Decisive action to break influence of gas on electricity prices

[SteamyTea]

Don't anyone tell @Roger440

 

https://www.gov.uk/government/news/decisive-action-to-break-influence-of-gas-on-electricity-prices

 

 

[ProDave]

in 4 years the time gas sets the price will have reduced from 60% to 50%

 

Don't expect to see much reduction in your bills any time soon

 

Britain has already moved from gas setting the price of electricity around 90% of the time in the early 2020s, to around 60% today. Through the government’s clean energy mission, it is estimated gas will set the wholesale price around half of the time by 2030.

[Alan Ambrose]

One of the effects of the current mechanism BTW is that conventional generators including renewables get windfall profits every time the gas price spikes. Even with 'the levy'. I dare say they like that.

 

As long as the gas peakers are needed then the marginal price will largely be set by gas.

 

Peaking power plant - Wikipedia

 

>>> New plans include long‑term fixed‑price contracts for renewables, protecting families when gas prices spike

 

The financial markets are very quick to create new futures / forwards / options / swaps / CFDs etc if they think there's any demand - they don't need any government help to do that.

 

All-in-all the current industry players are not unhappy with the current situation.

[Roger440]

6 hours ago, ProDave said:

in 4 years the time gas sets the price will have reduced from 60% to 50%

 

Don't expect to see much reduction in your bills any time soon

 

Britain has already moved from gas setting the price of electricity around 90% of the time in the early 2020s, to around 60% today. Through the government’s clean energy mission, it is estimated gas will set the wholesale price around half of the time by 2030.

 

In other words, no meaningful change. Just a few %.

 

That not much more than background noise. They could have completely de-linked it. They still choose not to. 

 

This is another classic case of the PR and reality being worlds apart.

 

And they choose not to, as too much money is being made.

[Roger440]

5 hours ago, Alan Ambrose said:

 

 

All-in-all the current industry players are not unhappy with the current situation.

 

Indeed. and if they think its good, you can 100% sure, its not good for the consumer. And it isnt.

[Roger440]

7 hours ago, SteamyTea said:

Don't anyone tell @Roger440

 

https://www.gov.uk/government/news/decisive-action-to-break-influence-of-gas-on-electricity-prices

 

 

As above, this isnt the great breakthrough that we both know is actually required.

 

Essentially being seen to do "something" whilst allowing business as usual.

[Alan Ambrose]

@Roger440 re: They could have completely de-linked it.

 

You have a scheme for that? My understanding is that it's the gas-driven 'peakers' that provide power when everyone else is at max output (or offline) - hence it revolves around the price of gas.

[Mike]

3 hours ago, Alan Ambrose said:

You have a scheme for that?

Not Roger, but pay-as-bid is one leading proposal. In other words, if providers A, B and C offer their electricity at £60, £80, and £200 per MWh then, if they are chosen, pay them £60, £80, and £200, rather than paying all of them £200.

[torre]

7 hours ago, Mike said:

pay-as-bid

Was pretty much ruled out.

 

If you're A and bid 60 on Monday and Tuesday but look over at C being paid 200, how much are you going to bid on Wednesday? 

[SimonD]

Maybe I've missed something but that linked document appears only to outline a revised Cfd arrangement. Where is the gas marginal pricing de-linking mechanism? And for taxing extra-ordinary profits? Why not just cap the profits in the first place?

[markc]

A mate of mine was Electrical  Shift Engineer or similar at the new Keadby gas fired station. Some government official at a presentation saying burning gas instead of coal would provide the lowest cost energy possible …hmmm 🤔. Then I did a load of work on Drax where burning local Reeds would be almost free fuel …. Not difficult to see that a few hundred acres of reeds wont burn for long and takes time to grow again.

[Mike]

3 hours ago, torre said:

11 hours ago, Mike said:

pay-as-bid

Was pretty much ruled out.

All mandatory options have now been ruled out, not just pay-as-bid. Decisive Government in action / Decisive Government inaction.

 

3 hours ago, torre said:

If you're A and bid 60 on Monday and Tuesday but look over at C being paid 200, how much are you going to bid on Wednesday? 

What you think the market will bear (for each half hour slot), knowing that if you bid too high, you'll get nothing.

 

Edited 17 hours ago by Mike

[sgt_woulds]

it would be nice to see a comprehensive reasoned breakdown of alternatives to the status quo.  Any suggestions for sources?

 

Or we could all make our own armchair suggestions on here and start another shouting match... 🙂

 

[DamonHD]

This may be helpful,  but I think that the bottom line is that anything other than the current marginal pricing scheme is lilkely to be gamed and hides true costs.

 

https://www.carbonbrief.org/qa-how-the-uk-government-aims-to-break-link-between-gas-and-electricity-prices/

[Mike]

4 hours ago, DamonHD said:

anything other than the current marginal pricing scheme is likely to be gamed

Something may have changed in the meantime, but Ofgem concluded the opposite back in 1999:

 

   "Another result from the modelling was the observation by participants that gaming - seeking to exercise market power - was perceived to be easier under SMP pricing rules than pay-as-bid"

   "Under a pay-as-bid system, buyers have to go out and find the best deal available, which will increase the competitive pressures on generators"

   "These points are supported by the business simulation modelling that has been conducted by the RETA Programme, where prices under SMP came out higher than pay as bid"

 

The New Electricity Trading Arrangements, Ofgem/DTI Conclusions Document, October 1999, page 91 (SMP = System Marginal Price)

 

Not sure what subsequently happened that flipped the position in favour of marginal pricing. It would be interesting to know.

 

Edited 10 hours ago by Mike

[Alan Ambrose]

Some Stanford Prof, I forget his name, predicts that we'll eventually get massive over-capacity in renewables and thus cheaper power prices eventually. Don't heckle me, it's not my idea.

 

However, if a bit of that is true then the peakers will be used less and less over time and therefore gas will eventually become less of an influence on electricity prices.

[JohnMo]

1 hour ago, Alan Ambrose said:

Some Stanford Prof, I forget his name, predicts that we'll eventually get massive over-capacity in renewables and thus cheaper power prices eventually. Don't heckle me, it's not my idea.

Isn't that the current situation in Scotland loads of wind, hydro etc, almost zero electric comes from gas, but unfortunately our pricing is driven by English policy. In fact SNP use that as a reason for independence.