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Britain can’t rely on France and Ireland to keep the lights on

September 11, 2021

By Paul Homewood

 

It’s a pity the media did not wake up to these problems years ago, when the policies leading to the current mess were set in motion:

 

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Power prices are soaring. Domestic suppliers are going broke. And blackouts are threatening to close down the economy. You might think that amid widespread labour shortages, the disruption to trade from our departure from the European Union and the still uncertain recovery from the Covid-19 pandemic, the British economy had enough challenges to cope with right now. And yet we are also on the brink of a major energy crisis. Even worse, our increasingly hapless Government doesn’t appear to have a clue what to do about it.

That isn’t good enough. We need a plan for securing our energy supplies, both through this winter and over the next few years. We need to recognise that while transitioning to green energy may be fine in the medium-term we are going to need lots of back-up while that happens. And we need to acknowledge that while competition is all very well, having lots of fragmented, financially flimsy suppliers of energy is not helping anyone. The UK needs to create an energy system that is both stable and secure – because power cuts over the winter would be catastrophic.

It is only September, and already the supply of gas and electricity over the winter looks perilous. Just take a selection of headlines from the last week alone. Ireland has frozen power exports to Britain after unpredictable weather sparked a squeeze on supply.

We have had to ask the French to send less power across the Channel after technical problems with a trading platform threatened a surge in supplies. Two energy suppliers, PfP Energy and MoneyPlus Energy, stopped trading after struggling to cope with rising power prices, and a whole string of smaller suppliers may collapse before the autumn is over. Two coal power plants were taken off standby amid soaring prices, while nuclear power, long dismissed as a relic of the 1960s and 1970s, was given a boost as its green credentials were re-evaluated. The list goes on and on.

Energy prices have taken off

Organised? Reliable? It doesn’t sound like it. In truth, add it all up and the supply of power looks precarious. Anyone could be forgiven for deciding it might be wise to have a few boxes of candles in the cupboard in case the lights go out and a really powerful battery somewhere just in case that is the only way to charge up your phone.

Whether the UK stumbles into a major energy crisis remains to be seen. We may just about muddle our way through, as we so often do. But we could be just one supply shock, or a long cold spell, away from real trouble. Any country can manage a power shortage with rolling blackouts, and shortening the week for factories and schools.

They are an everyday feature of life in many countries. But it is not really a club you want to join (the top four countries for blackouts, in case anyone was wondering, are Bangladesh, Albania, Lebanon and the Congo). If it does not get a grip soon, the UK may find itself on the list.

There are two big issues disrupting the market. First, unreliable weather is hitting the renewable energy sector. Next, the domestic market is a mess, with lots of different suppliers, any of which could disappear at any time. So how do we fix that? Here are three places we could start.

First, the UK needs more back-up supply. A huge proportion of our electricity now comes from wind farms. That may well be great in the medium term but while the capacity is being created, we need to make sure there are plenty of alternative sources of supply, and they can be turned on at the flick of a switch. It might come as news to ministers, but the weather is, er, changeable, and always will be. We can’t be left at its mercy. If that means we have too much capacity, and we are paying for plants that sit idle most of the time, then so be it.

Green power is rising – but has its limits

Next, we need to reform the regulation of energy suppliers, and restructure the way the market works. There is nothing wrong with the concept of having lots of resellers. It introduces an element of competition into what otherwise would be natural monopoly and should improve customer service and bring down prices as well. But right now we have more than 60 players in the market. A choice of four or five would achieve the same results and larger companies would be a lot more financially stable, and easier to monitor. There is a difference between competition and chaos, and we have opted for the latter.

Finally, we need to build both resilience and self-reliance into the system. It is fine to trade power across the English channel and the Irish Sea. Especially with renewables, different countries can produce at different rates, and times, and trading to even out supply and demand makes a lot of sense. But energy is not exactly optional for an economy or, come to think of it, for the country. In a crunch, the UK needs to be able to generate its own power – and not rely on others.

With labour shortages, Brexit, and the recovery from Covid – the very last thing the British economy needs right now is power cuts. Our economy already has a very 1970s-feel to it: taxes are rising steeply, inflation is looking ominous, the unions are restive, and public spending is out of control. No one wants power blackouts and three-day weeks to complete the picture.

In reality, the Government needs to come up with a strategy right now for fixing the market, and making sure power supplies keep flowing – after all, it is going to be a heck of a lot harder to do that by candlelight.

https://www.telegraph.co.uk/business/2021/09/11/britain-cant-rely-france-ireland-keep-lights/

Matthew Lynn is wrong on one point, when he says:

“We need to recognise that while transitioning to green energy may be fine in the medium-term we are going to need lots of back-up while that happens”

In reality the more renewable power that gets added, the less reliable the system will become and the more back up will be necessary.

