Where is the kWh price heading in 2022?

[SteamyTea]

1 hour ago, ToughButterCup said:

Long- term averages, or current trip only

Current trip up country.

661.4 miles, 46 MPH (includes a couple of very local trips to shops) and 68.1 MPG.

Considering the car is 15 years old, 192k miles, and weighs 1.6 tonne, I think the fuel consumption is amazing.

Does about 52 MPG pottering about locally with a mean speed of about 30 MPH.

[SteamyTea]

33 minutes ago, Gone West said:

I can only remember back to the 1950s when IIRC there were the:-

Electricity Board

Gas Board

Water Board

GPO

Egg Marketing Board

Milk Marketing Board

British Railways Board

 

Bored school kids 

Bored workforce 

Bored housewives 

 

And blackboards

 

[SteamyTea]

1 hour ago, Marvin said:

Energy companies should not have share holders.

I disagree, a fair slice of my families wealth is from energy companies.

 

So would you allow people to invest in renewable energy companies?

[Marvin]

1 minute ago, SteamyTea said:

I disagree, a fair slice of my families wealth is from energy companies.

 

So would you allow people to invest in renewable energy companies?

no

[SteamyTea]

2 minutes ago, Marvin said:

no

Then under our current system of financing public infrastructure, very little would get done.

In my view the government would be better off getting total control of RE, and nuclear planning, it is barmy that a local council can control new national infrastructure. Why we have so many compromised systems.

They (the government) could pay for new grid reinforcing and cabling. Been driving past the new pylons for Hinkley Point most weeks recently. Be interesting to see how much time they took to get the agreed route, and if that route is the best one 

[Marvin]

5 minutes ago, SteamyTea said:

Then under our current system of financing public infrastructure, very little would get done.

Yes. It needs changing.

[SimonD]

47 minutes ago, Gone West said:

I can only remember back to the 1950s when IIRC there were the:-

Electricity Board

Gas Board

Water Board

GPO

Egg Marketing Board

Milk Marketing Board

British Railways Board

 

 

Not entirely sure what's implied here, but I can surmise. Resources being part of the commons is totally different from how the services are run. There are many models available to provide good services yet retain public ownership and common benefit, it's the short sightedness and limited ideology of closed minded policy makers that stops it from being put into effect - and this isn't aimed at a particular side of politics as both the conservatives and labour are over the years just as guilty, just look at public private partnerhsip introduced by Blair to see what was in effect a massive fleecing of the NHS in the interest of an accountancy slight of hand to make it look like less national government borrowing, and basically benefited large, rich corporations and their shareholders.

 

The idea that privatisation is more efficient is also a perpetual myth.

[SimonD]

8 minutes ago, SteamyTea said:

Then under our current system of financing public infrastructure, very little would get done.

In my view the government would be better off getting total control of RE, and nuclear planning, it is barmy that a local council can control new national infrastructure. Why we have so many compromised systems.

 

I think it's even worse than that. The current government are relying almost entirely on 'the private market' to put in the investment, and we all know how this market likes to behave. It doesn't want to take the risks, but wants all the rewards.

 

It certainly does need to take some control and make some serious investment both in terms of effort and finance, but the current lot aren't even close to being capable, nor do I see anyone who is right now.

[SuperJohnG]

5 hours ago, SteamyTea said:

Hinkley Point most weeks recently. Be interesting to see how much time they took to get the agreed route, and if that route is the best one 

I work on HPC the cost is astronomical and the time wasting blows my mind with so many stakeholders...even tiny wee decisions are so complex. The costs of doing major infrastructure projects. Which meets us directly unfortunately. 

[Ferdinand]

On 15/03/2022 at 10:09, SimonD said:

Interesting thread here by Richard Murphy about how we're being taken for a ride with energy prices: https://threadreaderapp.com/thread/1502671563530948610.html

 

 

 

This is one of the most innumerate analyses I have ever seem. I don't know if I have the patience to list the holes therein.

 

It needs to be called out because it is nuts. But I'll try and be polite and impersonal.

 

Richard Murphy's biggest conclusion is that:

 

the electricity and gas suppliers to the distribution companies are going to see their profits (ed: on a typical bill) increase almost exactly forty times, from £43 a year to an extraordinary £1,717 a year.
 

He gets to that by making the fictional assumption that a typical bill is the fixed price tariff that *he* has been offered by *his* energy company for the house he lives in with his GP wife in Downham Market, and applying it to the whole country. That is £3000 under an unregulated fixed tariff: *

 

let’s assume that all the data that I can find that says that the average house paid £1,200 a year for fuel in 2021 is also right. It was pretty much for me, for example.

 

Now let’s base what energy costs might be on the fixed prices now being made available by the same energy suppliers who were happy to supply our electricity and gas for £1,200 last year. It seems around £3,000 is that new normal. Again, it happens to be for me.
 

