Where is the kWh price heading in 2022?

[Marvin]

2 minutes ago, Stones said:

It's quite interesting to see how vested interests are using this emergency (having been escalated from its previous crisis status). The Ch Exec of Scottish Power (seemingly supported by the bulk of the industry in the UK) , has proposed freezing prices and the govt loaning energy companies the excess required to buy energy at whatever the market price is over the next two years, with that money being paid back by bill payers over the next 20 years - basically the governments original £400 help proposal on steroids. What he neglects to mention is that it neatly takes the risk away for the industry in terms of non payment and potentially cutting people off, and will allow their generation arms to continue making money hand over fist where that generation is fixed cost.

This is mad thinking.

[kommando]

Reading this from the Telegraph may ease your pain, for about 10 minutes

 

Ambrose Evans-Pritchard, World Economy Editor

Two powerful and opposite forces are colliding in global commodity markets.

Vladimir Putin’s war is pushing gas prices to the moon, sending an inflationary shock through a supply chain already ruptured by the pandemic.

At the same time we are going smack into a world recession, or something like it, and recessions kill demand.

China’s anaemic recovery has stalled as the greatest property bubble in world history deflates, and it is China that sets commodity prices these days.

Europe and the UK are sinking already. The US is still afloat, but shot below the waterline. A ferocious mortgage squeeze has brought US house sales to a standstill. When the tide turns, you find out who is swimming naked. The denouement is never pretty.

Central banks are doing what they always do: after stoking an inflationary boom with excess stimulus, they are tightening frenetically, too late, too hard, into the teeth of a storm. Money growth is collapsing on both sides of the Atlantic. This will show up in tumbling prices next year whatever Putin does.

Industrial metals and oil are down by a quarter. Wheat prices have almost halved since day one of Putin's invasion, and are back to pre-war levels. This may surprise shoppers. The prices on the shelves are the legacy effect of past actions. Past is not prologue. We will be in outright deflation across much of the global goods market by mid-2023.

Putin has lost his gas war. Today’s crazy prices are caused by a global scramble to lock up supplies of LNG from Qatar, the US, and Australia before winter. East Asia and Europe are in a bidding war. Once the panic subsides, gas prices will fall, and perhaps faster than almost anybody imagines today.  

German storage is 80 per cent, ahead of seasonal norms, and ahead of target. Germany has cut gas demand by 14 per cent. Its industry is learning to live with a lot less of it. Europe is a mixed bag but unless there is a polar vortex, it will muddle through this winter.

[Marvin]

 Hi @kommando

 

Interesting article. My take on the situation is that gas prices will go down but peoples available money to spend on the basics will go a lot lower causing energy to still be a high proportion of income. Time will tell.

 

 

 

[AliG]

7 hours ago, SteamyTea said:

Yes.

They do. Not unusual to be paid to take gas. Happened a while back when a new interconnect opened.

It is often cheaper, overall, to give something away than store it. Much depends on the interaction between the accountancy methods and the companies economic modelling.

Ok true, but an unusual occurrence in the spot market/at expiration of futures and likely only for a limited amount of the product that cannot be used or stored economically.

 

Futures markets should generally not trade below zero.

 

Although if the war ended and Russia restarted exports the price would plummet very quickly indeed.

[saveasteading]

“The latest Scottish offshore wind energy price: 3.7 pence/kWh unit.

Melt that into the political equation when your bill charges 28p (pence/kWh unit) or whatever it’s going to be when the cold sets in again. "

 

Shocking if true.

If I understand it, these wind generators (Swedish and Spanish?) then get paid at the price as if it was generated from gas.

 

The same article explained the costing structure like this, which I thought was quite a good analogy.

 

 

Why is the price of electricity linked to gas?

Imagine you had to fill a bucket of fluid every half-hour, and then dispense it to people in thimbles. The bucket varies in size, sometimes it is a regular size, sometimes it is huge, and sometimes it is small. 

Each time you start by filling the bucket with the cheapest fluid, water perhaps or supermarket-brand fizzy drinks. Then you turn to the pricier drinks – wine, craft ale, non-alcoholic gin. But for the last third of the bucket, most of the time, the only liquid available is single malt whisky. That is going to push up the price of the whole bucketful. 

