Electricity intensive industries don’t pay for ROCs. British steel blamed the high cost of electricity on wholesale prices driven by the cost of gas which is setting the price. How do you reconcile this with saying our industries are suffering from the costs of renewables?
We have the most expensive industrial electricity prices in Europe, but industrial gas prices are lower than the median.
There's all sorts of extra costs on top of gas that go towards increasing electricity bills: Subsidies from ROC's, CfDs and FiTs, capacity market backup, grid balancing and grid extension costs.
Because that is the fashionable thing to say. Miliband says it repeatedly. But it is based on a catalogue of falsehoods, many of them exposed in articles at this site.
I've looked at data on the Scunthorpe site. Its electricity bill as a share of costs is, while it remains a blast furnace operation, not particularly high, and derives from use for blast fan motors, conveyors for raw materials and motors in the rolling and extruding mills. Of course switching to an EAF would be very different. Costs for coke inclusive of carbon taxes are much more important, but it's not mentionable in political circles.
I don’t think it’s just because it’s fashionable there is a lot of truth in it. Over the last few years gas has caused our electricity to be more expensive. It sets the whole sale price. High users don’t pay for the ROCs which made the early renewables expensive and CfDs etc add little to their bills. That leaves gas as the culprit. It seems some people look for anything other than gas and are trying to make that fashionable. But the evidence is pretty strong it’s gas. The recent reduction announced by Ofgem is due to a fall in wholesale gas prices for example. It’s written in their statement explaining why the cap is coming down.
David, send your posts to all MP’s . At least they will not be able to claim they were not informed of the nut Zero madness when it eventually collapses on their watch.
It's worth thinking about what drives the relative prices for domestic and industrial power. For the domestic market retailers are constrained by the OFGEM cap. Not so for the industrial market. Of course there are some minor concessions to Energy Intensive Industries exempting them from a number of green levies, but the saving gets added to other consumer bills including non domestic. Those who pay the highest prices are smaller non domestic consumers, with standing charges that are multiples of the domestic consumer on similar offtake, and unit rates that have been up to 50% higher too. It has contributed to the closure of many small businesses such as pubs and shops.
It is also not merely the rise in balancing and network costs, but also changes in how they are allocated between generation and demand following OFGEM decisions. In any case we operate under the EU constraint that on average generators must not pay more than €2.50/MWh for grid transmission, still part of UK law, and while generators remain liable for imbalances between contracted and actual generation, they now pay no share of balancing costs, which are all for demand account.
The transmission element is interesting. If we take a 1GW offshore wind farm in the Northern Scottish waters producing say 4TWh a year that will need to use the Eastern Green Link, a £4.3bn 2GW interconnector between Peterhead and Drax we can calculate that the capital charge at 7% for a long lived asset would amount to £150m/GW a year, or a real cost of £37.50/MWh, whereas it is proposed to charge only £12/MWh which developers are already bleating about. In reality both projects should be canned.
More useful information that I wasn't aware of thankyou. So given the info on EGL that absolutely reinforces why there should be no more generation installed in Scotland its plainly counterproductive and short of some zero cost leccy for AI data centres zonal pricing isn't going to fix things.
The choice of witnesses reveals a considerable bias in what they consider important. They may add another session in due course with a different emphasis. But we can expect a catalogue of half truths and near lies to enter the official record.
These are largely organisations dealing with the consequences of high prices which is within the remit of the enquiry. However, unless the enquiry seeks to understand root cause in the first place the most likely outcome will be sticking plasters to ease the burden on the least well off which are largely protected already through numerous schemes that load costs onto the remaining consumers.
It's a good question with multiple answers. In some cases, costs are socialised via government spending at least to some degree. Germany has avoided some of its own investment by routing power between North and South via Belgium and the Netherlands, or Poland and Czechia, although the latter have tried blocking abuse of their grids with phase shift transformers. To some degree the problems are less in small countries like BE, NL, DK because you don't need hundreds of miles of transmission. Some are better placed to use hydro for balancing (including connection to Norway). In lots of cases the grid is now creaking with underinvestment: see the Iberian apagon and the increasingly dire situation in Belgium and NL, with big hikes in grid charges coming. To some extent reliance on being connected to the massive CEE grid means that they have economised on grid stabilisation kit, but those chickens are coming home to roost.
