Wednesday
Dec162015
by 
Bishop Hill
Bishop Hill The best laid plans of Westminster mice
Dec 16, 2015 Climate: Parliament Energy: grid 
Do you remember the grid emergency the other day, when the grid was said to have accepted an offer of £2500 per MWh to supply power to the grid, a slight markup on the normal price of £40? The Commons Energy and Climate Change Committee reckon there may have been some dodgy dealing going on and they have written to Ofgem asking for an investigation:
;)
The best laid plans o' Westminster mice gang aft into a rent-seeker's paradise. Perhaps it might have been a good idea to maintain higher safety margins on the grid?
Reader Comments (101)
I refer the Honourable Gentleman to my 1.23PM, Dec 15 posting on the 'Windfall' thread.
Is this not almost exactly what Ken Lay did in California? Buy up the generating capacity, shut half of it down, and coin it on the rest.
Capitalist that I (nornally) am, I have always maintained that the supply of energy to the nation is much too important to be left to private industry, especially under a regime that actively encourages shysters and rent-seekers.
Let private industry enter the retail market if you wish but we cannot afford to leave generation, distribution and infrastructure to private business because sooner of later it will go sour.
This is another example of our politicians living in their Westminster bubble and not realising how the real world works. It is an example of them not thinking about the consequences (unintended perhaps) of their policies which have deliberately reduced operating margins in winter from typically ~24% to ~1%. For years renewable energy developers have been gaming the system and now it is becoming possible for the gaming to be happening at a national system level.
Heads should roll and HM pleasure should be used.
They had the explanation at the time. The 'lucky' company was scheduled to come off line in the afternoon, which it did. Before it came offline it got the notice that the grid needed more capacity but there is no obligation to stay on at the original price agreed for the earlier supply. Obviously they kept their plant ready for the bidding war that would go on over the afternoon. Potentially they could have failed to secure the demand and would have kept their plant on for nothing. Clearly nobody else could beat them for speed of supply and price (high though it was). Although the price was high, it wasn't forever, just till the crisis was over.
This wasn't unethical of them, it's the nature of the system that ministers have signed off on. If we want stable, long term low prices, you have to offer security of demand to the suppliers. They make their profit by economies of scale. At the moment they have to hold our toes in the fire, when they get the opportunity. You can't have it both ways.
Vital infrastructure is not a nice to have, by definition.
It should be run for the benefit of the population at large. As the population need to use it - they have no choice.
Private ownership of vital infrastructure can't work. They have to run things for the benefit of the shareholders.
How can competition prevent exploitation (even perhaps corruption) when people can't choose not to use power or water or transport or...?
Nationalise the power industry.
Private ownership without competition is less efficient than public ownership.
Chickens coming home to roost. However, don't expect to be able to roast chickens unless you put them in a hay box on Wednesday, in the garden, with a parabolic solar reflector and hope the foxes don't eat the dead birds.........
[I sincerely hope we have a power cut in Central Westminster real soon to show these dorks reality.]
I remember that at the time, the company concerned pointed out that most of the time their plant is shut down or running at a loss. Of course they're going to try to make up revenue any way they can.
Blaming "capitalism" or "privatisation" for this is ridiculous. It's a straightforward result of the state meddling in the market for its own nefarious purposes.
Soon, apparently, they're going to have to offer subsidies to the real generators (gas), in order for those people to be able to compete with the subsidies already being paid to the pretend generators (wind mainly); this will no doubt have other unintended consequences. And so the whole merry-go-round gets worse and worse.
We have completely taken leave of our senses. Or rather, our masters have.
Dec 16, 2015 at 9:20 AM | Registered CommenterM Courtney
Here here!
Andrew Duffin
Nine times out of ten I would agree with you but in this instance, as M Courtney rightly says, you cannot afford to leave infrastructure as vital as electricity supply to the market.
I've not heard any suggestion that Macquarie actually did anything illegal or even, in capitalist terms, immoral. But we saw what happened with Enron and we refused to learn from it.
Furthermore nobody asked why the minute we open the market to competition the French and the Germans should come piling in. Answer: because in the UK market they can make the killing they're not allowed to make in their own domestic markets.