And it’s not clear where he thinks this new back up will miraculously appear from. At the very minimum, he should be demanding:

  • An immediate suspension of coal power plant closures, if necessary aided by subsidies.
  • An immediate suspension till further notice of CfD auctions. If wind farm operators want to build new farms, let them do so without guaranteed subsidies
  • A “intermittency surcharge” to be imposed on wind and solar power, so that they pay the cost of providing standby power
  • A rule insisting that all new wind and solar plants include sufficient storage to supply nameplate capacity for, say, one week
  • Abolition of carbon pricing, which has distorted market mechanisms, and is largely responsible in Europe for the massive rise in energy prices this year.
  • Immediate suspension of moves to electric cars and heat pumps
  • Abandoning strategic plans which rely heavily on imported power, and replacement with plans which prioritise the provision of sufficient, reliable home grown power.

These problems have been building up for years. Mr Lynn’s fiddling around at the edges will make little difference.

79 Comments
  1. Vanessa permalink
    September 11, 2021 2:10 pm

    we already rely on Russia to keep our boilers working and our lights on – just wait until we have to rely on China for the same ! My God life will be different in Britain then. No amount of sun and wind is going to keep this country warm and well lit. We need to wake up to this “socialist dream”.

    • September 11, 2021 2:43 pm

      We don’t get any gas from Russia. Mainland Europe does.

      • It doesn't add up... permalink
        September 11, 2021 4:11 pm

        We do get gas from Russia – as LNG. Over 26TWh of it in the first six months of the year, though at the moment the tankers are busy delivering to China, Japan and Korea before the Arctic route closes for the winter.

      • September 11, 2021 4:37 pm

        In 2020 we imported about 12% of our LNG from Russia. Compared to total imports not a huge amount, I suppose. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1006628/DUKES_2021_Chapter_4_Natural_gas.pdf

      • Mike Jackson permalink
        September 11, 2021 6:21 pm

        We do but we could get a lot less if we fracked our own!

      • MikeHig permalink
        September 12, 2021 4:00 pm

        While true directly, our supplies are indirectly influenced by the massive supplies from Russia to Germany. Without them, there would be brutal price competition for supplies from Norway and Holland. Imported LNG would be the price cap – many times pipeline prices.

  2. It doesn't add up... permalink
    September 11, 2021 2:18 pm

    I note that the bmreports website has been suffering outages and reporting glitches (also affecting other sites that feed off it like Gridwatch). I hope they can see what’s happening in the control room, but you almost get the impression they’ve flying half blind. Even the frequency data are missing.

    • GeoffB permalink
      September 11, 2021 5:51 pm

      I noticed it as well, I take a snapshot of the summary most nights, and it looks like the graphs changed the next day, lowering the price. It is dropping out every 30 minutes which is the settlement period….. does not inspire confidence.

  3. September 11, 2021 2:21 pm

    Say ‘NUTS’ to all the green crap, and re-open some coal-fired power stations. Problem? what ‘problem’?

    • September 11, 2021 6:44 pm

      Only three left in the UK, that’s one problem. And one of those is due to close in a year’s time.

      https://www.powerstations.uk/coal-countdown/

    • dave permalink
      September 11, 2021 6:52 pm

      “…reopen…”

      ???

      The U.K. establishment made it a primary object to smash them into smithereens, precisely so that will never, ever, happen. Until it is time to have a crash program and extort squillions out of a desperate sheeple, to rebuild them..

  4. David permalink
    September 11, 2021 2:32 pm

    Power cuts are inevitable this winter. That should wake people up! Just imagine the cold meals and the colossal waste of frozen food. Generators will be unobtainable and where are all the candles we are supposed to use coming from? Four candles? No way!

    • Harry Davidson permalink
      September 11, 2021 4:01 pm

      I have been thinking about that. Are you sure that power cuts are inevitable? What do others think?

      • September 11, 2021 4:43 pm

        Harry

        It depends on the weather this winter. If we have a typical high sitting over us giving low cloud cover, no wind and cold day and night then the renewables won’t be working.

        Assuming industry is working and people are turning up their heating then yes it is inevitable.

        An unknown quantity are the numbers working from home.

        If their offices are still heated but the workers are in their homes with the heat turned up all day instead of just the evening when they would normally get home and they are busy boiling kettles then the likelihood of a energy shortage and power cuts becomes greater.

        If we have a warmish winter with decent amounts of wind and sun then it may be averted.

      • Martin Brumby permalink
        September 11, 2021 5:36 pm

        Harry,

        If you live south of Watford Gap and East of Basingstoke, I would anticipate that you’ll be fine. Our Beloved Leaders will at least have made sure of that.

        Anywhere else? Obviously depends on the weather ( not the Climate)

        But get ready.

