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Listening to European Electricity Traders Is Very, Very Scary

August 29, 2022

By Paul Homewood

h/t Dave Ward

 

 

 

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Every week, the people who trade electricity in the UK get to quiz the managers of the national grid for an hour. The conference call, which anyone can monitor, offers an insight into what the men and women on the front line of the power market are worried about. Listening to them is getting scarier by the week — and suggests keeping the lights on this winter will be a lot more challenging than European governments are admitting.

Prices are worrying enough. British households were told on Friday that their power and gas bills will increase from Oct. 1 by 80%. The so-called energy price cap was set at £3,549 ($4,189) per year, up from £1,971 over the past six months and £1,277 during last winter.

But the industry’s teleconference suggests the problem is broader than just rising costs. Increasingly, the words “emergency” and “shortages” are being used, with participants focusing on when, rather than if, a crisis will hit. Imagine being able to overhear conversations between Wall Street executives and the Federal Reserve as the global financial crisis unfolded in 2008.

Here’s a question from last week’s session: “Are you war-gaming possible options for if/when cross-border trading collapses under security of supply pressures this winter?” And another: “Can we have a session where we talk through the emergency arrangements?” Another participant said that the forecast for demand-and-supply electricity balance showed “how bad the winter could be for anyone who can do the maths.” The same caller was blunt about the grid’s own predictions: “I don’t think you believe what you’ve written, and nobody else does.”

One intervention was particularly revealing. “Based on where winter ‘22 products are trading, where does this position yourself with respect to securing power over the winter?” asked one participant. The background? In the forward market, UK power for December 2022 is fast approaching £1,000 per megawatt hour, up 50% from current prices. The implication? Power shortages.

Compare the tone with the British government’s insistence that there’s nothing to worry about. “Households, businesses and industry can be confident they will get the electricity and gas that they need over the winter,” Downing Street said earlier this week. “That’s because we have one of the most reliable and diverse energy systems in the world.”

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The weekly call is officially known as the “ESO Operational Transparency Forum,” and allows market participants to query the managers of the so-called Electricity National Control Centre, the hub that moves power around the UK from generators to traders to consumers. The forum typically deals with obscure power-trading problems. But in recent weeks, attention has shifted to crisis management. Another example from earlier this month: “If a system-stress event is active in both gas and power, how do the electricity system operator and gas control center communicate? Which stress event takes priority?” What’s particularly worrying is how few of the disaster scenarios appear to have been planned for.

A key concern is what happens if European countries introduce beggar-thy-neighbor policies by shutting down cross-border electricity flows, as Norway has already said it’s considering. “Please, the market needs to understand more fully how interconnectors are to be used in periods of very high prices and potential generation shortfall,” one market participant said last week.

Another topic is how much consumption might drop if households and businesses can’t afford elevated electricity and gas prices. “What level of demand reduction, demand destruction, are you forecasting for the winter ahead from commercial industrial consumers as a price response?” was one recent example. Another repeated the request: “What demand destruction, if any, is included in your demand forecast for this winter for residential and industry?” The grid managers were unable to supply any numbers to the callers.

To be sure, the call should focus on potential troubles ahead — it exists to anticipate and solve problems. But having listened in on multiple occasions over the last few months, I have three takeaways. First, the looming power emergency is worse than many industry executives publicly acknowledge, and a lot more dangerous than the government admits. Second, high prices are a big problem, but security of supply is at risk, too. Third, time is running out to prepare before temperatures start to drop. 

The manager of the Finnish grid, in a rare example of the kind of transparency that’s badly needed, told citizens earlier this week to prepare for shortages this winter. European governments have a duty to come clean with their voters about the magnitude of the coming crisis. Minimizing the scale of the problem or, worse, pretending there’s not an issue, won’t keep the power running this winter.

https://www.bloomberg.com/opinion/articles/2022-08-26/european-energy-crisis-listening-to-electricity-traders-is-very-very-scary#xj4y7vzkg

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While we can blame Russia for the current gas supply problems, the real cause of this looming disaster has been the government enforced shutdown of most of our coal generating capacity during the last decade:

 

 

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https://www.gov.uk/government/statistics/electricity-chapter-5-digest-of-united-kingdom-energy-statistics-dukes

42 Comments
  1. Thomas Carr permalink
    August 29, 2022 11:03 am

    Precisely Paul . A largely self inflicted wound. Hope the traders can get the managers to admit successive UK governments culpability. Some hope but maybe the newspaper publishers are emerging from their sloth on the matter. Sonambulism at its worst.