That is the system that is used in pricing electricity – it is set by the most expensive ingredient in the mix, which is electricity produced by burning gas. In the UK as a whole, gas is responsible for about 38% of electricity generation. So when the price of gas goes up, so does the price we all pay for electricity.

 

 

And then there is this. anybody know if it is true, and why this would be done?

"existing wind farms are regularly forced to turn off the power or face fines."

 

Edited August 26, 2022 by saveasteading

[Mr Blobby]

44 minutes ago, saveasteading said:

“The latest Scottish offshore wind energy price: 3.7 pence/kWh unit.

Melt that into the political equation when your bill charges 28p (pence/kWh unit) or whatever it’s going to be when the cold sets in again. "

 

Shocking if true.

If I understand it, these wind generators (Swedish and Spanish?) then get paid at the price as if it was generated from gas.

 

The same article explained the costing structure like this, which I thought was quite a good analogy.

 

 

Why is the price of electricity linked to gas?

Imagine you had to fill a bucket of fluid every half-hour, and then dispense it to people in thimbles. The bucket varies in size, sometimes it is a regular size, sometimes it is huge, and sometimes it is small. 

Each time you start by filling the bucket with the cheapest fluid, water perhaps or supermarket-brand fizzy drinks. Then you turn to the pricier drinks – wine, craft ale, non-alcoholic gin. But for the last third of the bucket, most of the time, the only liquid available is single malt whisky. That is going to push up the price of the whole bucketful. 

That is the system that is used in pricing electricity – it is set by the most expensive ingredient in the mix, which is electricity produced by burning gas. In the UK as a whole, gas is responsible for about 38% of electricity generation. So when the price of gas goes up, so does the price we all pay for electricity.

 

 

And then there is this. anybody know if it is true, and why this would be done?

"existing wind farms are regularly forced to turn off the power or face fines."

 

 

Yes its the marginal price, hence E7 overnight is far cheaper and greener because demand falls off a cliff.

Remember also that not all gas generators are equally efficient and may bid in a MWh electricity price higher far than their MWh fuel cost price. 

And of course there are diesel generators and other peaking plant that may be even more costly than gas generators.

Edited August 26, 2022 by Mr Blobby

[andyscotland]

2 hours ago, saveasteading said:

But for the last third of the bucket, most of the time, the only liquid available is single malt whisky. That is going to push up the price of the whole bucketful. 

That is the system that is used in pricing electricity – it is set by the most expensive ingredient in the mix, 

 

Their analogy makes it sound like whisky is driving the price up because it pushes the average up.

 

My understanding based on various articles from Octopus and others is that it is actually even worse: all the generators are paid the price of the most expensive generator required at any given moment.

 

So in the analogy it's like if every time you needed any whisky to top off the bucket you also paid the whisky price to the water & fizzy drink suppliers.

 

And in fact it's even worse because for the "fully renewables" tarrifs the supplier has to pay the gas-based wholesale price for the consumption and then separately on top for the renewables certificates to guarantee that an equivalent amount of renewables has been fed into the mix.

 

Octopus and others have been pushing for the market to be reformed e.g. to pay everyone the average price at any given moment, or to have a separate pool/different rate for renewables.

 

It seems to me that would be vastly more effective than subsidising individuals or windfall taxing generators, quite why the government aren't talking about that as a solution is beyond me...

[Ferdinand]

I think this is the rule in the European Electricirt market, of which we are a part. Was it not done to drive renewable investment?

 

I don't see that can be reformed without buying out the existing contracts at the existing prices, which is less efficient than letting them run.

 

F

[Kelvin]

4 minutes ago, Ferdinand said:

I don't see that can be reformed without buying out the existing contracts at the existing prices, which is less efficient than letting them run.

 

F

Exactly. However, it seems to me the only way forward is to first freeze the price at the current rate and pay it back over many years. This addresses the current unaffordable prices. Then they do a complete review of how electricity is priced. The model was put together with an assumption that rates would never increase like this. 

[Temp]

33 minutes ago, Kelvin said:

Exactly. However, it seems to me the only way forward is to first freeze the price at the current rate and pay it back over many years. This addresses the current unaffordable prices. Then they do a complete review of how electricity is priced. The model was put together with an assumption that rates would never increase like this. 