      • Mad Mike permalink
        September 11, 2021 6:07 pm

        I thought the crunch would come in a couple of years but it seems that things might go pear shaped before then. I’m glad I haven’t got a smart meter but have been thinking of getting a generator. Anybody got any tips on type capacity etc? It’ll have to be quiet. I live in a 5 bed detached house but close most the rooms down during the winter as there’s only 2 of us, unless we have guests of course.

      • Harry Davidson permalink
        September 11, 2021 6:25 pm

        @Mad Mike: Generators is exactly why I am asking. My thinking is enough Watts to keep the fridges going plus CH pump, hall light, one room lights, TV, and one cooking appliance (inc kettle). I would also go for petrol not diesel. That isn’t that much power these days.
        I think petrol is better for occasional use, but I would want something that could run for days if needed.
        One question I have not resolved is how long the exhaust pipe can be so I can make it fixture in the back of my garage with a flexible pipe out of the wall.

      • September 11, 2021 6:48 pm

        Power cuts are the last resort. Before that there are the voluntary (paid for) agreements with various commercial users to stop using, or use less, power at critical times, and some other measures (STOR etc.)

      • It doesn't add up... permalink
        September 11, 2021 8:55 pm

        E10 petrol has a short shelf life. Either you regularly use it up when you refill your car, or you choose a different fuel. Of course a 5 gallon/20 litre can won’t last all that long anyway.

      • Adam Gallon permalink
        September 12, 2021 5:19 pm

        Mobile bars often use propane gas generators. They’d run happily all day. Diesel ones seems popular too.

    • Graeme No.3 permalink
      September 11, 2021 9:47 pm

      @Mad Mike:
      There are cheap generators and very quiet ones, the latter tending to be more expensive as from Japan e.g. Honda, Yamaha. If going for a larger generator (3.5kWh or more) look for one with an electric start (from internal battery). Not necessarily needed. The size with depend on your intended usage but also the starting load e.g. if starting a heat pump your start-up usage surge will be far higher than when it is running (3-4 times).
      An alternative is a smaller (cheaper) generator with a large battery (and NO, I don’t recommend a Tesla which you shouldn’t have indoors anyway) which accommodates power demand surges. Deep draw type.

      Diesel tends to be harder to start than petrol ones, but petrol ones should be run for a short time regularly (about every month) as petrol can “go off” (gets viscous).
      You will need to have a means of isolating your house from the grid when you want to generate. Standard type connection by electrician (a couple of switches in your fuse box). That avoids power going back into the neighboorhood lines during blackouts (i.e. cable breakage) in case there are workmen.

      @Harry
      Exhaust pipe – don’t make it a small diameter and cause back pressure. How long is the exhaust pipe in your car? May be a guide. An electric kettle may need about 2 kWh supply, unless you get one of the new EU types which use power at a lower rate (but more overall as they take far longer to get to boil).

      • Harry Davidson permalink
        September 11, 2021 10:44 pm

        Graeme No.3; Fridges and freezers are the most tricky items, in that they take a short burst of power when the compressor starts up. Once it’s running it’s not that much. But I haven’t measured it for a few years, so perhaps the new ones are better.
        I have a power meter that I will use to check it all (except the hob, because that’s wired in).
        I did email a generator supplier re extended exhaust hose, but I got no reply. As you say, if it’s a reasonably wide pipe it shouldn’t matter.

      • Graeme No.3 permalink
        September 12, 2021 2:25 am

        Harry D.
        Heat pumps (or air conditioners ) similar. Startup demand around 5.5 kWh and running below 1.5kWh and that was an inverter modified unit. Initial demand was usually met by the normal household supply as it was brief.
        How about a car exhaust pipe from a car wrecking yard?

      • Duker permalink
        September 12, 2021 3:00 am

        heat pumps are much much lower startup than that…Inverter ones anyway.
        peak might be 1.5kW which falls to 600W. Thats warm air inside ones.

        Hot water heating ones have different profile as the water is needed to keep hot all the time so they are using inverter tech to run slow and low draw.
        Sticking with gas is still better

      • September 12, 2021 6:32 am

        Mine is an LPG Honda generator.

      • Michael permalink
        September 12, 2021 7:43 am

        E10 can have its ethanol removed using water and food dye have a look on YouTube. Bit of a hassle, makes it more expensive per L but at least it can be stored for emergencies

      • Mad Mike permalink
        September 12, 2021 12:19 pm

        Thanks for all the comments everyone. Any thought on LPG generators?

      • GeoffB permalink
        September 12, 2021 3:13 pm

        Fridges and freezers are a problem, I have had a so called 1.6kW petrol generator for 15 years, used in anger only twice when local cable faults cut the power for 4 hours and 12 hours. I have to manually get it set up which takes about 40 minutes. By then the fridge and freezer are both wanting power and it cannot handle the two cold load inductive switch on surges, it just struggles with about 150 volts and the appliance just buzzes, the motor is stalled, a bad situation, so I make sure to switch them both off at the mains before putting the generator on, then switch them on individually. It does them (as long as they dont switch on at the same time) gas boiler, lights and TV, NO cooking appliances, use gas, a camping stove if you are all electric. Diesel generators are twice the price of petrol, but you can get duty free red Diesel but not petrol, so for regular use a Diesel is cheaper to run.