  2. Martin Brumby permalink
    August 29, 2022 11:11 am

    “While we can blame Russia for the current gas supply problems, the real cause of this looming disaster has been the government enforced shutdown of most of our coal generating capacity during the last decade:”

    Quite right. And a special mention for our Beloved Leaders rush to blow-down coal powerstations rather than to ‘mothball’ a few, just in case.

    But it would be wrong not to mention Sunak’s recent statements on the ‘Rise of Lockdown’. Personally, I wouldn’t trust him (or Truss) with a pound to buy me a packet of Polos from the corner shop, these statements confirm the bleeding obvious fact that no-one could be arsed to carry out even a back-of-a-fag-packet cost-benefit analysis. Or even to suggest one.

    As Covid has, to all intents and purposes been ‘Climate Crisis’ on speed, this doesn’t bode well for the future.

    And I repeat my comment on another blog:- (from memory)
    It is thue that Vlad the Big Bad Wolf is a naughty and rumbustuous fellow. But do not the hubristic little pigs who built their houses of straw or sticks (whilst seriously warned by bricks’ piglet), deserve some blame?

    • Nigel Hill permalink
      August 29, 2022 3:59 pm

      We were meant to learn the lesson from Matthew’s five foolish virgins.

  3. Derek Wood permalink
    August 29, 2022 11:17 am

    The root cause of the crisis summed up in the final paragraph. So it’s all been predicated on what has essentially become a new religion. Stupidity.

    • Robert Christopher permalink
      August 29, 2022 11:35 am

      You are letting them get away with too much. Stupid people avoid blame, because they are stupid.

      For the promoters of NET Zero, it is Ignorance, Arrogance, and Indifference.

      Ignorance of their own ignorance of the dubious Science behind the Climate Emergency. There is NO EMERGENCY, just a concern at the lack of rigour and open discussion.

      Arrogance that Intelligence is a substitute for Knowledge and Experience. It is not.

      And Indifference, indifference to everyone else that will be worse off, and to the damage that the resulting lack of trust will cause, especially in the Sciences, in Education, the Legacy Media and, of course, Politics.

      • Phil O'Sophical permalink
        August 29, 2022 12:48 pm

        You are effectively coming to their defence by conjuring excuses (Ignorance, Arrogance, and Indifference) none of which holds water, avoiding the ‘hidden in plain sight’, Occam’s razor, answer. If it was just one country, well perhaps. But to see the same irrational and totalitarian policies applied worldwide by all political persuasions and in lockstep – they even smugly called their plan Lockstep – shows it to be an imposed, meticulously long-planned, deliberate policy.

  4. Robert Christopher permalink
    August 29, 2022 11:20 am

    “… the real cause of this looming disaster has been the government enforced shutdown of most of our coal generating capacity during the last decade”

    Yes, and the supporting role by the BBC to ensure the Green Agenda, with its implied narrative of the Climate Emergency, continued to ‘progress’ and infiltrate the schools, the rest of the educational establishment, legacy media, the NHS, the CoE, the quangos, the rest of the public sector and the HR departments of the corporates.

    The rest of us didn’t have the spare cash, the spare time or lack of Common Sense.

    • mjr permalink
      August 29, 2022 2:01 pm

      and if you need a reminder of how bad BBC are, this morning as part of the BBC2 news at 9am they showed their regular “Weather World” programme – 9.30-10.00.
      30 minutes of climate change lies and panic. the fires – climate change, the current pakistan floods – climate change. Interview people from Grantham institute – check. Interview climate scientist from East Anglia uni – check.
      Show misleading graphs – check. etc etc

  5. August 29, 2022 11:21 am

    Paul some HTML didn’t come out above
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  6. August 29, 2022 11:34 am

    We have been warning about this impending disaster for years. Blackouts mean a third world country.. Get your home generator ready.