Once you unravel the direct grant subsidies the general trend for higher cost at higher renewables penetration is reasonably clear.
Not all renewables are equal. Intermittent renewables cost a lot more in balancing costs. And we have lots of offshore wind, which is the most expensive of all.
To be correct the connection from the windmills to grid is down to the developer to either pay up front or through an annual charge to the Transmission Operator. The problem is the transmission system, particularly in Scotland, is now saturated with all these connections that as we know when the wind is little more than a breeze the aggregated output from the windmills exceeds line capacity so NESO have to pay someone to switch off. This is where we see the nonsense that Seagreen has been constrained more than its generated although to be fair to them thats because they offer the lowest price. The fault is the daft regime we have which has allowed generation to completely outrun transmission capacity. This isn't going to be fixed anytime soon and will get worse before it gets better post 2030 Eastern Green Links which incidentally won't do much more than bring us back to todays levels but will have c10B!
There needs to be a pause to anymore CfD rounds and maximum effort put into sorting out grid constraints before we do anymore. As ive openly said on here im agnostic about climate change but if its real going hell for leather into a brick wall isn't the way to deal with it. The current trajectory will spur serious social discontent in the end and that is far more damaging to society than it being a bit warmer.
Thank you David. I find the thought that those in power may not have made the connection between energy and the economy and may really be that dim, very unsettling. It brings to mind Bob Monkhouse: "I want to die peacefully in my sleep like my grandfather, not screaming in terror like his passengers".
Thanks for doing this. I'm wondering why Finnish industrial electricity is so cheap (20% of UK prices), while their domestic electricity is much closer in price to ours. No subsidy is shown, and Finland has little in the way of coal or gas, while hydro is a non-starter in a country that is mostly pan-flat. They do have a lot of fir trees, though!
You might be surprised by how much hydro Finland has. They were importing from nuclear dominated Sweden until they finally got Olkiluoto EPR nuclear on stream to add to their nuclear power which provides their baseload. The cost overruns are for French account.
With almost no fossil fuelled generation and a bit of biomass/CHP running off paper industry discards there is little to push prices up unless they need to import because of outages or low wind. So long as they keep their wind within the matching capability of hydro plus what their neighbours allow on interconnectors they should be OK. Like the parts of Norway away from interconnector central, most costs are fixed so billing tends to be standing charges for the maximum rating of a connection with low per kWh charges.
Thanks for the analysis. I'm less worried about the gas price advantage North America has. Although it has been a massive boon for them as soon as supply < consumption + LNG export the prices will return to 'normal' they just have a glut of gas due to fracking.
The industrial electricity price on the other hand is a huge problem. How RR isn't shouting about this internally every day I don't know; get energy right and the rest is easy. How any industry in the UK survives at all is a miracle.
The internal US market is actually somewhat fragmented because pipelines don't run everywhere and aren't free. The cheapest supply comes from Alberta, Canada into Idaho. There are significant regional variations, especially during demand peaks that you can explore in this mouseover map
So long as there is sufficient demand for LNG at prices above its FOB cost to ensure full liquefaction capacity utilisation there is no linkage between domestic US prices and prices paid for the LNG in destination markets. The margins get divided between extra profit for liquefaction, ships used to deliver and traders putting the shipments together. The domestic market is driven by intetprnal demand and the interaction with production which adjusts with an investment lag which can create cycles on top of seasonal variation. In extremis there is production shut in if prices are too low.
Destination prices have a floor that depends on shipped cost, but pricing depends on competition from other sources. If more costly, longer haul supply is needed and the destination is wiling to pay, then the price for all its supply will tend to the costliest element. That is why even marginal increases in local supply can gave a big impact on national gas bills if they can back out an expensive source.