  5. Gamecock permalink
    September 11, 2021 2:50 pm

    After government mucks everything up, the Left’s solution is . . . wait for it . . . MORE government.

    I was especially amused by Lynn’s assertion, “we need to make sure there are plenty of alternative sources of supply, and they can be turned on at the flick of a switch.”

    And this: ‘A huge proportion of our electricity now comes from wind farms.’

    No, not really.

    I suspect that he has no knowledge whatsoever of the power business, but that doesn’t stop him from telling us how it should be run.

    • Robert Christopher permalink
      September 11, 2021 5:19 pm

      A huge proportion of our electricity generating capacity now comes from wind farms.

      And THAT is something quite different!

      It been a couple of decades in the making, at least, and so many knew the problem but were ignored, or worse!

      And heat-pumps, no matter what type, aren’t much use without electrical power.

      And your last paragraph is still true!

  6. Penda100 permalink
    September 11, 2021 2:52 pm

    Where has Matthew Lynn been for the last decade? Chris Booker was pointing out the consequences of the Renewables insanity in his columns in the Sunday Telegraph for many years. Still better a sinner that repents rather than AEP who continues to believe all things Green and Renewable – no matter how stupid and uneconomic. And if Matthew Lynn thinks any government can expect to be re-elected in a country experiencing frequent rolling power cuts and blackouts, he must be thinking of all those nice third world places that haven’t quite got round to democracy.

  7. It doesn't add up... permalink
    September 11, 2021 2:53 pm

    Of course we don’t normally rely on Ireland to keep the lights on. It’s usually the reverse: they tend to be short of electricity at much the same time as we are, for the same reason – no wind – and we have to import extra for onward transmission to cover their shortage. They get surpluses when the wind blows, but it’s usually blowing here too, so we can reduce our imports from the Continent, or cut back on other generation with no risk of blackout.

    But this time the Irish understood that we had maxed out our imports and were in danger of running out of spare capacity that could mean we bid supply out of Ireland and left them with the blackout. So they issued a notice of no export availability. Note that this one is within the UK!

    TSO not facilitating NI to GB flows for operational security reasons due to generation shortfall in the SEM

    https://www.bmreports.com/bmrs/?q=remit/2021090706000001-ELXP-RMT-20210907/1/SONILTD

    And here’s one (of several) messages for the E-W link to Eire

    https://www.bmreports.com/bmrs/?q=remit/SEP2021-23456789-ELXP-RMT-23456789/2/EILIA

    Presumably in the event of shortages on the Continent we could see similar notices applied to any or all of our interconnectors. I know John Redwood is alive to the risk. But Kwarteng, or Boris? I doubt it.

    • September 11, 2021 6:58 pm

      A Norway interconnector is due to start operating next month. It won’t by any means be the last with Europe.

      As Britain battled record electricity prices last week, power continued to flow along the 720km new cable between Blyth in Northumberland and Kvilldal in south-east Norway.

      Officials were testing the North Sea Link that plugs Britain into Norway’s hydropower-rich electricity system, which should be able to supply up to 4.2pc of the UK’s electricity demand once fully up and running in October.

      https://www.telegraph.co.uk/business/2021/09/11/power-struggle-europe-uk-grid-struggles-keep-lights/
      – – –
      Of course all this doesn’t come cheap.

      • Harry Passfield permalink
        September 11, 2021 8:40 pm

        IOW, if the UK could generate all its own electricity it would be cheaper than having to rely on an interconnector?

      • It doesn't add up... permalink
        September 11, 2021 8:45 pm

        Well indeed there were testing it. In export mode at up to 1.4GW during a period of soaring prices in the UK market. You get the impression National Grid want to see these crazy prices. OTOH, seeing the ISEM denying them any supply must be unsettling, if only for the example it sets.

      • Phoenix44 permalink
        September 12, 2021 9:01 am

        Does it not? Isn’t Norwegian hydro cheaper than gas?

      • It doesn't add up... permalink
        September 12, 2021 11:38 am

        Norway has greatly increased its levels of interconnection, opening 1.4 GW to Germany at the end of las year, on top of 2 connections to Denmark and 1 to the Netherlands. The result is that its prices are now determined by its neighbours, despite hydro being low cost. Low prices now happen only if there is a wind surplus in Europe that allows them to import and stop some of their generators. You can see the effect of the new German link in this chart.

        https://datawrapper.dwcdn.net/VyrHt/3/

        Last year, before the German connection while demand was abnormally low and with a good level of snow melt, Norwegian prices were very low. This year the snow melt was much less, and they won’t have much to spare for export over the winter. Indeed, they may need to be a net importer, particularly when it gets cold and demand soars.