So, the price is increasing by £1,800. 

 

It is also a fictional claim for an average bill. since the typical bill under the cap is £1971, which I think almost everyone will stick with, following analysis for example by Martin Lewis. The cap quoted is by definition the amount an average consumption household would pay.

 

So that immediately reduces Murphy's claim for 'profiteering' by £1000+, because his top line is very exaggerated.

 

AFAICS most of his other assumptions are also fictions, which I may take half an hour to analyse later.

 

In the meantime, I recommend BHers have a little look, and find the holes in this particular colander.

 

Ferdinand

 

* There does seem to be a dishonest marketing issue. I have been prominently offered 2 alternative fixed tariffs which will cost £2700 or so, whilst the capped variable rate at probably well under £2k is not mentioned.

[SteamyTea]

All this assumption that bills are going to keep drastically rising is worrying.

Now I don't know what any individual pays, or what 'deal' they are on, but over the recent decades, household energy bills have averaged about 5% of household income.  If there is an expectation that the fraction will become 15%, then the government will step in (again).

There is also transport fuel costs to take into account.  These have gone up.  If an ordinary household uses 1000 litres a year (oil companies used to work on 1 tonne a year per car), then that is approximately £500 extra year.

It is just a matter of how the government steps in (individual allowances, or state aid to the producers or retailers) and when.

Still, we have paid the $400m to Iran by the looks of it.

[oldkettle]

5 hours ago, Ferdinand said:

This is one of the most innumerate analyses I have ever seem. I don't know if I have the patience to list the holes therein.

Thank you 

I wrote a post about it yesterday... then removed it without sending because I knew it was not going to convince anyone. I particularly liked how he only mentioned the cost at source after being prompted in comments. Yes, it is certainly the fault of the spaculators that UK and EU have behaved like lunatics destroying their own energy production capabilities and now we all depend on the nicest states in the world to keep going. 

He is/was "a professor for 5 years". I pity his poor brainwashed students. 

[SimonD]

56 minutes ago, oldkettle said:

He is/was "a professor for 5 years". I pity his poor brainwashed students. 

 

I'm guessing you probably haven't looked at his background and what he's been up to for the last 20 odd years, and the influence he's had in a number of areas of social importance, including tax justice, fairer tax, plus lots of work related to tax and environmental issues. Hardly brainwashed students IMHO, rather more enlightened than many in the field..

[SimonD]

7 hours ago, Ferdinand said:

Richard Murphy's biggest conclusion is that:

 

the electricity and gas suppliers to the distribution companies are going to see their profits (ed: on a typical bill) increase almost exactly forty times, from £43 a year to an extraordinary £1,717 a year.

 

It's interesting how you've read that as I didn't find myself getting hung up about the rough numbers. The basis of his calculations are actually rather more clear in that they're based on representative figures published by one of the large energy companies themselves and he does, on several occasions, make note of that they're simplistic, roughly representative figures

 

For me the more important, and accurate points, are to do with political economy rather than an argument about the specifics of the accounting. E.g.:

 

Quote

And let’s be clear, that none of the cost of producing energy in the world has changed because of war in Ukraine. In fact, right now, there is not even a shortage of energy in the world because of that war: Russia is still supplying oil and gas right now.

 

Quote

So, the only reason for price increases is because oil and gas dealers expect a shortage in oil and gas which has not happened as yet. Bluntly, what we’re seeing is panic buying of oil and gas that’s still in the ground right now by countries terrified that they might run out.

 

It’s vital to remember this: oil and gas are going up in price because people – oil companies, hedge funds and others - are speculating in oil and gas in the expectation that there will be shortages. No one actually thinks the stuff is going to cost more to produce. (my bold)

 

Quote

That’s where your extra payment is going. It does not disappear into a black hole. It goes to oil and gas companies, power generators, the countries and shareholders that own these, and of course to the speculators who are currently making billions out of this.

 

Quote

Four questions then. Why is out government accepting this? Why are governments elsewhere accepting this? Why aren’t they cooperating to stop it, individually or together? They could. They aren’t. So, what is going on here?

 

Quote

Right now the powerful in this game appear to be the oil companies. They are exploiting us all to make exceptional profits. That’s what my evidence shows. However you play with the numbers the answer will always be the same: they’re exploiting this situation.

 

Quote

Political economy says we can do that. We can reallocate energy supplies between nation states to stop the risk of energy rationing in some. We can use international tax laws - including some I helped create - to track down the profits of energy companies and tax them.

 

And we can also impose taxes on energy companies at home. There is a straightforward case for a massive increase in taxes on energy companies right now - to be applied to their excess profits, but nothing more.

