Energy prices really are a conspiracy against the public-Ross Clark
By Paul Homewood
h/t Paul Kolk
From the Telegraph:
From October 1 the average home will be paying £1,923 a year for gas and electricity rather than £2,074 as now.
Many consumers will be so relieved to hear that Ofgem has lowered its price cap again that they won’t bother to ask the question they ought to be asking: how come, in a privatised electricity market, the price we pay for energy is still being determined by officials at a government agency? Why can’t I go shopping around for a better deal just as I do for food, petrol, clothes, holidays and most other things?
We used to have some kind of retail energy market, but consumer groups started moaning that some customers were paying more than others – something that is inevitable in a market. They persuaded themselves that energy companies were profiteering despite their margins being wafer-thin.
Ed Miliband, then Labour leader, came up with the wheeze of capping energy prices and the Conservatives, while they damned him at the time, found it politically expedient to interfere in the market too.
Once consumers found themselves wrapped in the comfort blanket of fixed prices, it has proved hard to switch back to a competitive market. On the contrary, energy is being dragged ever deeper into state interference.
Indeed, last autumn the Government ended up with the idea of capping the price cap with the Energy Price Guarantee – funded, needless to say, from our taxes.
On the wholesale side, we never did have a genuinely free market in electricity. What was created after privatisation was a fudged, artificial market, the rules for which failed to foresee what would happen when we started feeding renewables into the grid. It is so dysfunctional that the prices that we pay for our power are vastly inflated.
Energy companies are forced to buy a proportion of their power from green sources, partly explaining our higher electricity prices. Retail energy companies are still obliged to buy “renewables obligation certificates” from older wind and solar plants. Newer solar and wind plants are paid a guaranteed ‘strike price’ instead.
But another reason we pay so much for our power – around 80pc more, unit for unit, than US households – is thanks to something called “marginal cost pricing”.
Every half an hour the grid runs an auction in which electricity suppliers submit bids to provide power for that period. The lowest bids are accepted first, followed by the next highest and so on until supply has matched demand.
But here is where it gets odd. Rather than be paid what they bid, all electricity providers are paid the same rate – equivalent to the highest bid. In other words, a wind farm might have bid to provide power at cost of £40 per megawatt-hour (MWh) and a gas plant at £60 per MWh, but both will be paid at a rate of £60 per MWh.
It is rather as if you go to a supermarket to buy 12 bottles of Prosecco for your wife’s birthday party but find they only have 11 bottles. To make up the 12 you buy a single bottle of Bollinger. But when you get to the till you are charged for 12 bottles of Bollinger.
Obviously, such a market works in favour of the producers rather than the consumer, yet it didn’t matter so much when our electricity market was made up mostly of large-scale reliable sources such as coal, gas and nuclear which charged similar prices for their electricity.
However, then came renewables. While the marginal cost of supplying wind and solar energy tends to be low, these sources are very intermittent, and are prone to under-deliver at short notice if the wind stops blowing or the sun stops shining.
In order to make up the gap between supply and demand, the operators of gas power stations have to be called upon to switch on their power plants at short notice. But it costs a lot more, MWh for MWh, to provide a burst of power for a couple of hours than it does to provide a steady load of power.
Britain is becoming increasingly reliant on electricity imported via subsea interconnectors. But we quite often end up paying eye-watering prices.
At one point in June 2022 we ended up paying £9,724.54 per MWh to import electricity from Belgium – over 100 times more than its average wholesale price. And given the rules of marginal cost pricing, everyone supplying power to the UK grid at that point was paid the same, silly sum.
Over the past year alone, thanks to intermittent wind and solar, the average daily price paid in the wholesale market has varied between £56 and £458. Retail customers don’t see these enormous spikes on their bills, but the costs are passed onto them.
The problem is compounded by green levies. If you own a gas power station you have to pay the Climate Change Levy – a tax on the burning of fossil fuels which is passed onto consumers. Yet thanks to marginal cost pricing, consumers are effectively paying the climate change levy even on renewable electricity.
Wind and solar farms would be making a killing from our dysfunctional wholesale energy market were it not for the fact that the Government has shaped an effective windfall tax on them – capping how much they are paid per MWh.
Yes, that is how silly it has become: renewables are being subsidised and subjected to windfall taxes at the same time.