    • Mewswithaview permalink
      September 11, 2021 11:01 pm

      Ireland currently has 2 gas plants off-line and the shortage of wind this year has left the country dependent on the inter-connectors from the UK.

      Cork and Dublin power plants to reopen this winter in plan to avoid rolling blackouts
      https://www.irishexaminer.com/news/arid-40362656.html

      The nameplate wind capacity for the entire island (i.e. including NI) is just over 5000 MW and wind output has regularly been under 100MW since May 1st this year.

      The medium term game-plan is to build a 700 MW HVDC inter-connector to France over 500KM long and put wind turbines offshore on the South-West coast to supply wind generated power to France – economics of that – well you can only sell power when it is needed and when you can generate it, otherwise as the Germans have discovered you end up giving it away or even having to pay people to consume it. During peak demand the reliable power operators can jack up the prices so as well as having to pay the costs of constructing and maintaining a long cable, us consumers here in Ireland are getting shafted.

      Another big power consumer here are data centers (Microsoft, Amazon, Google, Eqninix, Facebook and others). . EirGrid expects data centres to account for 15% of total energy demand by 2026. And the lunatics are pushing electric cars and the Government’s Climate Action Plan will ban the installation of oil boilers in new homes from 2022, and of gas boilers from 2025.

  8. September 11, 2021 3:04 pm

    Burn coal and feed the starving plants.

  9. Old Grumpus permalink
    September 11, 2021 3:40 pm

    Stand up for the trees!

    https://www.redbubble.com/i/sticker/co2-is-good-for-trees-by-AsKartongs/43102083.EJUG5?

  10. Ian Wilson permalink
    September 11, 2021 4:04 pm

    At risk of duplicating a post of a few days ago, an obvious step would be to resume fracking and give ourselves some self-sufficiency. It won’t happen because of loss of face and because Carrie won’t like it.

    • Colin R Brooks AKA Dung permalink
      September 11, 2021 7:09 pm

      Absolutely!
      The government claims that fracking was halted due to the risk of damaging earthquakes, I can prove that this is not true. Our shale gas dep[osits are large enough to supply the whole of Europe (for a very long time), I can prov that this is true and I sent all my evidence to the BEIS, the government did not disute my evidence, they simply told me that the government will not change its policy. Welcome to democratic, honest government.

      • Harry Passfield permalink
        September 11, 2021 8:43 pm

        Ah… MGBGA!
        I’d settle for that.

  11. John Hultquist permalink
    September 11, 2021 4:12 pm

    Smart phones with a dying batteries may be the thing that produces an agitated population.

    First, unreliable weather is hitting the renewable energy sector.
    I also think the phrase “unreliable weather” is odd in a country at the upper-mid latitudes.
    If in Singapore one might expect reliable weather.
    Because governments (what could go wrong?) decided they needed to be fixing a non-problem, they will soon own the entire mess.

    • September 11, 2021 10:21 pm

      Well, they couldn’t blame *climate change* could they? 😉

  12. September 11, 2021 4:45 pm

    We all knew this about power supplies at least ten years ago when there was still time to fix things. We need more grown up power stations, but they take many years to put in place especially if they are nuclear power stations which the greens seem to now realise are the only non fossil fuel base power that will be possible.

  13. Ben Vorlich permalink
    September 11, 2021 5:08 pm

    I think this

    “A huge proportion of our electricity now comes from wind farms.”

    is a bit off the mark. If you follow gridwatch one thing you notice is that most of the time renewables don’t supply a huge proportion of our electricity.

  14. September 11, 2021 6:51 pm

    The failure of electricity suppliers is a red herring, given too much prominence in the article. These electricity companies only do the trivial business of sending people bills, and collecting payments (and dealing with those who can’t/won’t pay), this is a fake comedy impersonation of a free market (somewhat like rail franchising), but it has served the govt well in distracting blame from themselves for rising prices.

    • Jordan permalink
      September 12, 2021 12:11 am

      Disagree. Electricity and Gas Supply (the role of Licensed Suppliers) is an incredibly risky business, demanding a rock solid credit rating and huge cash reserves.
      Suppliers have customers who expect power and gas to be supplied at customer’s option (on the flick of a switch) and at a known price. Many suppliers have failed to understand their costs and risks, and this should tell you something. Nobody wilfully works hard to lose money.
      Common sense should tell you this is not “trivial business”, or a simple task of “collecting payments”.

      • Duker permalink
        September 12, 2021 3:06 am

        The generators supply the power, the grid delivers it.

