market electricity prices] is unambiguously wrong. [...] The claim may have been true a decade ago, but it has certainly not been true for the last five years. There is extremely strong statistical evidence that the primary determinants of market prices in Britain are (a) the level of net imports, and (b) market prices in Germany and France."
Not a minor point given that the government's main rhetorical justification at the moment for the 2030 target is reducing reliance on foreign gas. The bigger point is that claims get bandied about by government and lobbyists and taken as gospel when they just aren't so.
"Measles’ reproduction number (the number of people who will on average be infected by one infected individual) might be as high as 18"
There is no evidence of anyone being "infected" by someone else. Measles is simply a prejudicial label applied to "the unvaccinated". It is no different then how if there is more 'unvaccinated' there will be more people labelled 'antivaxxers'. Minorities such as Somalians, Jewish and Amish have been targetted with this "measles" smear.
On energy prices.... Without significant progress on electricity storage, there is going to need to be on-demand electricity production capacity in the UK (almost certainly gas), and the UK will not have 100% renewable electricity. This is because wind and solar are not reliable (sometimes the sun doesn't shine and the wind doesn't blow, and worst case scenario this could coincide with peak electricity demand so you need a lot of largely redundant capacity). That's why the government reneged on its (election campaign) commitment to 100% renewable electricity, reducing the target to 95% (which is itself surely unachievable by 2030). This on-demand capacity will have to be paid for, presumably through elevated prices when this capacity is called on and partly through capacity payments. Government hopes to be able to use carbon capture and storage (CCS) to dispose of the carbon produced from this production, which is why it is paying huge subsidies for CCS.
Renewables subsidies aren't going anywhere. Government continues to auction renewables contracts for difference (a form of subsidy) lasting 15 years, taking us well beyond the promised land of 2030 and 100%, sorry 95%, renewable electricity.
Will this increasingly complex assemblage of subsidies reduce prices for industry and consumers as promised by the government? It would be interesting to know of any truly independent commentators who have done the analysis and believe so.
The lack of decent analysis seems endemic in government - especially where there’s a need to analyse the government regulatory or delivery structures.
A problem with regulating Meta etc. is that the end user is the ‘product’ being sold to the advertisers.
I think it's hard to find good independent analysis in this area, notably on the costs of transitioning to near fully renewable electricity, because (1) it's unprecedented and very complex and (2) most of those organisations that could in principle do the analysis have skin in the subsidy game. The government says it is committed to near fully renewable electricity by 2030, for the time being apparently regardless of cost, so the rational thing for most players in the system to do is to maximise the benefits they can gain from the transition. Good luck advising ministers at the moment that their ambition is unachievable at reasonable cost and so they should scale it back.
The government's pledge to reduce energy costs to consumers by £300 per year by 2030 is fantasy (less polite words could be used). It will be interesting to see how over the coming years this pledge gets reconciled with the reality - this will surely become an increasingly important political dividing line. Particularly interesting if gas prices come down but consumer energy costs trend upwards.
I take the silly idea recently floated by the Ofgem CEO about varying consumer energy costs based on wealth (on which you commented) as an indication of how chaotic policy is in this area at the moment.
Carbon Brief (which is funded by the European Climate Foundation) has a pretty clear bias in the analysis that it reports. Alternative analyses are available.
And what are NESO's incentives? How long would its CEO have lasted if its analysis for government showed that its revised clean electricity target may only be achievable at unreasonable cost? (The question being not whether a largely clean electricity grid is possible, but the costs/benefits.) It is not a question of NESO lying, it just has to make assumptions and highlight scenarios that favour what its ultimate paymaster (via regulated prices) wants to hear.
Thank you, all, for your comments on energy pricing.
I am drafting a follow-on blog but still don't understand why electricity prices are set via a strange form of auction in which the highest price offered (usually gas-fired supply) then sets what everybody else is charged.
I thought that the answer may be contractual in the form of 'contracts for difference' but HMG describes CFDs in this way :
"Successful developers of renewable projects enter into a private law contract with the Low Carbon Contracts Company (LCCC), a government-owned company. Developers are paid a flat indexed rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market)."
Martin, I do enjoy reading your posts - keep up the good work! However, on this one I do want to highlight that your analysis of what is driving UK electricity prices is slightly off. Yes, our reliance on gas is key. But this dwarfs any renewables subsidy element, as shown for example by this analysis from Carbon Brief:
https://www.carbonbrief.org/factcheck-why-conservative-leader-kemi-badenoch-is-wrong-about-uks-net-zero-goal/#6
Alternative perspective on relationship between gas and electricity prices here from an economics professor who has actually done the work:
https://cloudwisdom.substack.com/p/will-net-zero-reduce-electricity
"The first of the Government’s claims [that gas prices are the primary determinant of market electricity prices] is unambiguously wrong. [...] The claim may have been true a decade ago, but it has certainly not been true for the last five years. There is extremely strong statistical evidence that the primary determinants of market prices in Britain are (a) the level of net imports, and (b) market prices in Germany and France."