At some point someone in government is going to ask: why don’t we sweep away all the absurdities – the levies, subsidies and bizarre rules like marginal cost pricing – and have a proper, functioning energy market? We might be surprised how liberating it is – and how much better value for the consumer.
https://www.telegraph.co.uk/business/2023/08/26/energy-prices-really-are-conspiracy-against-public/
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NOT A LOT OF PEOPLE KNOW THAT 
Ive taken up price with my energy supplier Octopus which tells me im being supplied with all renewables (oh and they blog about how cheap renewables are) yeah right when wind is <1GW and its night time but lets put that subtlety to one side. Answer was we are slightly less than the energy cap! and thats not the way the system works. Fact is they are perfectly entitled to under the trading arrangements to buy power direct from their cheap renewable generators and sell it to me but they wont as they know full well they would be massively exposed as to how they source energy on days when the unreliables aren't able to generate enough. So they are conning people as well and there not the only one.
So the author is absolutely spot on but this govt is spineless and those waiting in the wings will be even worse. The system is fundamentally broken and we might as well nationalise it and let a CEGB Mk II takeover with a remit to provide electricity at least cost and only decarbonise when it is practical and economic to do so.
Cannot agree with you more; when I questioned them in a similar vein about RECOs and the dirty subject of spinning capacity and how that is fuelled, they got very unsettled and waffled on before I told them to stop gaslighting (hah) people who know a monumental con when they see one. I asked why their charges have not seemingly factored in the >400% drop in UK wholesale gas/electricity prices since Aug 2022 – again they waffled that their current charges are still based on forward contracts yet to run their course…..which effectively means they bought “long” at or near the “top” of the market ..?
Refused to answer that.
Take a look at the way they project, in a brand new innovation (?Project Intern, a dead giveaway) on their website, what you have paid vs what you have used; Left hand measures £SD, right hand measure KWH – uses their favourite colours to seemingly compare apples and pears…..it all is a con to ensure they justify higher monthly dives via the DDM imho.
All green conology suppliers that peddle 100% renewable energy are deceiving customers. They use REGOs that allow them to supply fossil fuel or nuclear electrons, whilst stating they are renewable electrons to signal their virtue
They won’t state the facts, the truth, because it doesn’t fit their green deceit that brings them hordes of taxpayer cash in subsidies & levies
As stated above, at times when the wind & sun aren’t generating, which is a lot of the time, they are sending their consumers electricity from our fantastic fleet of coal, gas & nuclear power stations (biomass is a worse polluter than fossil fuels)
A stupid piece of paper saying different is just that, stupid
I got the whole nine yards of the process of harvesting, chipping, dehydrating transporting US/Canada/UK by train ship train, rehydrating, pulverising and finally injecting into Drax – from the owner of a lumber yard …..as you say worse than FF before you factor the environmental effect on the forests …
energywise If you look hard enough your bill should contain a section that states the types of generation your supplier gets their power from. I’m with OVO and they claim to supply 100% renewable electricity. However the bill shows they get about 30% of supply from wind, non from nuclear and the rest from gas. This means their electricity emits about 260g/KWh of CO2 compared to a national average of about 180g/KWh. Proves that 100% renewable claims are just spin/BS.
I prefer the term lies to spin /BS
CEGB used a combination of SRMC and LRMC to price. SRMC was the marginal price of the fuel and LRMC was the marginal price of capital investment and O&M. To add to that the TUoS and DUoS for the wires, also priced at maeginal cost of investment and O&M.
There were several ‘levies’ added such as the Nuclear levy.
Nothing changes and nor can it when you cannot ‘store’ electricity in any meaningful way, you have to price for instant production and use.
There is so much hogwash written and spoken about this.
” you have to price for instant production and use. ”
Coal and “nuclear fuel” can be paid for and “on site” in substantial quantities long before electricity is produced = a fuel stockpile to counter the manipulation of market prices.
Same story Nicholas. I asked Octopus if their ‘use 100% renewables’ quote was a lie, saying that the Grid uses about 50% gas. Their answer was that they buy all their electricity only from renewable sources. I’m sure that there is a flaw in their response but I’m not an accountant.
Whatever they say, there’s only one Grid and everybody gets the same supply of electrons as their neighbours, regardless of the company name on the bill.
Since renewables often supply extremely low percentages of our electricity, I’m unsure how their statement can be true. If you only use renewables, there must be times when you get no electricity.