        Its immaterial who the retailer is – who collects the money to pay the rest, their only job and the power is still there if the retailer goes bust.
        Thats were you were incorrect. The company reading the meter is immaterial to say a homeowner.
        The lights only go out when the grid and local lines fail or the combined generators dont generate enough

      • Phoenix44 permalink
        September 12, 2021 8:55 am

        Where’s the massive risk? It comes only from mispricing fixed term contracts with customers when you have variable price supply agreements. Otherwise its a simple pass-through. Anybody with half a brain or more hedges that risk or doesn’t take it in the first place.

        I suspect the failures are run by people who believe the propoganda about renewables being cheaper and so thought fixed prices for customers would be money-making as supply costs would fall.

      • Jordan permalink
        September 12, 2021 10:49 am

        Duker and Phoenix. I’m afraid you don’t understand the costs and risks of electricity and gas Supply (Licensed Supplier) in the UK.
        You are not alone. Many companies have entered the market with flawed business models because their owners did not understand the nature of the business.
        The big and boring Suppliers are the ones who understand their businesses and set prices at a level which sustainably cover the future costs and risks of Supply. If you want to gauge the efficient (reasonable and sustainable) costs of electricity and gas supply, just take a look at Centrica’s tariffs.
        A Supplier who discounts against these either has an unsustainable business plan (gonna go bust), or it is just about to increase its prices to fall into line with the efficient level.
        The true costs of Supply are certainly not just commodity costs of purchasing at wholesale prices and operating a billing system. You can try that for yourself, if you have an appetite to lose a stack of cash.
        Costs include a significant overhead associated with trading and commodity risk management in order to provide a packaged tariff to the market (essentially a volume option for a fixed price for an agreed period of time). Trading and commodity price risk is a key element of the business of Supply, and companies live or die on the strength of their counterparty credit rating. This doesn’t come cheap. In addition to trading, the costs of Supply include significant regulatory burdens associated with operating a Licensed Supply business.
        Suppliers will fail when they cannot trade (inadequate counterparty credit standing) or when they don’t collect enough cash to underwrite their regulatory burdens (we have seen that happen too).
        Supply is not a trivial business. It is not a matter of reading meters and sending bills to customers. This seems to be a common misconception. The experience of many businesses who sought to enter the Supply market and subsequently failed should be telling you something.

      • It doesn't add up... permalink
        September 12, 2021 12:21 pm

        The obligations on energy retailers are complex, and increase as they get bigger. They must deliver the smart meter programme or be fined for failing to meet targets, and also assorted green obligations. They have to pay for CFD subsidies that will vary according to how much those generators produce, and which increase with lower market prices.. Success for green generators means higher costs for retailers. They have to match their purchases for every half hour with whatever is imputed as the demand they have supplied, which us calculated retrospectively, or be liable for imbalances at cash out prices, which can get alarming. See the chart I posted showing the huge price surge to over £3,400/MWh while the grid was adding to demand through testing the Norway link in export mode. Individual generators haveen charging almost £5,000/MWh to increase supply at very short notice, paid for initially by the grid, but then passed on as a cost to all retailers. Balancing costs last week reached over £33m on a single day – an annual rate of £12bn.

        Without very good credit ratings, counterparties are unlikely to be willing to take a risk on longer term hedging purchases which could lose serious money. Such purchases can in any case lead to losses and bankruptcy, as happened to a number of firms after Ed Miliband famously called for a price freeze just before prices spent the next 2 years in free fall.

    • Gerry, England permalink
      September 12, 2021 11:09 am

      One of the reasons for all the smaller companies is that they are exempt from some of the global warming charges so can undercut the big companies and those who spend loads on tv adverts like OVO, Octupus, Bulb etc. Their problem is that with costs rising rapidly they will be losing money on fixed contracts until they can increase them. I have my electricity deal ending next month and everything will be more expensive this time.

      • Jordan permalink
        September 12, 2021 4:34 pm

        Gerry, the Class A Electricity Supply Licence exemption (Small Supplier Exemption) is available for supplying electricity up to 5MW, with not more than 2.5 MW being supplied to domestic customers. This means license exemption may be available so long as the Supplier stays below around 150 households. As you say, the Supplier would not have the licence obligation to pay for the charges you mention.
        But the Small Supplier exemption is not the basis of a business model to grow a competing Supplier as there is only so much profit to be made from such a small number of customers. To get economies of scale, new entrant Suppliers need to quickly grow to tens- to hundreds of thousands of customers. They will be licensed and pay their share of the charges.

      • It doesn't add up... permalink
        September 12, 2021 4:59 pm

        It’s a lot more complicated than that. For instance

        https://www.ofgem.gov.uk/environmental-programmes/eco/energy-suppliers

        And

        https://www.cornwall-insight.com/smart-export-guarantee/

        Plus requirements to participate in the Balancing Mechanism, etc.

        As these obligations bite, costs rise. The idea was to give smaller suppliers a chance to gain a foothold, but the extra obligations act like an insurmountable fence for those who failed to plan for them.