Time was when the UK government and civil service was somwhat less naive or thick. Or conceivably (though it pains me even to suggest it) corrupt.
Sounds like a case for a criminal investigation, not a toothless committee.
I sincerely believe that if the CEGB had not been split up and privatised, we would today have reduced our CO2 emissions (as if that matters) by having a fleet of new PWRs, we would still have a viable nuclear industry and we would have no wind or solar power or any of the other non-dispatchable renewable generators. Engineering sanity would have remained in control of the electricity supply, rather the shambles we have now as the result of a succession of incompetent PPEs making insane policy decisions.
Re nationalisation - if you're subsidising and/or interferring in almost all areas of a vital industry, it might as well be nationalised.
It's lucky we don't leave something as vital as food supplies to the private sector, isn't it!
Everyone would starve, and those pesky foreigners would make immoral fortunes.
The cheapest consumer prices for electricity were after privatisation with little regulation, since then regulation has increased and delay after delay on new capacity decisions have effectively renationalised the industry. And with renationalisation has come higher prices, at $38 per barrel being reflected in kerosene prices it must be very temping to start generating yourself.
TinyCO2
It's a mule, the worst of both regimes.
BoFA: I agree; there is effective nationalisation, but with no strategy, no long term plans and incompetent politicians in charge, with the executives changing every year or so and making decisions on the hoof. Is that the way to run one of, if not the most, vital industries in the country?
Andrew Duffin, I think there is plenty of competition in the food distribution sector. There are frequent supermarket price wars.
Now, if you think food production should be run purely for the shareholders you aren't going to have many dairy products. But we want our cheeses so we don't let that happen.
Indeed, Government control of prices (instead of free market control of prices) is common throughout the developed world for food production.
Consider US peanut farms, EU CAP and - yes - the state's failure with biofuels.
Andrew Duffin, it's not equivalent. Food can be stored for a start. Government isn't messing about with food supply the way it has with electricity supply.
Mike Jackson
I believe you live in the same socialist paradise as me, where the 90% state owned EDF provides cheap reliable nuclear electricity (no doubt partly financed by its British customers).The British error with its nationalised industries was to place it in the hands of incompetent democratically elected ministers. De Gaulle managed to satisfy his communist allies by keeping the commanding heights of the economy under state control, while ensuring they were run by technocrats from the same élite schools which produce the country's politicians.
Andrew Duffin you have put a glint in poor old Gordon Brown's tired eye. He could see himself as the national food Tsar, deciding what each household should have in the way of food on the basis of 'fairness', whilst accommodating the needs of national treasure NHS, ie no fatty stuff; and because Gordon is Gordon, he would impose a challenging superstructure of in-breakfast benefits on top of the basic regime - Oxford marmalade for some 'special' people, who have met Gordons qualifying threshold targets, additional slice of toast for some others (subject to quota and availability) etc etc
The James Bond film 'Goldfinger' revolved around the concept of making the US Gold Reserves untouchable and valueless, thus dramatically increasing the value of what was left.
This smacks of 'Greenfinger Economics' and as pointed out above, brings back memories of Ken Lay and ENRON. Politicians liked him, whilst he was financially powerful.
Alas we have no money to build new power stations. Well maybe if we don't renew trident, ditch HS2 and stop renewable subsidies it makes some cash available. And we don't need to renationalise an industry that is scheduled to collapse anyway by 2023; all we need is new public works reactor programme headed up by the UKAEA and NDA. If it's ideologically acceptable for HS2 and other infrastructure projects then it's surely ok for base load energy capacity.
NCC 1701E at 9:21 AM
They're immune simply because taxpayers provide them with standby-generation.
Ofgem's response is here:
http://www.parliament.uk/documents/commons-committees/energy-and-climate-change/Security-of-supply-correspondence-NOLAN-TO-CHAIR.pdf
Dec 16, 2015 at 9:44 AM | Registered CommenterPhillip Bratby
I agree with you totally.
Andrew Duffin
Now you are being obtuse. If I don't like Tesco I can go to Sainsbury's. If I don't like this Tesco I can go to that Tesco. If I don't like Quaker Oats I can have Scotts. If I don't like wholemeal bread I can have Morrison's cheap cotton wool.
