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A Post-Brexit Framework For Electricity Markets From The IEA

March 24, 2017

By Paul Homewood

 

h/t Joe Public:

 

The Institute of Economic Affairs has just published a damning indictment of UK energy policy:

 

image

https://iea.org.uk/publications/a-post-brexit-framework-for-electricity-markets/

 

The con merchants at the Committee on Climate Change, along with successive govt ministers, have consistently argued that electricity bills have been coming down as a result of low carbon policies.

This new study shows this to be nonsense. This is the key graph:

 

 

image

 

Remember that these are at real prices.

The rise between 2004 and 2008 was associated with the rapidly rising cost of fossil fuels, partly relieved during the 2008 crash.

It is since 2010 that the real costs of govt climate policies has started to kick in. Although overall charges have remained flat since, this has disguised the fact that wholesale prices of electricity have fallen sharply in that time.

In reality, climate policy costs have been hidden by falling market prices.

 

Wholesale electricity pricing trends 2010 to 2016

Note – Retail costs are £pa

https://www.businesselectricityprices.org.uk/retail-versus-wholesale-prices/

 

 

The above graph is up to last July, when the wholesale price was around £38/MWh.

Since then, prices have risen to £46/MWh, and this increase is beginning to reflect in domestic bills. This is likely to see average household bills going above £600pa, based on the IEA data.

 

image

http://www.catalyst-commercial.co.uk/reports/

 

We know as well that the cost of environmental levies, which are added to electricity bills, will nearly double in the next five years.

 

2.7 Environmental levies

£ billion

Outturn Forecast

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Carbon reduction commitment 0.7 0.6 0.6 0.5 0.5 0.0 0.0
Warm home discount1 0.0 0.3 0.3 0.3 0.3 0.4 0.4
Feed-in tariffs1 0.0 1.3 1.3 1.4 1.5 1.5 1.6
Renewables obligation 3.9 4.6 5.4 6.3 6.6 6.8 7.0
Contracts for difference 0.0 0.1 0.7 1.3 1.9 2.7 3.2
Capacity market 0.0 0.0 0.2 0.7 1.0 1.3 1.4
Environmental levies 4.6 6.9 8.7 10.7 11.9 12.6 13.5
Memo: Expenditure on renewable heat incentive (RHI) 0.4 0.6 0.7 0.9 1.0 1.1 1.2
Note: The ‘Environmental levies’ line above is consistent with the ‘Environmental levies’ line in Table 4.6 of the March 2017 Economic and fiscal outlook.
1 The ONS have yet to include Warm Home Discount and Feed-in Tariffs in their outturn numbers. If they were included, they would have been £0.3bn and £1.1bn respectively.

https://notalotofpeopleknowthat.wordpress.com/2017/03/11/environmental-levies-to-cost-57-in-next-five-years/

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14 Comments
  1. March 24, 2017 2:28 pm

    R4 just Now : Robin Hood Energy rises prices by 17%*
    “Labour run Notts City Council run Robin Hood Energy.
    They’ve just added 17%. Robin Bastards Energy more like”

    * 17% is an average ..one customer was told 63% rise
    nottinghampost.com

  2. mothcatcher permalink
    March 24, 2017 2:50 pm

    The IEA usually comes up with good stuff, but here its proposals seem to accept the need for a carbon target, which is unfortunate.

    “Climate Change Policy should be technology neutral. The Government should establish a decarbonisation target and allow energy markets to adjust to it….”

    Seems like the only way to do that is for the government to ascribe a carbon value to each current and proposed technology. How would biofuels be evaluated? Windmills? Electric vehicles? Arbitrary government action is therefore still likely to grossly distort the market. Doesn’t take us too much further forward.

    • bushwalker permalink
      March 24, 2017 4:57 pm

      Spot on mothcatcher. They would also need to establish a valuation of “dispatchability” for each technology.

    • Rowland H permalink
      March 24, 2017 6:19 pm

      Whenever government legislates to force an economic outcome. the long term effect will be equal and opposite to that intended. (Newton’s Law of government regulations)

  3. Ex-expat Colin permalink
    March 24, 2017 3:14 pm

    VAT should not exist on essential services/products. Same with other added taxes

    • March 24, 2017 3:21 pm

      VAT is an EU tax so we’ll have to see if it’s retained after Brexit, or if something else replaces it (seems likely as EU law governs VAT).
      – – –
      General point: recent price increases have a lot to do with the sharp fall in the sterling exchange rate since the Brexit vote. But there are also some crazy surcharges as has been pointed out.

  4. March 24, 2017 3:17 pm

    Any guess what retail energy prices are like in the countries that dominate CO2 emissions?

  5. March 24, 2017 3:29 pm

    Emily now of Times writes about new DSR subsidies
    Last year corps were paid £22.50 for each KW hour was switchable
    ..but when they were cut they jut switched on generators
    2017 it will be £45, but you must really switch off
    Total of 312MW so costs 312,000 x 45=£14m
    which seems very very small
    – But But in the power guarantee contracts the suppliers were paid just £7 per KW
    so why bother with any DSR when you can cover it all much cheaper by subsidising 1/3 of a power plant ?
    It don’t really understand how they price per KW instead of KWh, cos to the biz it makes a big difference if power is cut for 100 hours/yr compared to 10

    but in a 50GW market the DSR is about 1/150
    ..that seems absolutely tiny.. surely they can manage more than that like closing whole factories/government offices for a whole day etc.

  6. Dung permalink
    March 24, 2017 4:27 pm

    Leaving the EU will have no effect on our climate regulations; all EU law will bnecome UK law plus the Climate Change Act is still in force. This is now driven solely by Sustainability and the need to conserve resources (as you all know: this theory of Thomas Malthus has been disproved many, many times but tell that to our inbred and UN loving governments).

  7. Jack Broughton permalink
    March 24, 2017 4:48 pm

    Just think, if we could move back before the CCA act and the sainted Gummer, Harrabin and Bawden etc., we would be amongst the lowest cost electricity producers rather than amongst the highest.

    However, part of their evil legacy is accelerating the scrapping of our old, but excellent, coal fired power stations to ensure that energy poverty comes: especially as they have priced out any investment in new plant by excessive subsidies to wind.

    Where are the brains in our government???

    • Old Englander permalink
      March 24, 2017 8:03 pm

      Brains in our government ??? Come now. I worry about the brains of any who really expects that.

  8. March 24, 2017 4:54 pm

    Don’t forget that you can let the government know what you think about its energy policy by responding to pillar 7 of this consultation: https://www.gov.uk/government/consultations/building-our-industrial-strategy

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