Not a minor point given that the government's main rhetorical justification at the moment for the 2030 target is reducing reliance on foreign gas. The bigger point is that claims get bandied about by government and lobbyists and taken as gospel when they just aren't so.
"Measles’ reproduction number (the number of people who will on average be infected by one infected individual) might be as high as 18"
There is no evidence of anyone being "infected" by someone else. Measles is simply a prejudicial label applied to "the unvaccinated". It is no different then how if there is more 'unvaccinated' there will be more people labelled 'antivaxxers'. Minorities such as Somalians, Jewish and Amish have been targetted with this "measles" smear.
https://mikestone.substack.com/p/measles-magic
On energy prices.... Without significant progress on electricity storage, there is going to need to be on-demand electricity production capacity in the UK (almost certainly gas), and the UK will not have 100% renewable electricity. This is because wind and solar are not reliable (sometimes the sun doesn't shine and the wind doesn't blow, and worst case scenario this could coincide with peak electricity demand so you need a lot of largely redundant capacity). That's why the government reneged on its (election campaign) commitment to 100% renewable electricity, reducing the target to 95% (which is itself surely unachievable by 2030). This on-demand capacity will have to be paid for, presumably through elevated prices when this capacity is called on and partly through capacity payments. Government hopes to be able to use carbon capture and storage (CCS) to dispose of the carbon produced from this production, which is why it is paying huge subsidies for CCS.
Renewables subsidies aren't going anywhere. Government continues to auction renewables contracts for difference (a form of subsidy) lasting 15 years, taking us well beyond the promised land of 2030 and 100%, sorry 95%, renewable electricity.
Will this increasingly complex assemblage of subsidies reduce prices for industry and consumers as promised by the government? It would be interesting to know of any truly independent commentators who have done the analysis and believe so.
Thanks Sam. Very helpful. I have amended the reference to 100%, now 95%.
Like you, I haven't seen a decent analysis of government policy in this area and I am concerned that HMG's statements lack detail - and credibility?
The lack of decent analysis seems endemic in government - especially where there’s a need to analyse the government regulatory or delivery structures.
A problem with regulating Meta etc. is that the end user is the ‘product’ being sold to the advertisers.
I think it's hard to find good independent analysis in this area, notably on the costs of transitioning to near fully renewable electricity, because (1) it's unprecedented and very complex and (2) most of those organisations that could in principle do the analysis have skin in the subsidy game. The government says it is committed to near fully renewable electricity by 2030, for the time being apparently regardless of cost, so the rational thing for most players in the system to do is to maximise the benefits they can gain from the transition. Good luck advising ministers at the moment that their ambition is unachievable at reasonable cost and so they should scale it back.
The government's pledge to reduce energy costs to consumers by £300 per year by 2030 is fantasy (less polite words could be used). It will be interesting to see how over the coming years this pledge gets reconciled with the reality - this will surely become an increasingly important political dividing line. Particularly interesting if gas prices come down but consumer energy costs trend upwards.
I take the silly idea recently floated by the Ofgem CEO about varying consumer energy costs based on wealth (on which you commented) as an indication of how chaotic policy is in this area at the moment.
The people responsible for the GB electricity network seem to think the 2030 target is deliverable (though challenging) https://www.neso.energy/publications/clean-power-2030
And as Carbon Brief summarises, there is a lot of analysis of the costs and benefits, from various bodies https://www.carbonbrief.org/factcheck-why-conservative-leader-kemi-badenoch-is-wrong-about-uks-net-zero-goal
Carbon Brief (which is funded by the European Climate Foundation) has a pretty clear bias in the analysis that it reports. Alternative analyses are available.
And what are NESO's incentives? How long would its CEO have lasted if its analysis for government showed that its revised clean electricity target may only be achievable at unreasonable cost? (The question being not whether a largely clean electricity grid is possible, but the costs/benefits.) It is not a question of NESO lying, it just has to make assumptions and highlight scenarios that favour what its ultimate paymaster (via regulated prices) wants to hear.
Thank you, all, for your comments on energy pricing.
I am drafting a follow-on blog but still don't understand why electricity prices are set via a strange form of auction in which the highest price offered (usually gas-fired supply) then sets what everybody else is charged.
I thought that the answer may be contractual in the form of 'contracts for difference' but HMG describes CFDs in this way :
"Successful developers of renewable projects enter into a private law contract with the Low Carbon Contracts Company (LCCC), a government-owned company. Developers are paid a flat indexed rate for the electricity they produce over a 15-year period; the difference between the ‘strike price’ (a price for electricity reflecting the cost of investing in a particular low carbon technology) and the ‘reference price’ (a measure of the average market price for electricity in the GB market)."
This doesn't imply any link to gas prices.
Can anyone help?