    • Ray Sanders permalink
      August 29, 2022 1:52 pm

      Something to remember for those taking the precaution of a generator. Although your gas boiler (combi mainly) will be plug ended, if you simply plug it into a generator it will NOT work….it will try to start then lockout and put up an error code indicating no flame present. Same will happen if you are using a battery with inverter set up.
      The boiler ignition and flame detection system requires the mains earth (ground) system to detect the flame is alight. Portable generators and inverters have “floating earths” (not some Gaia term!) and the boiler will not operate on this. You basically have to create a new earthing system run across the neutral and earth from the generator. I achieve this on my generator (which has 2 socket outlets) by having a plug with the earth and neutral strapped together with a earth wire run into the back box of a mains socket and plug this into socket 2. Works for me but don’t try this at home if you are unsure as you can readily kill yourself! Otherwise get an electrician to fit a manual transfer switch and sort out the earthing.

      • Dave \ permalink
        August 29, 2022 6:16 pm

        I discovered this when I setup a small inverter & battery to run my central heating. I was particularly surprised considering my boiler is some 20 years old! I could well understand it with the latest microprocessor controls, but all the circuit board contains is basic analogue components. Like you I’ve linked earth & neutral, but also have a 3 position, double pole changeover switch to keep the backup isolated from the mains when in use.

      • Mikehig permalink
        August 31, 2022 4:10 pm

        Ray, thanks very much for this advice.
        I’ve been noodling around ideas using a deep-cycle battery, inverter and charger with zero awareness of this little wrinkle which would have stymied my plans.

  7. August 29, 2022 11:36 am

    There is something about the situation I don’t get
    In 2019 the grid is getting its gas mostly from UK gas fields, Norwegian etc.
    Plus bit of coal from coal mines , then add in nuclear and intermittents

    2022 The grid is probably is 95% getting its fuel from the same places
    eg the same British Gas or Equinor gas fields
    which pretty much have the same extraction costs
    (of course corps should be able to win from rising market prices
    just as they lose in bad years)

    Yes I get it that the 5% that comes in off last minute buying on the spot market cost a fortune.

    But if we were living in old time communist Russia or China the grid would work the same in 2022 as it did in 2019
    (of course Nationalising industries is a bad thing that usually screws them up)

    • It doesn't add up... permalink
      August 29, 2022 12:42 pm

      You are forgetting that in winter we were importing consistently on the interconnectors every time the wind dropped (and often even when it didn’t). In 2019 and 2020 gas was cheap: there was a global surplus of LNG so running gas stations even when coal would have been cheaper still meant that green subsidies were affordable.

      Two winters ago we started getting the warnings about inadequate generating capacity to meet peak winter demand. Since then we have closed coal and nuclear capacity, and seen CCGT close in bankruptcy. BEIS were unable to secure the capacity they bid for in the capacity market auction for the winter. In any event, it assumes that we can import on interconnectors and that at least some wind will be blowing.

      The French nuclear problems have seen them become major importers instead of exporters. Other EU countries are faced with shortages due to gas constraints. When we have Dunkelflaute we will be in a bidding war for who gets the blackouts. If we lose, we pay to keep the lights on in France with even more blackout. If we win the price will be £1bn a day just for the imports.

      Markets are currently feeling for prices at which sufficient demand is destroyed to balance available limited supply. Alternatively that can be achieved by quota: blackouts and three day weeks. Shack up with the neighbours to share a heating bill. Share a bath.

    • Phoenix44 permalink
      August 29, 2022 10:33 pm

      What’s cost got yo do with price?

      This is the allocation of scarce resources via price.

      If you were living in the USSR or China there would have never been adequate supply but the absence of a price mechanism prevented additional supply entering the market to meet demand.

  8. August 29, 2022 11:37 am

    Running an electricity grid on the basis of unproven climate theories and vague assumptions about future global economics was always asking for trouble, and here it is.