 

But more than that, there is something else the government can do. Ofgem, a UK government regulator, does in effect sets UK electricity prices. And it, in effect, prices that energy at the cost of the highest component element in the energy mix - which is gas.

 

What this means is that even though most electricity is not generated from gas in the UK, we pay for it as if it all is. So the price has skyrocketed even though we all know that the cost of creating renewables, nuclear, hydro and even coal power has not changed.

 

The government could change that regulation now and bring down electricity prices overnight. France provides evidence that this is possible.

 

Just as the govermment could also keep green levies fixed (but very definitely keep them, please). It could also cut the rate of VAT so that it takes no more money from us now.

 

However, none of these things, all of which are possible in the political economy, are happening. So there is a failure of our politicians to stand up to the power of energy companies here, nationally and internationally. And I am calling that out.

 

 

Quote

Finally as an addition, I know - and said - that the numbers may be a little simplified, but not much. But I would add, that’s just fine. I am showing what can and cannot be controlled, and by who, and I am showing who is exploiting us. And that is deliberate.

 

I think he makes a pretty strong point and actually pretty robust argument re what's really going on that many people aren't even the slightest bit aware of. E.g why has my proper , not traded, green tariff electricity price risen by just over 50% when it has nothing to do with gas prices, unless my tariff is being used to subsidise the gas or something else. That's where the real accounting and political failure lies, not with the back of a fag packet calculation of fixed and variable costs of energy providers. But the only way we're going to find out who's got their figures right is wait for end of year profit statements from the oil and gas companies. I know where my bets are.

Edited March 16, 2022 by SimonD

[Marvin]

Basically greed and fear.

[Nickfromwales]

8 hours ago, Marvin said:

Basically greed and fear.

Utterly mind-blowing that one mans will has the world on notice. This 'issue' should have been 'extinguished' a long time ago.....

[SteamyTea]

4 hours ago, Nickfromwales said:

This 'issue' should have been 'extinguished' a long time ago.

What you suggesting, converting 1 Megaton of nuclear energy to 1,162,222 MWh of gas.

[ProDave]

47 minutes ago, SteamyTea said:

What you suggesting, converting 1 Megaton of nuclear energy to 1,162,222 MWh of gas.

The world is in desparate need of a competent assasin.

[SteamyTea]

42 minutes ago, ProDave said:

The world is in desparate need of a competent assasin.

Or a good read.

 

The-Prince-by-Niccolo-Machiavelli-.pdf

[AliG]

The analysis of energy prices is both right and wrong.

 

Forgetting the specific price quoted, whether it should be £2000 or £3000.

 

The price of producing energy has not increased much since a year ago, there may be some input price increases, wage rises and so on, maybe 5-10% increase in costs.

 

Thus it might be argued that profits in the entire energy ecosystem have increased by the increase in price.

 

This is roughly and theoretically true. However, the vast majority of these extra profits would have accrued to the owners of the oil and gas that are considered to be in short supply now and not to poor old SSE. The chosen representation is strange and doesn't make this very clear.

 

You then get onto the issue of should the price have increased to increase the profits of energy companies. This is where the analysis is wrong. Over time, commodities are roughly priced at the marginal cost of new production, assuming that demand is increasing. So if the all in cost of new oil production is $70 a barrel then oil should average around this price as this is what is needed to encourage new investment to increase supply with growing demand.

 

However demand for oil and gas does not always grow in a nice steady way and recent events show that supply is also not stable. So if demand fails as it did with COVID in 2020 then it the price falls to take out the highest cost producers until it reaches the point where supply from lower cost producers meets the new lower level of demand. Also if demand is falling such that new production does not need to be incentivised then the price can be below the level required to invest in new production. Due to this the price of oil can and has fallen to $40 when demand has weakened.

 

On the other hand, if supply comes out of the market or demand grows faster than expected then you need the price to rise to incentivise new supply. If you thought that all Russian supply of oil was coming out of the market not only would you need the price to rise to cover the cost of new production, and the newest production is always likely to be less efficient and higher costs as people will use lower cost sources first. In the case of a supply shock that we are looking at today it is even worse. There is no short term way to increase supply to offset possible Russian supply losses. So prices increase not just to encourage new supply, but they must increase enough to destroy demand as supply and demand must ultimately be equal (ex inventory changes).

 

The oil and gas price in the last couple of years was depressed by COVID and low demand so analysis comparing today to recent history will probably show unfair figures. Two years ago the price would not have covered investment in new capacity.

 

I have not spent much time on the recent specifics, but considering rising input prices for still and so on, I would guess that the equilibrium price of oil to grow supply at around 1% a year in line with recent demand growth is around $80 a barrel. Prices above and below this are due to short term issues.