 

I believe thats one of the proposals by the energy companies.

[Kelvin]

This is 2008 all over again only significantly worse. 

[Temp]

4 hours ago, saveasteading said:

Shocking if true.

If I understand it, these wind generators (Swedish and Spanish?) then get paid at the price as if it was generated from gas.

 

 

Not quite. Electricity is traded on an open market. Essentially its all auctioned to the highest bidder. You want some electricity you've got to outbid everyone else.

 

If you try to introduce a law that limits prices there would be an international outcry. Wind and solar farms are bought and sold internationally. We would effectively have to nationalise them all at vast cost and compensate owners around the world. If not they would never invest here again.

 

Wind farm developers typically build a farm then sell it and use the money to build the next one. 

 

 

Edited August 26, 2022 by Temp

[andyscotland]

2 hours ago, Ferdinand said:

I think this is the rule in the European Electricirt market, of which we are a part.

 

I think we are no longer part, though may be wrong.

 

2 hours ago, Ferdinand said:

Was it not done to drive renewable investment?

 

Perhaps that was the ambition but it seems bonkers. As far as I can see the logical incentive is to develop just enough renewables to almost cover the power demand but ensure a bit of gas is still required. That way the generator gets a huge volume of units, but paid at the gas price. Any time there is enough power from renewables alone, renewable generators are paid a much lower rate.

 

2 hours ago, Ferdinand said:

I don't see that can be reformed without buying out the existing contracts at the existing prices, which is less efficient than letting them run.

 

I disagree. In a normal commercial relationship at this point I think we'd be well past the point of invoking force majeure/unexpected circumstances and seeking to renegotiate e.g. the way shop chains get round the table with landlord to agree a rent reduction when the alternative is going out of business and no rent at all.

 

It should be perfectly possible to find a renewables wholesale unit price that is well above the investors absolute-best-case projections but below what we are paying now.

 

Establishing a ceiling for the gas-linked unit price paid to windfarms would also be significantly simpler and more transparent than any windfall tax on "excess" profits. It would immediately reduce bills - avoiding admin overhead and unexpected consequences of taxing suppliers to subsidise customers to pay those same suppliers. It would also by definition only have any effect for the exact period of extreme gas price surge(s), much better for investors than hoping a future Treasury would roll back any windfall tax promptly.

Edited August 26, 2022 by andyscotland

[Temp]

Nteresting that Investment trusts like Bluefield Solar (who own some UK solar farms) don't seem to have gone up enormously. They are currently worth about the same as they were just before Covid struck..

 

https://www.hl.co.uk/shares/shares-search-results/b/bluefield-solar-income-fund-limited-ord-npv

[AliG]

There is a review ongoing to try to fix these issues, it is due out in October. Not great and maybe they could have focused more on the short term issues as this appears to be a longer term review looking at the next 40 years.

 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1098100/review-electricity-market-arrangements.pdf

 

The government was aware of these issues, in a generating market designed for variable cost fossil fuels, fixed cost renewables were not being treated correctly. From reading this they seem to have moved to a contract for differences system for renewables where they pay back to the system when prices are high and get paid extra when prices are low, reflecting that they are a fixed cost asset. However, most renewables are not under this system currently (see page 43) and see prices driven by the wholesale market.

 

As renewable capacity has to increase roughly 10 fold then eventually 90%+ of renewable capacity will be on largely fixed price contracts not impacted by gas prices. The trouble is of course that this will take a long time and we have a problem today.

 

I agree with @andyscotlandwe could retroactively impose a price cap for renewables in wholesale markets. Trouble is that this would be a breach of contract and end up in court and the UK does rightly frown on this kind of thing. Spain did this previously and wiped out renewable energy companies.

 

A lot of this discussion focuses on electricity. Gas of course is simply dominated by the gas price and most people in the UK use gas to heat their homes. It looks like the gas unit price is going to double and the electricity unit price increase 83% in October, standing charges are only going up modestly this time. So high gas users (me) are looking at big increases.

 

In the long run the expectation is that gas boilers are replaced with ASHPs and electricity forms an ever increasing proportion of the UK domestic energy mix, but today most of people's energy comes in the form of direct gas and we have to buy the gas.