I do not, have never had, and can never have that choice about my electricity supply. I flick a switch and it comes or it doesn't and to pretend that because I can switch my supplier from NPower to SSE to E:On that means I have a "choice" in any meaningful way is to fly in the face of reality.
There is one grid and therefore one network which is why the idea of paying extra for "green" electricity is as farcical as was the idea mooted by a few intellectually-challenged councillors in the east of Scotland 30 years ago that they would rather not have the Council's electricity coming from Torness (Nuclear Free Zone, you understand!).
It's a pretence and the consumer is paying the price.
geoffchambers
France has many faults but the ability to combine socialism with capitalism in a way that works has to be one if its great achievements. A little less dirigisme from the Socialists and little more recognition that excessive regulation is counter-productive for the economy would make world of difference but you can't have everything.
My beef is not with privatisation as such; it's with the totally idiotic way that the UK government went about it mainly because the bureaucrats "misinterpreted" the EU directives at the time.
I'm afraid this is a hobby-horse of mind, so please forgive the rant but the canard that "foreigners" don't obey the rules is just that. The EU never demanded, for example, that British Rail be broken up into seven different companies, only that infrastructure and traffic be separated. Which is what France and Germany did. Likewise there is no reason or even sense in fragmenting the electricity supply system. If CEGB think wind farms are the way to go, then let them build them, negotiating the sale or 25-year lease of the site and using compulsory purchase orders if absolutely necessary.
The idea of subsidising chancers to build the things and then pay them not to produce electricity is obscene. (As is the fact that volume house builders and supermarket chains can sit on land banks for years or that landowners can get extortionate prices for land with planning consent and so increase the cost of each house by, in some cases, in excess of £60K!)
I'll go and have a lie down, shall I!
Mike Jackson
Please don't have a lie down yet. A serious discussion about how to reconcile capitalism with some sensible socialist-style planning is something that's always been lacking on these threads.
Apparently Graham Stringer and Peter Lilley hobnob at the GWPF. Ted Cruz and, less visibly, Roger Helmer
https://rogerhelmermep.wordpress.com/2015/12/15/paris-climate-agreement-creates-economic-wasteland/
demonstrate that politicians are the only ones who can reach outside our little world to the people who matter – the voters. It won't do to wait for an energy disaster and then say: I told you so. We're inaudible.
Time for my siesta now. Think I'll sit out in the garden...
"They're immune simply because taxpayers provide them with standby-generation"
We can but hope that their generators aren't tested (under load) regularly. All sorts of things can go wrong when they just sit there doing nothing. A leaking cylinder head gasket prevented one of my former employers standby gensets from starting (and burnt out the starter motor). Another fired up perfectly but wouldn't produce any output - it turned out to be nothing more than some debris on the exciter brushes. And with the increasing use of "bio-diesel" blends, the old problem of "diesel bug" is becoming more prevalent. Even something as simple as a faulty battery can kibosh an expensive asset. Since electricity supplies in built up areas tend to be more reliable than those in rural ones, a false sense of security can easily develop....
Mike Jackson
Generally agree with you but wrestling with some of the convoluted systems here can be quite an effort. CMU/URSSAF/CPAM causing me to chase my tail at the moment. I'm praying that the Limoges offices aren't moved to Bordeaux as a result of the regional reorganisation, the only way to make progress is to go in person, usually more than once.
I was in South Africa this year and one of the big selling points of a particular restaurant was that it stayed open during 'load shedding'. It managed this by having its very own diesel generator out back somewhere.
That's where we are heading
Dave Ward, my practical experience of Diesels does not extend to V8 truck engines, but as a yottie, it does extend to 'Diesel Bug'. Bigtime! I presume that our country's emergency generator diesel supplies are adequately treated, but .....
The real problem with privatisation, was the way in which it was set up. When in public ownership, energy & water industries were legally bound to provide their services to the consumer, under privatisation, these services are no longer a legally bound objective, soif any of them are in short supply, tough!!!