      • Jordan permalink
        September 13, 2021 12:10 am

        IDAU: “to give smaller suppliers a chance to gain a foothold”
        I’m afraid I don’t see it that way.
        If somebody decides to go into the business of Supply as a new entrant, their business plan will embrace the full licensing regime at the outset.
        For electricity, the purpose of the exemptions are to cater for special circumstances where the burden of licensing would be excessive or impractical. The exemption allows small amounts of power to be sold to customers, with the 5MW cap ensuring that each case is immaterial in terms of the power market. To impose the full licensing regime on these cases would just obstruct otherwise sensible resource sharing.
        The 5MW limit is so small that it doesn’t represent a loophole to the requirement to hold a license in any meaningful sense.
        If anybody wishes to dig deeper:
        https://www.ofgem.gov.uk/energy-policy-and-regulation/industry-licensing/licences-and-licence-conditions
        https://www.gov.uk/guidance/electricity-licence-exemptions

      • It doesn't add up... permalink
        September 13, 2021 10:57 am

        Kathryn Porter of Watt Logic wrote in 2018:

        It is clear that retail market reform is needed. Since de-regulation, the Government has sought ways to reduce market concentration and the risk of monopolistic behaviours by encouraging new suppliers to enter the market. However, this has come at the same time as de-carbonisation and other environmental policies have arisen, and the choice by successive governments to recover the costs of these from consumers through the bills they receive from suppliers, adds burdens onto smaller suppliers that they are ill-equipped to manage.

        These difficulties are recognised, and so not all environmental and social obligations are borne by all suppliers, but this adds further complexity, with new suppliers needing to assess which obligations apply to them, and when new ones will arise, for example as customer numbers grow. This is surprisingly difficult for suppliers to do, as the number of schemes and requirements is large. The exemptions also encourage aggressive pricing models that become unsustainable as customer levels grow.

        An introduction to some of the schemes:

        Click to access environmental_and_social_schemes_0.pdf

        It is these factors, and also the hedging issue, that make life difficult for smaller retailers. Not being able to hedge is no problem in a falling market: indeed, since large suppliers will have hedged forward they will have locked in a higher cost of supply which makes it easier for a small supplier to compete. However, in a rising market the reverse applies, and smaller suppliers will find themselves paying steep prompt prices with no adequate offsetting hedge profit. Smaller suppliers concentrating on the domestic market suffer from the full volatility of demand from weather that can make hedging even more difficult. Those with industrial customers have less volatility in demand, but of course a large customer gained or lost can make a big difference to their supply position and also the market is more competitive with lower prices (partly because there is not the same level of green obligations that relate to customer numbers not offtake).

      • Jordan permalink
        September 13, 2021 7:46 pm

        Thanks for the info IDAU, I hadn’t appreciated that some of the schemes apply at the 250k customer threshold. And sorry to Gerry for my (incorrect) challenge to his comment on charge phased-in as Suppliers grow.

  15. Joe Public permalink
    September 11, 2021 6:56 pm

    “A “intermittency surcharge” to be imposed on wind and solar power, so that they pay the cost of providing standby power”

    As Prof Dieter Helm recommended 4 years ago in his “Cost of Energy Review”:

    “The FiTs and other low-carbon CfDs should be gradually phased out, and merged into a unified equivalent firm power (EFP) capacity auction. The costs of intermittency will then rest with those who cause them, and there will be a major incentive for the intermittent generators to contract with and invest in the demand side, storage and back-up plants. The balancing and flexibility of markets should be significantly encouraged.”

    [My bold]

    Click to access Cost_of_Energy_Review.pdf

    • Julian Flood permalink
      September 12, 2021 4:18 am

      This is the obvious and sensible answer
      But it doesn’t allow big landowners and big renewable developers, both major supporters of HMG, to stuff their pockets with gold.

      JF

      • Phoenix44 permalink
        September 12, 2021 9:06 am

        It does if they can then pass the cost through to consumers. Consumers should pay the full cost of supply – the fact that government has stupidly made that cost much higher than it should be is the fault of government, not suppliers.

        Keep the blame squarely where it belongs – government policy.

      • dave permalink
        September 12, 2021 11:43 am

        “…blame…government policy.”

        Which includes the belief that Adam Smith’s ‘invisible hand’ must always be slapped away from the steering wheel.

    • Duker permalink
      September 12, 2021 5:56 am

      Howver it means there is so much backup power built which just sits there ‘making money’

      I thought thats the real reason for the big nuclear plant on the Sussex coast partly as a reserve on standby for the French interconnects as the wind generators elsewhere cause grid instability and they need those power flows from France to continue.
      That was part of South Australias blackout cause. The big interstate connector tripped out when the instability from the other end of the state reached that area in milliseconds.