[andyscotland]

13 hours ago, AliG said:

 

I agree with @andyscotlandwe could retroactively impose a price cap for renewables in wholesale markets. Trouble is that this would be a breach of contract and end up in court and the UK does rightly frown on this kind of thing. Spain did this previously and wiped out renewable energy companies.

 

My argument is not that the government impose a price cap unilaterally. It's that they negotiate one. The carrot would be that renewables generators still get to charge more per unit than they ever expected. The "stick" would be that the alternatives are a recession/depression massively suppressing demand, a windfall tax - well within the legal powers or governments - or even a massive acceleration of constructing new renewables on new contracts making theirs redundant sooner than expected.

 

I think it's extremely unlikely any of the generators would think any of those alternatives were attractive.

 

It is entirely normal in commerce to at least get round the table and attempt to renegotiate a deal to respond to changed circumstances - unexpectedly high inflation, changes in consumer behaviour, whatever - regardless of whatever was agreed originally. Sometimes there's no deal to be done, but more often than not people are able to be pragmatic. 

 

I have personally negotiated break clauses into leases that previously had none, and adjustments to RPI-based annual escalators that were running far ahead of expectations.

 

13 hours ago, AliG said:

A lot of this discussion focuses on electricity. Gas of course is simply dominated by the gas price and most people in the UK use gas to heat their homes. It looks like the gas unit price is going to double and the electricity unit price increase 83% in October, standing charges are only going up modestly this time. So high gas users (me) are looking at big increases.

 

In the long run the expectation is that gas boilers are replaced with ASHPs and electricity forms an ever increasing proportion of the UK domestic energy mix, but today most of people's energy comes in the form of direct gas and we have to buy the gas.

This is a very good point domestically, but getting wholesale electricity prices down would make a huge difference to industry, retail etc and therefore do a lot to soften the current inflationary pressures.

 

We're all having kittens about home heating bills going up but the (uncapped) increase in electric bills for factories, pubs, hospitals, supermarket freezers and the like are also going to hammer us all.

Edited August 28, 2022 by andyscotland

[Temp]

Liz Truss has today ruled out more more direct help with bills.

 

Considering 5% cut in VAT instead saying that would effectively put £1300 back in our pockets. But would it be passed on by supermarkets etc? Also helps me more than the v. poor.

 

Also thought to be considering raising tax thresholds. But the poor don't pay tax so it also needs an increase in benefits and state pensions. 

[Temp]

Heard today someone near us uses 11,000 units a year of electricity. With wholesale prices in December at £1 a unit that's an £11,000 electricity bill... and they don't even use it for heating.

[LA3222]

2 minutes ago, Temp said:

Heard today someone near us uses 11,000 units a year of electricity. With wholesale prices in December at £1 a unit that's an £11,000 electricity bill... and they don't even use it for heating.

It is worrying....this is playing on my mind a lot at the minute and I aint poor. I have doubled down on my gamble in not fixing - my provider wants 71p/kWh now so I am gambling on government intervention before we get to that craziness.

 

I'm a bit glass half empty at the minute, I can only see this getting worse, companies going bust, companies passing rising energy costs to customers, prices getting higher, arsehole unions striking for pay rises, again the companies pass that wage increase onto the consumer, inflation  keeps going nuts, BoE goes all in on rates to kill inflation, repossessions.....and so on and so on.

 

If it carries on I may even find myself struggling to meet my outgoings - never thought I'd be even thinking that, let alone saying it.

 

Bad times all round.

[Pocster]

21 minutes ago, LA3222 said:

it carries on I may even find myself struggling to meet my outgoings - never thought I'd be even thinking that, let alone saying it.

Mental isn’t it .

Currently as I pay the bills on 3 HMO’s - I have to find an extra 9k ! - that’s ignoring the mortgage interest payment increases . So around 15k “ short “ at the moment.

What do I do ? - increase every tenants rent by £100 a month ? ; even ones on low salaries…

Still be short somewhat ….

[Stones]

The amount of political haymaking at present is unbearable, and none of them seem willing to talk about demand reduction.