Fracking is a day in day out operation not like a big well tap it and reap the benefits from many years. Also the current glut is partially a result of massive boom in drilling over a decade ago but not completing all those wells. Its ultra price sensitive as well and can be rapidly switched off as we've seen in the past. US really should have exploited more of it for itself to displace coal generation but luckily for the world Trump came along so balance is back in favour of exports. Maybe good for UK currently as we take a lot of US LNG but could easily change which is why we should be continuing to ring out ever last bit of gas from the N.Sea of which there is plenty given what the Norwegians are achieving.
Exactly, although the gas production recently is due to gas associated with the much more valuable oil. If LNG export capacity increases as it's forecast to that will flip. Currently oil price freezes fracking, but if US gas price aligns with the world, as it will when the supply demand balance changes, gas price will shoot up and fracking will be back on. Personally I think they exploited enough so far, gas is rock bottom and oil production is greater than US demand. Europe/UK really needs to get it's house in order and produce O&G, I can't see it happening though.
Electricity intensive industries don’t pay for ROCs. British steel blamed the high cost of electricity on wholesale prices driven by the cost of gas which is setting the price. How do you reconcile this with saying our industries are suffering from the costs of renewables?
EII's are not the only consumers of electricity.
We have the most expensive industrial electricity prices in Europe, but industrial gas prices are lower than the median.
There's all sorts of extra costs on top of gas that go towards increasing electricity bills: Subsidies from ROC's, CfDs and FiTs, capacity market backup, grid balancing and grid extension costs.
Covered here:
https://davidturver.substack.com/p/renewables-are-more-expensive-than-gas
But EII’s don’t pay ROCs and CfDs would hardly add to their bill.
British Steel specifically blamed gas driving high wholesale prices.
Because that is the fashionable thing to say. Miliband says it repeatedly. But it is based on a catalogue of falsehoods, many of them exposed in articles at this site.
I've looked at data on the Scunthorpe site. Its electricity bill as a share of costs is, while it remains a blast furnace operation, not particularly high, and derives from use for blast fan motors, conveyors for raw materials and motors in the rolling and extruding mills. Of course switching to an EAF would be very different. Costs for coke inclusive of carbon taxes are much more important, but it's not mentionable in political circles.
https://worldsteel.org/wp-content/uploads/Fact-sheet-Energy-use-in-the-steel-industry.pdf
I don’t think it’s just because it’s fashionable there is a lot of truth in it. Over the last few years gas has caused our electricity to be more expensive. It sets the whole sale price. High users don’t pay for the ROCs which made the early renewables expensive and CfDs etc add little to their bills. That leaves gas as the culprit. It seems some people look for anything other than gas and are trying to make that fashionable. But the evidence is pretty strong it’s gas. The recent reduction announced by Ofgem is due to a fall in wholesale gas prices for example. It’s written in their statement explaining why the cap is coming down.
The OFGEM cap is a dual fuel bill with more than 4 times as much gas as power, so of course it it sensitive to gas prices.
David, send your posts to all MP’s . At least they will not be able to claim they were not informed of the nut Zero madness when it eventually collapses on their watch.
It's worth thinking about what drives the relative prices for domestic and industrial power. For the domestic market retailers are constrained by the OFGEM cap. Not so for the industrial market. Of course there are some minor concessions to Energy Intensive Industries exempting them from a number of green levies, but the saving gets added to other consumer bills including non domestic. Those who pay the highest prices are smaller non domestic consumers, with standing charges that are multiples of the domestic consumer on similar offtake, and unit rates that have been up to 50% higher too. It has contributed to the closure of many small businesses such as pubs and shops.
It is also not merely the rise in balancing and network costs, but also changes in how they are allocated between generation and demand following OFGEM decisions. In any case we operate under the EU constraint that on average generators must not pay more than €2.50/MWh for grid transmission, still part of UK law, and while generators remain liable for imbalances between contracted and actual generation, they now pay no share of balancing costs, which are all for demand account.