@oldbrew yes but I would rephrase that to your electricity in short follows the path of least resistance so come from the nearest generators until the load is meet as this idea of 1 grid leads to absurd legal fictions like in Australia with the Australian capital territory which is “100% renewable” which I initially thought was creative accounting of hydro from Snowy Hydro but it actually
from wind and solar from South Australia who’s electricity grid isn’t even connected to New South Wales’ Electricity grid (the Australian capital territory is enclave surrounded by New South Wales and it look at the history of blackout in that grid and the fact it own thermal power station closed in the 1950s it clear where the electricity comes from in the Australian capital territory) but Victoria (where import of brown coal fired electricity prop up the South Australia electricity grid) so when there is any excess generation it will be used there before it gets anywhere near NSW
https://www.aemc.gov.au/energy-system/electricity/changing-generation-mix/nsw (this has a good map)
https://www.abc.net.au/news/2019-10-01/act-is-100-per-cent-renewable-but-what-does-that-mean/11560356
Click to access 100-Renewal-Energy-Tri-fold-ACCESS.pdf
Here are the REGOs that Octopus bought (according to OFGEM) in the year to end March 2023 in MWh:
1,703 Biomass
127,817 Hydro
3,983,543 Off-shore Wind
1,199,431 Photovoltaic
2,629,554 Wind
It’s quite clear that their low purchases of biomass and hydro mean that there were frequently times when wind generation was low and the sun was down when they were of force supplied by other forms of generation, including nuclear and gas and coal. As the vampire squid of the industry, growing by buying Bulb and now supposedly the Shell business, they will be even less able to match renewable supply with customer demand at all hours in the future: especially if they have customers in regions that tend not to be supplied by much renewables generation in the first place, such as South Wales, where Pembroke power station dominates.
Actual supply sources do depend on how power flows over the transmission network. Basically, you get mainly what your local generators provide unless your region is depending on imports from other areas. Mostly in the North of Scotland much of your supply would be wind or hydro, but sometimes gas from Peterhead. Nuclear from Torness and Hunterston are important in the Lowlands, with wind both local and from the North adding to the mix: when wind is low, then more nuclear imports from Northern England help fill the gap. And so on. You can look at the regional picture as estimated by the Grid here:
https://www.carbonintensity.org.uk/
MD, that statement by Octopus may be “true” according to the Politician’s Handbook For Making Public Statements but imho it is a typical homage to THEIR truth and bugger all else. IF they included the full spectrum of “truth” ( eg where do Octopus get their energy from when wind /solar don’t operate at anything of their installed capacity ) it would indubitably be MORE truthful and the picture changes dramatically – because the answer is “gas/nuclear/biomass” as “any fule no”.
Call it the Principle Of The Iceberg when these scumbags make these statements; you only see the WHOLE picture when you peep “below the surface”…I can state without fear of contradiction Octopus know that which makes their gaslighting (haha) something OFGEM should investigate….
“Energy prices really are a conspiracy against the public”
The state is a conspiracy against the public.
If you get rid of marginal pricing the renewable CfD simply picks up the slack. Producer gets the same regardless.
Marginal pricing was always a swindle to disguise renewable subsidies.
At last somebody has produced an ‘Idiots Guide to Marginal Cost Pricing’! Thanks, Ross.
The only problem is getting anyone to believe it could possibly be true.
With government politicians, Ofgem and NG-ESO involved , anything can certainly be true.
When I use a word,’ Humpty Dumpty said in rather a scornful tone, ‘it means just what I choose it to mean — neither more nor less.’
“The question is,’ said Alice, ‘whether you can make words mean so many different things.’
“The question is,’ said Humpty Dumpty, ‘which is to be master — that’s all.”
It was true once – but no longer. Worse is that the government is working out how to replace our existing regime (not the one he describes, which is the pool system of 20 years ago) with other schemes that are even more exotic and quixotic. National Grid favour Locational Marginal Pricing, which would give lots of justification for investment in extra grid assets on which they would make a guaranteed return. Surprise, surprise, Cilla! Renewables are looking for all sorts of extra bungs. It’s a dangerous mess, with no proper understanding of the consequences in DESNZ.
Net Zero just keeps putting up prices … until the public learn to $£&% the politicians responsible.
‘At some point someone in government is going to ask: why don’t we sweep
away all the absurdities’
No, no one will ask. For one simple reason: people LIKE fascism. They like an all powerful central government that can set things ‘right.’ Their ONLY problem with infinite government power is when government sets someone else’s things right. I.e., it’s how the power is used, not that government has the power.
The public is happy that government has interfered with the market. They will even accept higher prices to have it.
Theoretically, there is a point where the public will say, “This is too much,” but you aren’t there yet.