      • Ray Sanders permalink
        September 12, 2021 10:28 pm

        “the big nuclear plant on the Sussex coast” There is no nuclear plant either existing or proposed on the Sussex coast. Where are you thinking of?

    • Phoenix44 permalink
      September 12, 2021 8:58 am

      Shifting the cost from consumers to suppliers doesn’t reduce the costs and if the suppliers can then increase their prices consumers pay just as much. All that happens is that the full cost of renewables is more visible. But who wants that?

  16. Cheshire Red permalink
    September 11, 2021 7:05 pm

    A timely reminder that just about everything this blog and its readers have campaigned about for many years has been proven correct.

    As warned about repeatedly we’re well on the way to Green energy disaster. MP’s, Peers, activists and media outlets responsible for pushing Net Zero deserve jail. At the very least they should face career and reputational ruin.

    In reality none of those responsible for this disgrace will be punished.

  17. September 11, 2021 7:05 pm

    It may require a repeat of 2010 for the lights to go out, thank heaven for “Climate Change”, that winter (and worse) was much more common in the past:

  18. Julian Flood permalink
    September 11, 2021 8:30 pm

    Gas. Low CO2. Readily available from our own resources if the foolish restrictions on fracking are lifted.

    Extend the gas grid. Encourage CNG use for large vehicles. People would readily abandon oil boilers if gas were available. (heat pumps are expensive, energy wasteful toys.)

    Find a Minister for Energy who has a nodding acquaintanceship with science, engineering or technology.

    JF

    • Phoenix44 permalink
      September 12, 2021 9:13 am

      That’s not the problem. We have a Commons stuffed largely with people who see no reason why science, economics or engineering should mean their pet ideas shouldn’t be enacted. And they have convinced themselves they are geniuses whose every vapid opinion is brilluant. The US is worse, Germany and France perhaps marginally better.

      Not for 300 years or more have we had such a small group of people running so much of our lives. And as with the old aristocracy, most are gibbering idiots who couldn’t run an ice cream stall on a busy seafront on a hot day.

  19. cookers52 permalink
    September 11, 2021 10:28 pm

    We are now more vulnerable to extreme weather events caused by climate change, it’s Government policy.

  20. Julian Flood permalink
    September 12, 2021 4:24 am

    Six or seven years ago I told the Minister for Energy and Climate Change that he was playing Russian roulette with the our electricity supplies. He very nearly ran us out of gas in a spectacular display of incompetence. He’s our local MP, one Matthew Hancock.

    I wonder what happened to him.

    JF

  21. Pancho Plail permalink
    September 12, 2021 9:23 am

    EVs might just be a way of providing power to your home when the grid is down. A full battery will give between 20 and 100kWh of supply; my records show my usage peaking at 12kWh per day in January so a satisfactory margin there.
    Just need to make sure that the grid can’t suck it back out for their purposes.

    • Harry Passfield permalink
      September 12, 2021 12:10 pm

      The logic of your argument, Pancho, would equally apply to using ICEs (our cars) as back-up generators (with a little extra technology to transfer the energy) as they are far more prevalent. But it doesn’t happen, does it? I wonder why? /s.

  22. Phoenix44 permalink
    September 12, 2021 9:25 am

    Taking a secure, safe, reliable and relatively cheap system that we all require and rely on and making it none of those things through sheer ignorant and arrogant government policy, cheered on to ever greater stupidity by the opposition.

    Since Thatcher, various PMs have destroyed pensions, schools, universities, the financial system, much of the health system, and now energy – none of which had fundamental problems – whilst doing absolutely nothing about real, serious issues such as housing, the suppression of low-end wages by immigration and the inevitable crisis in care for the elderly.

    The utter and total incompetence visited upon the UK over the last 25 years is extraordinary.

  23. Micky R permalink
    September 12, 2021 9:28 am

    The only accurate model for an extended winter cold spell demonstrates that we run out of gas: “Beast from the East” 2018, which was a short, cooler spell, If it had continued for another week or so then we would have almost certainly run out of gas.

    Only coal and nuclear permits meaningful stockpiling of the primary energy source at the power station to deal with the attritional demands of an extended cold spell.

  24. It doesn't add up... permalink
    September 13, 2021 3:04 pm

    This is starting to get seriously scary now. Tomorrow’s day ahead price on EPEX is £400.11/MWh. December delivery gas has jumped almost 10p/therm to 162.55p/therm. Prices like these will bankrupt small retailers and force businesses on half hourly pricing to close down. If they have generation and export capability of their own they would make more supplying the grid.

  25. Nicholas Lewis permalink
    September 14, 2021 8:56 pm

    Nice the old girls having the last laugh although it should be warning about where we are headed

    https://amp.theguardian.com/business/2021/sep/13/britain-last-coal-power-stations-to-be-paid-huge-sums-to-keep-lights-on-record-energy-prices

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