The transmission element is interesting. If we take a 1GW offshore wind farm in the Northern Scottish waters producing say 4TWh a year that will need to use the Eastern Green Link, a £4.3bn 2GW interconnector between Peterhead and Drax we can calculate that the capital charge at 7% for a long lived asset would amount to £150m/GW a year, or a real cost of £37.50/MWh, whereas it is proposed to charge only £12/MWh which developers are already bleating about. In reality both projects should be canned.
More useful information that I wasn't aware of thankyou. So given the info on EGL that absolutely reinforces why there should be no more generation installed in Scotland its plainly counterproductive and short of some zero cost leccy for AI data centres zonal pricing isn't going to fix things.
I see the ESNZ Select Committee has now scheduled an oral evidence day for their enquiry on energy cost.
https://committees.parliament.uk/event/24339/formal-meeting-oral-evidence-session/
The choice of witnesses reveals a considerable bias in what they consider important. They may add another session in due course with a different emphasis. But we can expect a catalogue of half truths and near lies to enter the official record.
Yes, I saw that. I've not been extended an invitation.
Neither have I. Or anyone else who went any way to pointing out why it's all so costly and how to cut the cost.
These are largely organisations dealing with the consequences of high prices which is within the remit of the enquiry. However, unless the enquiry seeks to understand root cause in the first place the most likely outcome will be sticking plasters to ease the burden on the least well off which are largely protected already through numerous schemes that load costs onto the remaining consumers.
But many of those countries have a higher share of renewables than the UK and face equal scaling of connection and grid balancing?
It's a good question with multiple answers. In some cases, costs are socialised via government spending at least to some degree. Germany has avoided some of its own investment by routing power between North and South via Belgium and the Netherlands, or Poland and Czechia, although the latter have tried blocking abuse of their grids with phase shift transformers. To some degree the problems are less in small countries like BE, NL, DK because you don't need hundreds of miles of transmission. Some are better placed to use hydro for balancing (including connection to Norway). In lots of cases the grid is now creaking with underinvestment: see the Iberian apagon and the increasingly dire situation in Belgium and NL, with big hikes in grid charges coming. To some extent reliance on being connected to the massive CEE grid means that they have economised on grid stabilisation kit, but those chickens are coming home to roost.
Once you unravel the direct grant subsidies the general trend for higher cost at higher renewables penetration is reasonably clear.
Not all renewables are equal. Intermittent renewables cost a lot more in balancing costs. And we have lots of offshore wind, which is the most expensive of all.
This alternative analysis says much of the industrial electricity price differential is caused by UK loading much more of the network costs onto industrial users than Germany etc do: https://open.substack.com/pub/davidtoke/p/net-zero-is-not-making-uk-industrial?utm_source=share&utm_medium=android&r=6g861.
And what makes up Network Costs?
Grid Balancing - that's gone up massively because of intermittent renewables.
And it costs a lot to connect remote wind and solar farms to the transmission and/or distribution network.
To be correct the connection from the windmills to grid is down to the developer to either pay up front or through an annual charge to the Transmission Operator. The problem is the transmission system, particularly in Scotland, is now saturated with all these connections that as we know when the wind is little more than a breeze the aggregated output from the windmills exceeds line capacity so NESO have to pay someone to switch off. This is where we see the nonsense that Seagreen has been constrained more than its generated although to be fair to them thats because they offer the lowest price. The fault is the daft regime we have which has allowed generation to completely outrun transmission capacity. This isn't going to be fixed anytime soon and will get worse before it gets better post 2030 Eastern Green Links which incidentally won't do much more than bring us back to todays levels but will have c10B!
There needs to be a pause to anymore CfD rounds and maximum effort put into sorting out grid constraints before we do anymore. As ive openly said on here im agnostic about climate change but if its real going hell for leather into a brick wall isn't the way to deal with it. The current trajectory will spur serious social discontent in the end and that is far more damaging to society than it being a bit warmer.
Paul Frederick Bach points out that underinvestment and long projectbead times is now a problem across much of Europe.
http://pfbach.dk/firma_pfb/references/pfb_outdated_calculations_of_electricity_production_costs_2025-05-24.pdf
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UK is number 1!
UK is number 1!
