What's going on with electricity prices?I see a fair bit of discussion online about the UK's energy price caps, and why it keeps going up. Understandably, people are really upset about their home energy costs going up by massive amounts. But, by and large, there's a lot of confusion about why this is happening. Particularly, people complaining that as their electricity is sourced from renewables they shouldn't have to pay more because the cost of oil has gone up. So I thought I'd try and write a a simple explainer. Both so I can point people at it, and so people can tell me if I've gotten something wrong.
Why are they so high?The first important thing to know is that the electricity market is split into three parts*. There are people who produce electricity (the generators), people who buy electricity from them and sell it to you (the suppliers) and people who consume electricity (that's you, that is).
The energy cap is set on the suppliers, and the price they sell to you. It's based on the wholesale price of electricty*, to make sure that they don't make huge profits. It's updated every 6 months, as it was expected that wholesale prices would rise or fall slowly over time, and not suddenly shoot up. When the electricity price
*did* shoot up suddenly, lots of suppliers who hadn't locked in lower electricity prices from the generators suddenly went bust (
31 of them!).
So the suppliers aren't at fault - they aren't making huge profits off of you. So who *is* making huge profits? Some of it is the generating companies. Not the ones who burn gas - they've had to put their prices up because there's less gas about, and so they have to pay more to get it. But everyone else who provides electricity whose costs haven't shot up is suddenly making a huge profit.
You might ask - but how are *they* able to charge more? And it's because you want to keep the lights on. And so does everyone else. Let's say there's a demand for 100 "units" of electricity to supply the UK. The renewables suppliers can supply 2/3 of it for 10p* per unit, and gas could supply the other third for 9p per unit. And thus everyone was happy. When gas suddenly goes up to 50p per unit, your supplier wants to buy all of the renewable electricity. But so does everyone else's supplier. And as long as they're paying less than the 50p per unit that gas now costs, it's worth them outbidding each other to get it. And so the renewables suppliers are suddenly making bucketloads of money.
This is excellent in some ways - because there's now a very very good reason for energy generating companies to build more renewables, where the profits are much higher. And terrible in some ways, because it means that a large number of people can't afford to heat their homes.
The other people who are making huge profits out of this are the people who supply gas to the generators. After all, the cost of gas hasn't gone up because it's more expensive to suck out of the ground, it's gone up because Russia isn't supplying as much, and so there's a shortage. So everyone else who supplies gas is *also* making bucketloads of money.
What should we do about it?
The *obvious* thing to do is for the government to subsidise the lower earners, and ensure that they can afford to keep their homes above freezing. And to do so by taking some of those profits back from the renewables companies (while leaving some incentive to keep building renewable electricity generators. You'll be completely unsurprised
the Conservatives are against that.
The next obvious thing to do is to have storage tanks in the UK to have enough gas lying about to deal with occasional shortages. In 2017 the UK's largest gas storage facility was closed, and
Conservatives dismissed calls to keep it open. (The UK has the second smallest gas reserve, per capita, in the EU)
The final obvious thing to do is to invest in more renewables, so that variations in gas supply aren't an issue. And there the Conservatives are doing
at least somewhat better. Although alongside the investment in renewables they are also looking to extract more oil and gas from the North Sea...
*Yes, I'm simplifying things a lot. ![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
