One thing we’ve learnt this week

The big thing we’ve learnt this week by a clear margin is that the UK government is panicking over energy prices, hence the prime ministers rather bizarre “announcement”. (Apologies to the US readers in particular and others reading this as well, but as you will see below there is no cause for complacency anywhere). This morning the UK energy regulator “coincidentally” stepped into the row with pan to simplify “tariffs”.

The prime minister announced that everyone would automatically be put on the lowest tariff by their supplier.  I cannot comment on the competition criticism arguments made by some of the switching companies but I am with a social enterprise company (Ebico) with Christian origins, that only has a single rate for gas and electricity.  So this idea means no change for me.  For most energy companies customers who pay by direct debit get a slightly cheaper deal (direct debit discount).  This means poorer people who tend not to have bank accounts are penalised.  Ebico customers all pay the same.  In addition the single rate at Ebico also applies to pre-paid meters the use of which has traditionally penalised poorer customers.  In effect I’m helping to (slightly) subsidise those who cannot afford to pay.  This is slightly difficult to explain to those friends who are surprised I’m not on a green tariff. Ebico does not have one -although it would be nice if it did.  Another thing I like about Ebico is there is no standing charge meaning energy efficiency saves the maximum amount of money.  One of the interesting things about OFGEM’s announcement is that it seems to be implying a single rate for gas and electricity, so again no change for me there.  However, this is another reason why I switched, the multiple rates depending on how much gas or electricity I used to drive me potty.  It was very difficult to make savings particularly with my micro-generation and calculating any savings was very complicated.  I remember spending an entire evening trying to honestly work how much I saved in my spreadsheet (the gas rate had changed that quarter) for my solar hot water panel. The answer at that time was not very much.

Behind all this and behind the politicians panic is the huge rise we have seen in energy prices we have seen since the millennium.  The “raw material” prices for gas, oil, coal and uranium have risen steeply since this time (albeit with some downward movements along the way).  However,  the overall trend has been upwards.  In 2002 we had our solar hot water panel installed and I was paying around about 1p/KWh of gas.  I’m now paying nearly 5p/unit and expecting to pay well over 5p/unit soon.

Foreign readers should know there are specific UK centric reasons for this.  Mrs Thatcher privatised the energy sector.  We have ended with six large companies dominating the sector and about 20? other small ones.  These smaller ones tend to struggle to compete against the smaller ones. The larger companies tend to stick prices up together (about the same amount) and lower them less quickly and far when the wholesale prices of energy fall. Privatisation was sold as lowering prices and this it did at first. The reasons for this are probably coincidental though, when the companies were privatised we had gas and oil flying out the North sea. Since the turn of the century both the oil and gas fields have gone into decline never to recover and we have to buy more and more on the world market. At the same time the government encouraged a “dash for gas”. Gas powered power stations are quick and easy to build. The UK cut its emissions this way but the price of electricity now moves in tandem with the wholesale gas price i.e. generally upwards. This led to my largest ever increase in one year (2011- just under 30% increase for gas). Right wing climate sceptics have leapt on the increases in energy prices blaming them all on environmental subsidies. Even the BBC joined in on Panorama (they should have known better) and now apparently do, there is a retraction on the documentaries website. The increases in energy prices are largely due to the increase in energy prices not “renewables”.  In addition the grid needs expanding and renewal (this is the same in the US).

So what is to be done? First, we have accept that energy prices are going to rise everywhere. Even gas is being traded more internationally. Yes there is profiteering but prices are going to rise for resource scarcity reasons.  We also have to accept unconventional gas is not going to save us. Its lowered prices in the US but only since there was a lot of liquefied gas on the market at the same time. “Fracking” is expensive and takes a lot of energy, it puts a floor under prices of gas since there is a level below which its not longer worth extracting. The energy return on energy invested is not great for conventional gas its going to be even worse for something that takes repeated specialised drilling to extract.  We also have to accept that rising prices are overall a good thing, we don’t have a God given right to cheap energy and rising prices are the only way to get people to conserve.

Having accepted the above there are things we can do.  The first is to use less energy through lifestyle change and energy efficiency.  We could also subsidise those more who struggle to pay.  This is happening to an extent in the UK but could be extended so that those of us who could afford to pay paid more.  However, my preferred option is that of tradeable energy quotas. I’m going to stick my neck out and say we will end with these (eventually).

Our book covers many of the issues above.

Neil

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