  9. August 29, 2022 11:41 am

    Radio 4 9am Sunday they had Dale Vince the PR man on with a magical thinking solution
    “Britain makes 50% of the gas it needs in its North Sea.
    We allow global commodity markets to set the price, which had gone up 5-10 fold
    … So we should have a price cap on North Sea gas
    … which would collapse its price’“

    Dale’s plan isn’t without merit
    but #1 the idea our import price will fall greatly is wishful thinking

    #2 Why should North Sea gas producers just make a 2% profit ?
    what about all the years they made big losses
    Dale says that also the corps should be compelled to keep this years production at the same at last years

    BTW Dale MAKES gas in farm digestors ..shouldn’t be limited to old market price ?

    • It doesn't add up... permalink
      August 29, 2022 12:52 pm

      Gas production has recovered a bit from the lows of last year’s spring. They came about precisely because the gas price collapsed in 2020, making maintenance and development unaffordable. Production is slated to decline next year because there’s nothing new in the pipeline until Jackdaw in 2025. Carney and Dale and Kwarteng and the zeroes are to blame for that.

      • Phoenix44 permalink
        August 29, 2022 10:35 pm

        But note that despite the gas price falling substantially, we didn’t get a reduction in electricity prices because renewables set a floor price.

        Yet another cost of renewables.

  10. August 29, 2022 11:44 am

    2018 in an article by Frack Free United (founded by Cllr Steve Mason, a director of several renewable companies….)
    ‘Russian gas doesn’t affect the UK’
    .. screenshot https://pbs.twimg.com/media/FbEQpPGX0AA10T-?format=jpg&name=orig

  11. August 29, 2022 11:59 am

    2019 Mark Carney told us

  12. Coeur de Lion permalink
    August 29, 2022 12:15 pm

    But surely we have our windmills?

  13. August 29, 2022 12:42 pm

    My two cents. With the advent of smart meters, wouldn’t it be wise for all the greenies who want “green electricity” have a mechanism in their smart meter that aligns with the amount of green energy produced upstream, i.e from windmills or solar panels and when the amount produced by these such devices is all consumed then the greenies with their smart meters get no more electricity.

    • August 29, 2022 1:13 pm

      True Greens surely wouldn’t want to consume electricity from the grid when any of it was contaminated by power generated by fossil fuels?

    • Jordan permalink
      August 29, 2022 5:53 pm

      Putting aside the question of how to link supply to demand, I’d like to buy my power from coal-fired generators, priced at the cost of coal fired generation. The Government isn’t prepared to leave me alone to do that. That’s how much choice I have in this supposed “market”.

      • keith permalink
        August 30, 2022 4:45 pm

        Good point – you would think there would be several million people of similar leanings. If we’d have each chucked in £1000 or whatever, could we have “crowdfunded” keeping Ferrybridge or something open a bit longer? Maybe Kellingley colliery also… we would be in profit already

  14. August 29, 2022 12:51 pm

    System Black is the really scary scenario, in which the entire grid goes down, prepare for a week without electricity, and don’t go out at night.

  15. Realist permalink
    August 29, 2022 12:59 pm

    Not only the government enforced shutdown of coal, but also the same enforced shutdown of nuclear.
    But it’s not only electricity where European politicians are obsessed with either banning or taxing out of existence what the market needs and wants and actually works..
    The UK cannot even blame the EU any longer.

  16. GeoffB permalink
    August 29, 2022 1:36 pm

    I just listened to the one held on 24th August, and the graphs are the previous weeks demand, the lack of wind power is very clear and also just how low our electricity use actually is, which i am sure is not due to replacing all our light bulbs with LEDs, but simply a downsizing of industry, with the loss of jobs. There was then a discussion on the lack of inertia with the interconnectors and wind/solar relying on semiconductor inverters having no kinetic energy and reactive power, and the method of calculating the risk. They have two commercial systems under test which have a very big capacitor that pulses the grid and then sees how it reacts. (like hitting a wobbly jelly and see how it wobbles! my interpretation of how it works).
    Then Q&A session I listened for a bit and then decided to get on with my household chores.
    It seems to me that the downsides of wind and solar generation are much greater than just the unreliability of the wind and sun, the costs to keep enough inertia in the system to avoid blackouts is not reported.