 

The energy business is not a great business and over recent years (until this recent situation) has been one of the poorer investments in the stock market. Demand growth is modest and slowing and returns on capital employed are poor. Inherently there is little IP and selling something where you cannot make more but instead have to go look for more requires very high levels of investment. They are not minting money like people think they are. The absurdly profitable businesses in the world today are tech businesses such as Apple, Microsoft and Google or Visa and Mastercard which are absurdly profitable. As people don't directly pay these companies they don't notice this.

 

I do worry about speculation in commodity markets. In general speculators are looking at the info available and trying to decide what the future situation will be. If Russian oil supply drops then there will be a shortage of oil so prices will have to rise. They forecast this kind of thing and prices get there faster than they might have. But this really just gets us to the same end point faster. Still their profits come basically out of the pockets of consumers and they don't provide much of a useful function, I would limit it.

 

As to windfall taxe, I would in general be opposed, but in this extreme case I think they are probably fair. The cost of wind, nuclear etc have not increased, but they get to price by the marginal supply cost and make more money. However, people might remember Octopus Agile paying people to use electricity in 2020, were the people clamouring for a windfall tax today, clamouring for a tax on consumers who were getting cheap energy at the expense of providers who were losing money. Does it not cut both ways? I think it normally does cut both ways and come out in the wash. The difference here is that we have had a tail event where we could possibly lose an enormous amount of capacity to produce gas especially and oil and some companies are benefitting from this through sheer luck of being in the right place at the right time. There is no possible offsetting negative scenario where lots of gas and oil could be conjured up from nowhere collapsing the price. Even COVID was not that bad.

 

As to nationalising everything, that is just crazy. The countries with nationalised energy companies generally are inefficient at both producing and finding energy and have unreliable supply. Energy companies are not the super profitable great investments that the media wants people to think they are. They have been some of the worst investments of the last twenty years, Nor can governments conjure up money and solutions from nowhere. It is still our money. In an ideal world you could cut out profits and have a lower cost of capital if governments ran everything. But people seem totally willing to ignore that time and time and time and time again this has been tried and failed. Look at how much it costs SpaceX to launch a rocket versus NASA, it is not just communist countries that prove this, even the USA. I am not saying capitalism is perfect, but with the correct checks and balances it generally works. We might need a bit of a check for the current situation.

 

 

[joe90]

Where is the kWh price heading in 2022?
 

simples.    “Up”.              🤣

[Ferdinand]

@SimonD

 

Thanks for your reply. I'll reply soon.

 

 

[SteamyTea]

Worth reading this, bit old now, but not as old as 'The Seven Sisters'.

 

https://vaclavsmil.com/2017/12/19/oil-a-beginners-guide-2/

[oldkettle]

@AliG

Very good post. Important points on taking losses when the price is low - nobody wants to care about this one, supply/demand and more. 

 

The only reason I can't "like" it is the paragraph on "speculation". These companies make hedging possible for everyone (i.e. both buyers and sellers) and many lose money in process. As soon as you decide to prohibit or limit speculation in energy market you will get a queue of other candidates. 15-20 years ago I'd probably support BTL prohibition - as stupid as it sounds. So - can't agree with this one, sorry. 

[SimonD]

1 hour ago, AliG said:

As to nationalising everything, that is just crazy. The countries with nationalised energy companies generally are inefficient at both producing and finding energy and have unreliable supply.

 

As I've mentioned before. I beg to differ. It depends on the model used to run the service. Take 2 examples of current activities I'd argue are fairly successful:

 

Norway:

 

Quote

Long-term perspective in the management of the government's petroleum revenues ensures that they benefit Norwegian society as a whole, and that future generations will benefit from Norway’s petroleum wealth. This has been a key principle in developing the financial and legal framework for the sector.

Quote

One of the overall principles of Norway’s management of its petroleum resources is that exploration, development and production must result in maximum value creation for society, and that revenues must accrue to the Norwegian state and thus benefit society as a whole. The main reason for this is the extraordinary returns that can be obtained by producing petroleum resources. Since these resources belong to society as a whole, the Norwegian state secures a large share of the value creation through taxation and the system known as the State’s Direct Financial Interest (SDFI) in the petroleum industry.

Source: https://www.norskpetroleum.no/en/economy/governments-revenues/

 

Sweden source https://www.scc.org.uk/about/patrons/vattenfall/:

Quote

Vattenfall

Vattenfall is Europe’s fifth largest generator of electricity and the largest generator of heat. We currently have operations in Denmark, Finland, Germany, United Kingdom, Poland, Netherlands and Sweden.

 

Vattenfall is active at all stages of the electricity value chain - generation, transmission, distribution and sales. Vattenfall also generates, distributes and sells heat, and conducts energy trading and lignite mining. The parent company, Vattenfall AB, is wholly owned by the Swedish state.

 

Edited March 17, 2022 by SimonD