As for HS2, whilst the venal, nendacious, sel-serving, self-promoting, self-enriching, arsewipes in Westminster try to come up with all sorts of silly arguments in favour of it to convince a largely unconvinved public at large, it is an EU directive from on high, all regions of the EU MUST be accessible by high speed train! Full stop, no argument!
Whenever I hear the word "green" I automatically think "scam".
This kind of dodgy dealing proves it.
Is the firm close to bankruptcy ?
Gaming the system to keep its head above water.
PS ....no point in creating a socialist centralized paradise if your customers are bankrupt.
The costs of French nuclear industry is now offloaded via exports of electricity to Sterling area England which is the only zone in Europe capable of deficit operation .
Not sure the new Franco - Spanish cable (nuke electricity export)will be as successful given the current poverty of the Spanish.
Demand is only rising in Iberia because the Brits now have not many choices of destination today.
Demand continues to fall in the UK possibly as a result of the Brits escaping domestic price inflation.
The data from the IEA ( monthly electricity ) points in this direction.
My own pet theory is that jet kerosene consumption (tourism etc) is the current driver of inter European demand rises and falls.
The strong Sterling is creating a nightmare for utilities operating in the UK.
People are simply leaving the house for months at a time with the lights off.
Looks like quite a few of us have decamped to France already. I keep saying to my friends/neighbours that the only real problem is Hollande and his fellow dinosaurs. Remove them and a rebound boom is certain. Honestly they predicted and solved their emissions issue already - largely due to socialist Mitterand afaik - but neo-luddite Royale is set on dismantling it in favour of.......lord knows what! While Sarko spent 5 years doing virtually nothing maybe that's the best kind of premier: Better no ideas than daft ones.
The IEA monthly elec report (Jan -Sep) just out.
The UK is the most depressed electricity market in European at - 2.5 %
Most other countries have positive demand (with the exception of Finland) albeit from a catastrophic implosion of demand in 2014.
Greatest demand rises seen in Iberia.
With Portugal seeing a 6.6 % increase of elec demand and Spain 5.8 %
Not much doubt in my little head this is British tourist activity driving this dynamic.
Remember - firms must recover costs in sales.
The artificial state subsidy of utilities is a sale from a private companies perspective.
Given the lack of sales in the British market the subsidies must increase........
http://www.iea.org/statistics/relatedsurveys/monthlyelectricitysurvey/
Well my first ever proper job was with the CEGB (thought it would be for life) and I went through the privatisation process. I can even remember burning the midnight oil preparing figures for the split on a huge laptop the size of a suitcase with an orange screen (Compaq?). Despite being made (voluntarily) redundant shortly afterwards I thought the privatisation was a "good" thing. The CEGB was definitely bloated (mostly admin related) with many inefficiencies although I was always impressed by the engineers I came into contact with.
Many years on I think I've changed my mind, energy provision is so fundamental to a functioning society that it can't be left in the hands of the spivs. The CEGB wasn't perfect but it did a bloody good job of keeping the lights on, managing margins, future planning etc. Just watch the Power to the people documentaries to see the sense from those at the sharp end.
But then if it was under government control wouldn't we still have clowns like Bryony Worthington, Davey and Huhne pulling the strings?
http://www.theportugalnews.com/news/british-tourists-hit-all-time-high/36524
@bill
...additional slice of toast for some others (subject to quota and availability) etc etc
Jasper Fforde has been there before you. His 'Thursday Next' series of novels include a quasi-governmental body called the 'Toast Marketing Board', for which you will see adverts in the books...
In the 'Valuefor-Money' stakes, on a scale of 0 - 10, how does £2,500/MWh compare with £600,000 for zero MWh?
http://bishophill.squarespace.com/blog/2015/12/15/windfall.html
@Mike Jackson
Socialists are merely finance capital managers whose job it is to add costs.
Central planning will not work out very well if world trade is in turmoil.
We seem to be witnessing a second great collapse of world trade in 7~ years now.
If this collapse increases in intensity bunker fuel will become available for any remaining 1960s heavy fuel oil boilers ( not many remaining now)
World trade has expanded in a pointless fashion for many many decades because finance capital has refused to concede a national dividend to the western population.
