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Douglas Brodie's avatar

In keeping with the “Dummies Guide” theme, here is a comment I prepared earlier on the simplistic claims by the likes of Dale Vince and his stablemate Greg Jackson at Octopus Energy that the price of gas sets the price of electricity. Octopus Energy has just launched a live ticker tool that shows how much wind power the “broken” UK electricity grid is wasting due to curtailment. Their blurb implies that the energy price crisis is due to the price of gas: https://www.rechargenews.com/markets-and-finance/uk-s-wasted-wind-power-laid-bare-by-new-octopus-tracking-tool/2-1-1842501?zephr_sso_ott=sjrFTd:

Climate propagandists claim that the high cost of UK electricity is due to what they wrongly claim is the high cost of UK natural gas. The following explanation shows why their narrative is false.

A 10-year view of the price of UK natural gas can be selected here: https://tradingeconomics.com/commodity/uk-natural-gas.

The graph shows a level gas price from 2015 until the huge 2022-23 spike caused by the unnecessarily provoked war in Ukraine (hopefully now being spiked by President Trump), since when the price has settled back down to where it was in 2019.

The 10-year view of the UK electricity spot (wholesale) price can be selected here: https://tradingeconomics.com/united-kingdom/electricity-price.

The profile of this graph almost exactly mirrors that of the graph of natural gas. So yes, the wholesale price of UK electricity closely tracks the price of UK natural gas. Inconveniently for climate alarmists, the gas price is now back to where it was in 2019 whereas the domestic retail price of UK electricity has doubled since 2019 (and almost tripled since 2008, the year the Climate Change Act was enacted), as shown on this ONS Producer Price Index (PPI) interactive graph for domestic electricity: https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/ghbl/ppi.

Climate propagandists like Ed Miliband are almost certainly aware that blaming high electricity prices on the market price of gas is a bogus argument and are only using it to push the road-to-disaster agenda of moving away from gas to fully embrace weather-dependent so-called renewables. They dissemble that if only we could rid the grid of gas ”supplied by dictators like Putin”, everything would be hunky dory. The reality is that the 2022-23 gas price spike was due to self-harming European sanctions against Russia and Biden blowing up the Nord Stream gas pipeline for good measure.

But is there any merit in their claim that it is irrational to set the wholesale price of electricity before it is even delivered based on the price of gas? Independent energy consultant Kathryn Porter says no in this 12-minute layman-pitched video presentation (Warning: despite her best endeavours to give a simple explanation, this topic is inherently very complicated): https://www.youtube.com/watch?v=oNVvgD75uz8.

Basically, UK retail electricity prices are high because so many Net Zero levies and subsidies are related to and added on top of the wholesale price. Kathryn starts by explaining so-called merit order and marginal pricing which is based on the marginal cost of running of the different electricity generation types which can be called upon the national system operator. The seeming paradox is that this marginal price is close to zero for wind and solar whereas for gas it is usually the most expensive. She explains that using the advance highest price option which subsequently may not even be run is not a UK aberration but is the system used by every deregulated energy market in the world. Note also that wind and solar electricity is well remunerated through subsidy contracts unrelated to their almost zero marginal price, often above what a gas power station typically gets. She goes on to explain why any attempt to reduce the wholesale price of electricity by changing this complicated system wouldn't reduce retail bills and might even make them go up.

This issue has also been addressed many times by energy analyst David Turver, for example here: https://davidturver.substack.com/p/why-energy-prices-high-how-reduce-them-esnz-cost-of-energy

Energy analyst John Sullivan has also addressed the issue, not hiding his anger at the intelligence-insulting dissembling of the climate propagandists, for example here (the source of my first two links above): https://johnsullivan.substack.com/p/the-costs-rise-and-the-blackouts.

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John D's avatar

Another brilliant detailed analysis from David.

So the Labour Party has received over five million pounds from companies that are heavily subsidised by the taxpayer, and this new Labour government are in charge of giving out the subsidies. Some people might say it’s time to ‘drain the swamp’!

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