And as long as government wields unlimited power, they will continue smothering the market with absurdities. Indeed, instead of ‘why don’t we sweep
away all the absurdities,’ you will get “why don’t we change the absurdities.’
Government 2.0, where the old bugs are replaced with new bugs.
The people who have set up this complicated, crazy, absurd system must be very clever, more clever than any politician so there will be no user friendly solution.
For some silly reason the name Heath Robinson comes to my vision. (USA: Rube Goldberg)
OFGEM are totally useless, eveything they have ever done has harmed the customer. Without them, supply and demand economics (competition) would have given the customer lower prices.
They approved cowboy suppliers who went bust, the customer is paying for all expense of the chaos.
Jonathan Brierley has gone green at great cost to customers, losing sight of the original remit….. Stop customers being screwed withprice fixing from suppliers, now OFGEM do the screwing.
Since renewables are given priority to supply the grid and hence fossil fuels are left with unplannable and erratic scraps which are inevitably making their energy much more expensive, Ofgem’s “marginal cost pricing policy” looks like a further subsidy for renewables on top of all the others?
Note that Ofgem’s official remit is no longer the protection of the consumer but the delivery of Net Zero, which deliberately uses increasing energy prices to curtail energy use and hence CO2 emissions.
It’s really not a “marginal cost pricing policy”. It’s a compulsory hedging policy. As I explain below, that costs consumers when prices fall (as it is doing now), and it cost them and the government last year, because the hedging they assumed was simply not achievable.
The more we get to rely on wind the less hedging will be available, because wind generators do not want to commit to supplying at specific times for specific volumes until they are reasonably certain of the weather. If the wind fails them it could be very costly to buy in alternative supply, and result in large losses. It’s why they like their sweetheart price guarantees from CFDs instead, which require no hedging, or guaranteed bonuses from ROCs.
The simple fact is that renewables are expensive. And as ever when government introduces something that is expensive, it tries to find ways of pretending it isn’t. And because government is never as clever as it thinks it is and government interference always distorts markets, we get a horrible mess with perverse incentives.
No mention by Ross Clarke of the huge rip off of Standing Charges
Even if I use little or no electric or Gas I have to pay separate standing charges for electric and gas..
Now standing charge for electric is 54 pence per day and for gas 29 pence per day that’s £303 per year or £25.24 per month
Standing charges were supposed to cover the cost of maintenance and reading meters. But now they have to pay for all the energy suppliers that went bust.
It was the government that facilitated more supplier supposedly to add competition. It was Ofgem that approved without proper due diligence the suppliers that went bust.
It is the public that have to pay for this costly mistake. How long will it take to pay off this debt and standing charges can return to more normal levels I wonder.
Interesting, Mr Sides. I had never heard the term “standing charges.”
Here in South Carolina, USA, my REA electricity company charges $35 a month, before any electricity is used. So that would be $420 a year. Colloquially, it is called a “hookup” fee.
There is no standing charge by the gas company. My summer bills get down to $15. I usually send them a check for a hundred bucks in early summer, and carry a negative balance for a few months.
Standing charges are paying for all the pylons and interconnectors that the grid uses to transmit distant wind generation to consumers, and for the costs of reinforcing local distribution networks to handle EVs, heat pumps, and extra population from immigration. They also pay for the smart meter programme and some other green schemes such as Ecohomes.
It used to be the case that generators paid a contribution for grid costs if they were located in areas distant from demand (some could even get a small credit for being in an area with a generation deficit, such as London), but OFGEM in their wisdom and must-support-green-interests remit decided to bung these generators a subsidy by removing that charge, and billing it to consumers instead. Some CFDs (but not all) do contain clawback clauses so that strike prices are reduced to attempt to reflect the new zero grid charges. The latest ones already assume no charge, so straight comparison of original strike prices in 2012 money becomes apples and pears.
If you think consumers are suffering from the new rules, you should see what they are doing to commercial consumers, where standing charges and charges related to maximum demand have shot up much more massively. All part of trying to close down our industry and shops etc. A small shop now pays around £1.50/day in standing charge – and 50p/kWh!
Yes, very true. But the government wants to pretend that when it “saves” energy companies, there’s no cost to the consumer. And people want to believe someone else will pay for what they want to happen.
When wind and solar produce too much energy for the grid to handle,are they still paid to curtail,as that would be another cost to add on?
