Andrew Marr has picked up on my ideas for energy market reform in The New Statesman:
Further, it means tearing up the present regulatory system, which makes soaring gas prices the benchmark for electricity generally, even though nuclear, wind and hydro are much cheaper. This radical intervention in the market is recommended by leftish economists such as Richard Murphy, who founded the Tax Justice Network. It would be loathed by the energy companies who are touting a system under which taxpayers would subsidise their profits in the longer term, but whose economic model is effectively now broken. A similar radical market intervention is being actively discussed across the European Union – which, come to think of it, probably rules it out as a runner in any Truss government.
The last point may be appropriate to note, but it's also right to record that the EU is progressing heavily down the path of market intervention. The FT reports this morning that the EU is planning to take sweeping powers to intervene in markets to ensure continuity of critical supplies, and not just with regard to energy: fertiliser is another key focus. I think this wholly appropriate, although business is predictably squealing in protest.
We are not going to survive this energy crisis with the status quo intact. And when sanctions are used as a weapon of war the reality that markets might have to be suspended has always to be on the agenda.
It's time to get real about what is happening here and take the required actions that prioritise people over profits and corporate interests.
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I doubt it that Truss will get it.
The energy companies will be treated as victims and they will get state help and we’ll be in hock to the market for around 10 years or so. R4 was buttering everyone about it early this morning.
Agreed
So do I PSR, so do I. So as was pointed out on the Today program, a free market tory PM is going to end up massively subsidising the energy companies; funny how there’s always a magic money tree around when the private sector fails, but there’s no money to pay decent pay rises to those of us in the public sector who’ve had years of pay cuts.
Obviously Truss won’t follow the EU’s example, because as Andrew Marr points out, “which, come to think of it, probably rules it out as a runner in any Truss government.”
We’re on the cusp of this with the water companies too. Clearly the ancient sewage system and water distribution systems need serious attention. On top of that new reservoirs need building (witness the glacial progress of the Abingdon reservoir). Having passed on huge quantities of cash to share holders since privatisation its likely that those same companies will require the state to fund the remedial and future proofing work.
A note of support. Your analysis and proposals are getting traction.
Amongst those of us who possess some kind of brain Werner, and actually care about the UK and its people. Which automatically rules out this worthless government and its supporters in the right wing media.
And the ‘oooohh we musn’t appear too left wing’ labour party.
An interesting account of the EU gas market which compliments your views:
https://www.informationclearinghouse.info/57224.htm
“….By 2019 the series of bureaucratic energy directives of the Brussels EU Commission allowed fully deregulated gas market trading to de facto set the prices for natural gas in the EU, despite the fact that Russia was still by far the largest gas import source. A series of virtual trading “hubs” had been established to trade gas futures contracts in several EU countries. By 2020 the Dutch TTF (Title Transfer Facility) was the dominant trading center for EU gas, the so-called EU gas benchmark. Notably, TTF is a virtual platform of trades in futures gas contracts between in trades between banks and other financial investors, “Over-The-Counter.” That means it is de facto unregulated, outside any regulated exchange. This is critical to understand the game being run in the EU today. …
…
….By systematically sanctioning or closing gas deliveries from long-term, low cost pipelines to the EU, gas speculators via the Dutch TTP have been able to use every hiccup or energy shock in the world, whether a record drought in China or the conflict in Ukraine, to export restrictions in the USA, to bid the EU wholesale gas prices through all bounds. As of mid-August the futures price at TTP was 1,000% higher than a year ago and rising daily.
The deliberate energy and electricity price sabotage gets even more absurd. On August 28, German Finance Minister Christian Lindner, the sole cabinet member from the Liberal Party (FDP), revealed that under the opaque terms of the complex EU Electricity Market Reform measures, the producers of electricity from solar or wind automatically receive the same price for their “renewable” electricity they sell to the power companies for the grid as the highest cost, i.e. natural gas!……”
Nope.
I met with somebody from the Commission over the weekend. We discussed a market split and we recieved a fair hearing, there were plenty of questions. However, the trajectory has now been set by Germany with price caps. German energy ideology/reglion with respect to markets does not permit any reform. Marginal markets are perfect etc etc.
Concerning renewables: Germany in 2014/2015 reformed its renewable energy subsidies (Feed in Tariffs) and instead implemented an auction + market premium which is in fact auction+asymmetric contract for difference (CfD) in which the down-side (Wholesale price less than auction prices) is socialised – but the upside is not. This change also saw a change in the ownership of RES assets. the 64GW of PV+Solar as of 2015 was mostly owned by farmers/co-ops/municipalities. Post 2015, large companies/developers moved in & built the marjoity of RES after 2015. The immoral aspects of the asymmetric CfD “design” are now there for all to see.
As somebody observed to me: the German state and German corporations are far far more intertwined than in any other state (even the UK). Thus the (temp) cap on prices for nuclear and renewables will keep the marginal show on the road – once “normal service” is resumed.
The EU “project” is fundamentally flawed if one country (Germany) can call all the shots. We have been here before (Schauble & Greece) in which the Germans called the shots – with respect to MS funding. It ended very badly (impoverishment of Greece – & rise of faiscists there) . The briefing note to the Commission is shown below – apologies if it is a bit technical – key point: realities make no difference in EU-land – it is what Germany decides.
Price Cap (& money recovery) vs Market Split
The data for either is available now via elec markets/regulators.
This leaves an open question wrt price cap: do member states have the capacity to:
a) collect the money (via the regulator?)
b) the political will to implement (Germany & corporate interests)
c) the political stability (Italy, Greece etc).
d) the organisational capacity to distribute the money in an equitable way?
One can split “elec price relief” into two approaches – that each use exactly the same data set:
A. Member-state-based – best efforts – with uncertain outcomes both in
terms of timing and equity. (price cap)
B. A pan-Euro crude EMR – with known (and mostly equitable) outcomes. (market split)
The “B” approach requires a coordinated approach with ACER/CEER/National
regulators /markets. This group need to be TOLD that market split will be
implemented in weeks & that they, as regulators, will implement this with the markets.
Concerning x-border: arguably (& one can see this in the data) – Eupehmia (the elec x-border algorithm) spreads high-gas price contagion. Denmark might have vast amounts of wind (& some PV) and a price that should be less than half the marginal price – makes no difference – it is what goes on in Germany that counts. Ditto Germany – Benelux. This is a provable “relationship” – provable using numbers, provable – mathematically.
Thus under high gas prices – Euphemia does exactly the reverse of what it is supposed to do – (calm markets – level elec costs across Europe) and instead spreads price contagion.
Thanks
Depressing
Thank you Mr Parr. It is all quite extraordinary. Meanwhile, hold this thought: a few days ago Bloomberg reported that, “UK gas producers and electricity generators may make excess profits totalling as much as £170 billion ($199 billion) over the next two years”