UK! Wave the flag! 🇬🇧
Wave the flag! 🇬🇧
Thank you David. I find the thought that those in power may not have made the connection between energy and the economy and may really be that dim, very unsettling. It brings to mind Bob Monkhouse: "I want to die peacefully in my sleep like my grandfather, not screaming in terror like his passengers".
Thanks for doing this. I'm wondering why Finnish industrial electricity is so cheap (20% of UK prices), while their domestic electricity is much closer in price to ours. No subsidy is shown, and Finland has little in the way of coal or gas, while hydro is a non-starter in a country that is mostly pan-flat. They do have a lot of fir trees, though!
You might be surprised by how much hydro Finland has. They were importing from nuclear dominated Sweden until they finally got Olkiluoto EPR nuclear on stream to add to their nuclear power which provides their baseload. The cost overruns are for French account.
https://app.electricitymaps.com/zone/FI/all/monthly
With almost no fossil fuelled generation and a bit of biomass/CHP running off paper industry discards there is little to push prices up unless they need to import because of outages or low wind. So long as they keep their wind within the matching capability of hydro plus what their neighbours allow on interconnectors they should be OK. Like the parts of Norway away from interconnector central, most costs are fixed so billing tends to be standing charges for the maximum rating of a connection with low per kWh charges.
Nuclear at 42% and hydro at 19% may have something to do with it (2023 figures: https://energia.fi/en/energy-sector-in-finland/energy-production/electricity-generation/)
Thanks for the analysis. I'm less worried about the gas price advantage North America has. Although it has been a massive boon for them as soon as supply < consumption + LNG export the prices will return to 'normal' they just have a glut of gas due to fracking.
The industrial electricity price on the other hand is a huge problem. How RR isn't shouting about this internally every day I don't know; get energy right and the rest is easy. How any industry in the UK survives at all is a miracle.
The internal US market is actually somewhat fragmented because pipelines don't run everywhere and aren't free. The cheapest supply comes from Alberta, Canada into Idaho. There are significant regional variations, especially during demand peaks that you can explore in this mouseover map
https://datawrapper.dwcdn.net/WJKep/1/
So long as there is sufficient demand for LNG at prices above its FOB cost to ensure full liquefaction capacity utilisation there is no linkage between domestic US prices and prices paid for the LNG in destination markets. The margins get divided between extra profit for liquefaction, ships used to deliver and traders putting the shipments together. The domestic market is driven by intetprnal demand and the interaction with production which adjusts with an investment lag which can create cycles on top of seasonal variation. In extremis there is production shut in if prices are too low.
Destination prices have a floor that depends on shipped cost, but pricing depends on competition from other sources. If more costly, longer haul supply is needed and the destination is wiling to pay, then the price for all its supply will tend to the costliest element. That is why even marginal increases in local supply can gave a big impact on national gas bills if they can back out an expensive source.
i.e. UK should be exploiting the N.Sea as the easiest way to bring down bills
Fracking is a day in day out operation not like a big well tap it and reap the benefits from many years. Also the current glut is partially a result of massive boom in drilling over a decade ago but not completing all those wells. Its ultra price sensitive as well and can be rapidly switched off as we've seen in the past. US really should have exploited more of it for itself to displace coal generation but luckily for the world Trump came along so balance is back in favour of exports. Maybe good for UK currently as we take a lot of US LNG but could easily change which is why we should be continuing to ring out ever last bit of gas from the N.Sea of which there is plenty given what the Norwegians are achieving.
See, when you burn gas imported from other countries, the emissions are much less than if you burned domestic.
Milibrain is so sure the U.K. can run the entire country on electricity, all evidence to the contrary,
Exactly, although the gas production recently is due to gas associated with the much more valuable oil. If LNG export capacity increases as it's forecast to that will flip. Currently oil price freezes fracking, but if US gas price aligns with the world, as it will when the supply demand balance changes, gas price will shoot up and fracking will be back on. Personally I think they exploited enough so far, gas is rock bottom and oil production is greater than US demand. Europe/UK really needs to get it's house in order and produce O&G, I can't see it happening though.