Usually they are. It depends on the contracts they have, and their location on the grid. In some circumstances they get to see negative prices if they don’t curtail, so they curtail voluntarily. But mostly they can expect some sort of positive income if they produce (most CFDs pay out the strike price, only leaving the negative element of market price not covered, unless negative prices persist for at least 6 hours, while those on ROCs get those only for what they produce), and seek to be compensated for not producing. The Grid will tend to look for curtailment in areas where they lack transmission capacity to handle all the output, so there can be some local limited auctions for say North of Scotland. These local grid constraints can occur even when the rest of the grid has positive prices – and indeed, the Grid usually has to spend to fire up CCGT to compensate supply further south in these cases.
Unfortunately, Ross Clark is not up to date with how the electricity market functions. What he describes is in fact the old pool system, where all generation was paid the market clearing price in an auction that ran up until Gate Closure (one hour before the start of a half hour settlement period). There were still a few supplemental balancing deals after Gate Closure, mainly to handle unexpected outages from plant trips, but the clearing price was based on what was usually a fairly accurate estimate of actual demand, so balancing deals tended to be small.
Under the current arrangements, all generators are free to sell whenever they wish at whatever price (or price formula) they can negotiate. All retailers are free to by whenever they wish at whatever price (or price formula) they can negotiate. Anyone with an electricity trading licence can buy and sell – even those who have no generating assets or retail customers, like banks offering hedge trades. All trades are reported to a central clearing agent (Elexon), and trading can take place from years ahead (for hedging or speculation) up to Gate Closure. Necessarily, for every seller there is a buyer.
If the aggregate of sales does not match demand or supply then only any imbalance is invoiced at the System Sell Price. A retailer who fails to buy enough supply to pay for the metered demand of its customers gets charged at SSP for the shortfall, while paying whatever prices were agreed on the actual purchases made. If they bought too much, they are credited for the difference at the SSP. Likewise for a generator – fail to generate what your contracted sales promise, and you are charged for the shortfall at SSP; generate more than you sold and you only get SSP for the extra. After Gate Closure the Grid becomes the counterparty for any further trades that are necessary to balance the system – calls for additional generation, emergency supply from interconnectors, or curtailment of surpluses that cannot be exported because they would overload the grid locally – and these can be at outrageous prices at times. Some of these prices are used in the calculation of the SSP to apply to imbalance volumes.
The full enchilada can be found here:
https://bscdocs.elexon.co.uk/guidance-notes/imbalance-pricing-guidance
Of course, there is then the secondary addition of ROC and REGO payments, and sums due under CFDs (which are based on day ahead market prices except for “baseload” generators, whose “market” prices are set 6 months at a time), and all the extra charges for the cost of transmission, green levies etc. that are added into bills. Plus the influence of OFGEM on the degree to which retailers hedge forward, which is a whole topic of its own.
The cap promotes forward hedging to cover the cap period. Hedges become costly for consumers in falling markets, which is what happened after Miliband jerked the government into implementing the original cap. However, hedges simply cease to be available in strongly rising markets: no generator wants the risk that having sold at £100/MWh the imbalance SSP turns out to be £4,000/MWh and they suffer a plant trip or the wind doesn’t blow. Much better not to sell until the last moment when the risk of substantial imbalance loss can be minimised, and when they can be more certain of how much they can produce. This meant that the OFGEM cap demands were in practice futile, and retailers were unable to hedge in the required volumes. Which is why to government had to step in to provide “retrospective hedges” or subsidies for consumers and retailers. It’s also why our prices at retail remain high, despite much lower wholesale prices: the difference is attempting to recoup some of those “retrospective hedge” costs.
Thanks for this explanation; I now understand why, when UK wholesale prices peaked in August 2022 and have since fallen to a low 400% below the peak, I am being ripped off by Milliband’s “Good Thing” as operated by OFGEM who seem to be a champion of diversity rather than dealing with energy providers…
Once while interpreting for a bunch of utility employees I let slip the “M” word, monopoly. Everyone turned white as a sheet.
If anyone knows how I could contact Ross Clark I would appreciate it: I have tried to find ways of doing so without success. He is an important journalist to have on the side of us consumers, and it is a shame when his articles fail to hit home because they lack accuracy.
” If anyone knows how I could contact Ross Clark ”
As a journo, he’s probably on twitter.
You might be able to reach him via the Spectator – he writes a lot of articles for the magazine.
editor@spectator.co.uk is the email given for correspondence.
The more complicated the the system, the more difficult to understand and the easier for the all the middle men to to rip-off the consumer . .