    • It doesn't add up... permalink
      August 29, 2022 2:10 pm

      I listened right through. ESO were cageyest over interconnector issues, but I also thought questions on that could have been sharper. They were asked whether exports to France were really in our interests in an energy crisis. The answer was that the French were paying more. Just the bidding war I’ve been talking about.

      They should have asked about the simultaneous import and export on IFA1 and Eleclink, which are alongside each other. And about allocating imports at almost £10,000/MWh to supporting demand in South London when in reality they could have reduced supply to France to free up power. The French weren’t paying that much, were they?

  17. James Broadhurst permalink
    August 29, 2022 2:32 pm

    It was the EU that forced the closure of our power stations. The energy companies or the government weren’t prepared to retro-fit emissions control. That being so how was it the Germans managed to get off with burning lignite coal. The emissions regulations were virtually written for the benefit of germany.

    • Martin Brumby permalink
      August 29, 2022 4:39 pm

      Ferrybridge and Eggborough were sold to PowerGen & National Power at a price which reflected the cost of Flue Gas Desulferisation. Never installed. Not that FGD equipment had any effect on ‘Acid Rain’. But it did reduce SO2 aerosols to increase warming, of course. Funny that!

      Mind you, the majority of the Coal Industry was sold to Richard Budge, but his bid was unilaterally reduced (by HMG) by £100 Million (1994 Pounds, of course) and RJB found £10(?) Million in unmeasured coal stocks… Who knew?

      Ho ho. And people bad mouth second hand car salesmen!

    • Realist permalink
      August 29, 2022 11:56 pm

      The emissions regulations were written to remove consumer choices. Just look at the attacks on cars alone.

  18. theturquoiseowl permalink
    August 29, 2022 3:35 pm

    Convenient to blame the Russians, yet I thought WE are deliberately and explicitly working to destroy the Russian economy, including scuppering Nordstream II, and sanctioning the gas turbines repairs needed for Nordstream I. Or am I missing something?

  19. Michael van der Riet permalink
    August 29, 2022 5:00 pm

    The long term cause of the disaster is structural, yes. The proximate cause is Western nations imposing sanctions on Russia. They cut off the supply of dollars to Russia and said that they would only pay for gas in rubles. On top of that the halfwits (I’m being polite) froze or confiscated assets of private Russian citizens. That is the cause. That is why Vlad turned off the taps. If he hadn’t, the structural deficiencies wouldn’t have mattered.

    Biden’s little Black Sea adventure hasn’t helped either.

    Where to now? Europe is a couple of months away from mass deaths from cold. Industry will shut down almost completely. Vlad holds all the aces. The options available are

    1. Declare war on Russia. Perhaps not a good idea, but there’s a chance that their ICBMs won’t function any better than their tanks and ground-attack aircraft. A population cull of a billion or two would please Richard Attenborough greatly unless, naturally, he was included.
    2. Go to Vlad cap in hand and say, We were very naughty little boys, please sir can we have our energy back? (Basically a surrender.)

    The Great British Art of Muddling Through just isn’t going to work this time. The choice of war or surrender must be taken, and it must be taken now.

  20. James Broadhurst permalink
    August 29, 2022 11:34 pm

    Lithuanian electricity has risen over €3,000/MWhr now. Their one and only nuclear power station which kept them going until the EU in 2009 demanded its closure because of the perceived danger from a Chernobyl type reactor is the main cause.

  21. August 30, 2022 1:42 am

    Looter politicians in the US are investing in Uranium. But the problem is half the Kleptocracy believes bullying females into reproducing at gunpoint is more important than having electricity. Surely Europe remembers when socialism and bullying Jews were more important than food or electricity, right?

  22. Brent Hargreaves permalink
    August 30, 2022 5:11 am

    Paul, I have been aware of your work for some years and am always impressed by how measured and lucid you are on the subjects of climate and energy security. Thank you for telling folks how to listen in to this Transparency Forum. I shall be listening in in future – this is scary stuff!

    Please keep up the good work.

    Brent Hargreaves
    Conwy

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