 

What I think it would be useful to hear openly discussed:

 

Removing VAT from domestic and business gas and electricity

Increasing warms home discount - targeting help where most needed

Energy reduction program in all public buildings - turn down the heating to 18 or 19C and encourage all businesses to follow - stress the green benefits of this approach. Pass an emergency law if need be and enforce.

Really push messaging on turning down thermostats and wearing a jumper (and be willing to accept the political flak for saying it)

Graduated pricing structure for electricity and gas to encourage demand reduction, the first 2000 is the cheapest, followed by the next 2000 and so on.

Get all the fixed priced generators around the table and impress on them (especially those who receive or have received subsidy payments in the past) that they need to divert a significant % of the current excess profits back into supporting those needing help - if they decline, move to compel / impose emergency levy to boost warm homes discount.

Urgently look into whether we can use some of the lower calorific value gas not currently extracted from the north sea

 

 

[LA3222]

2 minutes ago, pocster said:

Mental isn’t it .

Currently as I pay the bills on 3 HMO’s - I have to find an extra 9k ! - that’s ignoring the mortgage interest payment increases . So around 15k “ short “ at the moment.

What do I do ? - increase every tenants rent by £100 a month ? ; even ones on low salaries…

Still be short somewhat ….

It is mental, I've just been looking at what I need to do for a completion certificate so I can getnoff this variable rate onto a fixed one before the BoE start hitting us with more rate rises. 

 

I honestly think that the vast majority of Joe public seem to be unaware of just how bad things are likely to get over the next 6 months - it's almost like folks see the dots in isolation but haven't got to the point yet where they join them up mentally and have that 'oh (expletive deleted)' moment....

[Pocster]

2 minutes ago, LA3222 said:

It is mental, I've just been looking at what I need to do for a completion certificate so I can getnoff this variable rate onto a fixed one before the BoE start hitting us with more rate rises. 

 

I honestly think that the vast majority of Joe public seem to be unaware of just how bad things are likely to get over the next 6 months - it's almost like folks see the dots in isolation but haven't got to the point yet where they join them up mentally and have that 'oh (expletive deleted)' moment....

Agree !

Joe public I think likes to pretend it’s not really happening; bit like a politician. Winter is going to be crippling especially ( though not exclusively! ) for the poorest . 
 

Edited August 28, 2022 by pocster

[LA3222]

2 minutes ago, Stones said:

The amount of political haymaking at present is unbearable, and none of them seem willing to talk about demand reduction.

 

What I think it would be useful to hear openly discussed:

 

Removing VAT from domestic and business gas and electricity

Increasing warms home discount - targeting help where most needed

Energy reduction program in all public buildings - turn down the heating to 18 or 19C and encourage all businesses to follow - stress the green benefits of this approach. Pass an emergency law if need be and enforce.

Really push messaging on turning down thermostats and wearing a jumper (and be willing to accept the political flak for saying it)

Graduated pricing structure for electricity and gas to encourage demand reduction, the first 2000 is the cheapest, followed by the next 2000 and so on.

Get all the fixed priced generators around the table and impress on them (especially those who receive or have received subsidy payments in the past) that they need to divert a significant % of the current excess profits back into supporting those needing help - if they decline, move to compel / impose emergency levy to boost warm homes discount.

Urgently look into whether we can use some of the lower calorific value gas not currently extracted from the north sea

 

 

I agree with a lot of what you say, but it's only one piece of the puzzle. This is a self locking lollipop now...energy is smashing inflation, smashing consumers on everything, pay rises and striking feeding into it...inflation is well out of control...the BoE do the only thing they can which is smash interest rates up which feeds the beast- repossessions, bankruptcy, companies going bust, people.losing jobs....we are past the point now imo where looking at energy costs in isolation is going to do anything...it will barely move the needle

[SteamyTea]

38 minutes ago, Temp said:

Heard today someone near us uses 11,000 units a year of electricity. With wholesale prices in December at £1 a unit that's an £11,000 electricity bill... and they don't even use it for heating.

They will be ok then.

Will still have heating, and they can probably easily save 8 MWh.

Just turn off the XBox.

 

Where they charging EVs?

I just put 50 quid in my car (doubled its value), that is 270 kWh. As I have done 50k miles since October I am too scared to work out the price.