Industrial capital as therefore no choice other then expand overseas so as to reduce wage inputs (wages add to costs which must be recovered in sales)
The real costs of this pointless expansion is now coming back home.
We are witnessing these huge and ever growing energy / trade breakdown events.
You may be joking, Bill, but the BBC greenshirts already signed up to a sugar tax and the vegetarianism-will-save-the-world-from-global-warming circus, along with Arnie Schwarzeneger.
(When that day arrives, pet stores will see an amazing increase in sales of "pet" rabbits.)
They are joking too, of course, if you'll permit me to use such a polite description for hypocrites. But that never stops well-off hypocrites trying to make laws for poorer people to obey for 'the greater good'.
Please, Dork of Cork, for the love of God, try and make some sense. If you're going to inflict these long postings on us, and expect us to read them and thereby get your point, use some grammar, punctuation and plain English. At the moment, it's just post after post of senseless and tiresome drivel. You are the weirdo on the Bishop's bus!
With RWE, E.on, GDF Suez and EDF all with mountains of debt it may not be a matter of 'if' but 'when' uk.gov has to take over their assets. Of course the Russians might buy them out first ;). Therein lies the cruel reality of privatisation.
Michael, yes I am joking, but only a bit. The world's full of crazed Gordons and Corbyns who (a) think EVERYTHING is really unfair and (b) they know how to make it all fair (c) whatever they institute will go madly wrong - we will all get issued with 6 rashers of bacon a week but no eggs, two family size packets of cereal but half pint of milk etc etc (d) none of it will apply to themselves and family, rules being for others.
@C
Yes I am a weirdo peasant and me grammer and spelling is bad.
However - this does not mean I am incorrect.
My understanding of these current strange events increasingly comes from a social credit perspective.
As almost all economics is scarcity based - this surplus view of the world can appear strange.......
Anyhow the data and evidence is in now.
Capitalistic efficiency is a illusion .
SandyS
Like everywhere, sometimes the system works and sometimes it doesn't.
CPAM Macon is so efficient it hurts! (I think CPAM is a département matter, is it not? The new regional setup shouldn't change things if I'm right).
On the other hand I'm having a running battle with the Tax office because they insist on billing me for a taxe foncière for somebody with an almost identical name and a very similar DOB for a house at the other end of the country!
Alan the Brit
You're in danger of sparking a rant again!!
Assuming you're correct and that HS2 is effectively the UK meeting an EU requirement, why the f*** don't they say so?
Booker has been on about this for years. Half the time they blame the EU for things which are not the EU's responsibility (either local matters or international agreements or directives "gold-plated") and the other half they try to claim credit for something nobody wants but for which they could blame Brussels.
They're all mad!
@C
What do you think of this video ?
Do you respect those cold hard men for being cold .....
https://m.youtube.com/watch?v=6DH_a6589ik
bill
You're slightly out on one point.
The epitome of a properly run socialist economy is that when there is no bacon there are no eggs either!
Some commenter above suggesting we get Hugo Chavez back to run the UK electricity biz
Socially organised businesses - Remember we did used to have the socialist bank without all those nasty capitalist bankers ?Trouble is let them run rings around it so now that Co-operative Bank is large only by US venture Capitalists.
And CO-OPs supermarkets are poor value for money.
I naively thought that when the gov began obligating elec corps to have a percentage of windpower that it would be in such a way that that a companies wind farm would be paired with it's own gas/coal plant so that at the least the corp saved some fuel when the wind blew. That is naive I know as having built a power station they'd want to running it near flat out and sweat their asset.
I suppose the consultant spivs that advised the gov showed models that looked great, but reality has turned out different.
I wonder whether in the Brave New World of smart meters we couldn't ensure that consumers contract directly with generators, cutting out the middle man. The quid pro quo would be that generators would receive no subsidies including for distribution costs, and consumers would only be allowed to draw power provided that their supplier was generating sufficiently to meet the demand of its customers (otherwise they would be rationed by rotating power cut unless they paid for backup).
Initial chaos would soon result in strong consumer preference for reliable, cheap supplies, where possible locally generated, with reliable backup to guard against plant failure, and an optimised system for handling peak demand. A real market might well provide the right solution.