UK's thirst for energy falls, yet prices rise: Now why is that?
To keep profits the same or better. Even if everyone in the UK cut their use in half, prices would still rise to cover the shortfall in profits. It's a scam.
British politicians are depleting the nation's ability to produce the energy it needs, according to state statistics. The annual DUKES survey has provided exhaustive statistics on the UK's energy production and consumption since 1948, and the latest figures have been published by DECC, the Department for Energy (and Climate …
To keep profits the same or better. Even if everyone in the UK cut their use in half, prices would still rise to cover the shortfall in profits. It's a scam.
It's not a scam, it's basic economics.
Demand falls and prices rise is basic economics?
Where did you go to school at Yin?
"It's not a scam, it's basic economics."
I thought that basic economics would say that if demand falls by more than supply (as a cursory glance at the figures suggests), prices would go down.
Ah, but that forgets that we have pretty much no competition, and the big suppliers effecively* fix prices.
*They may not get around a table and decide "We will all charge £x", but they certainly follow each other (If company X puts prices up, the rest follow pretty sharpish)
Production falls. Static costs remain the same.
Sit down with a calculator and work out the new unit price.
Higher prices -> less people prepared to pay -> lower demand.
Lower demand -> fixed costs are shared between fewer sales -> prices rise.
It doesn't get much more basic than that, although I suspect gas prices are controlled by more than basic economics.
"Demand falls and prices rise is basic economics?
Where did you go to school at Yin?"
Happened every year at Taxi Fare Renewal Board.
Taxi Drivers: We not carrying as many passengers, so aren't making as much money, we want to put up fares.
"It's not a scam, it's basic economics."
If economics doesn't count as a scam, nothing does.
"Taxi Drivers: We not carrying as many passengers, so aren't making as much money, we want to put up fares."
though the economic model here was the train companies jacking their prices up every year and wondering why demand was falling...
The train companies are isolated from the vagaries of demand, they just get the government (i.e. taxpayer) to cough up more to cover any loses (or "lower then predicted profits").
Demand for trains is relatively elastic despite the poor level of competition* as alternatives do exist (cycle, car, motorcycle, car, bus, car-share, taxi, foot; etc) and people will switch if they can.
Not so with energy. People might switch from one company to another, but the level of any reduction they can make is going to be slight unless they invest in insulation/more efficient equipment; so it remains easy to raise prices to cover the fixed costs without seeing much drop in demand. It's not as simple to just throw up a solar array and a wind generator as it is to change mode of transport. Thus demand for energy is relatively inelastic.
As I said - it's basic economics.
*Whether or not there should even be competition on the railways is a different question. In my opinion the experiment has failed and should be scrapped. It's not going to work in the NHS either - unless we are prepared to raise spending on health to the same levels as the USA (from ~8% to ~15%). Your MPs are working hard to impoverish you even more - but so longs as they get a fat directorship and the perks; they don't give a damn.
If demand were to go back up I doubt we'd see a reduction in prices... do you?
While I haven't seen the data, the assertion that margin (profit) has increased during this time seems to go against the assertion that the price increase is due to a fixed cost situation. I have also never heard it argued that overall energy rates are majority dominated by fixed cost concerns. AFAIK, the general thinking seems to be more dominated by input (fuel) costs. There is a fixed cost component, sure, but I don't think it is dominant nor able to explain what we're seeing.
If there was a spike in fuel costs during this time it could still fall under the "basic economics" category (i.e. if input costs increase more than demand drops relative to the elasticity for this particular relationship). I'm not aware of a spike in fuel costs that would explain this...
Seems to me that the price increases regardless of demand, and beyond that which could be explained by input or fixed costs... which seems to put us outside the realm of basic supply and demand economics. To really understand this, I think we would need to consider other factors like government policy (subsidies, carbon offsets) or noncompetitive behavior (i.e. price fixing).
In the states we have seen a massive drop in gas/petrol consumption vs. last year amid relatively stable input (oil) costs, and gas/petrol prices are still much higher than last year. That money is going somewhere... cui bono?
Also, to me "basic economics" implies micro-101 type supply and demand... price fixing/collusion and/or government policy analysis is not - IMHO - basic economics.
I wouldn't have been as snarky to you Yin if you had mentioned your fixed cost angle - which I still disagree with BTW.
He also forgot that as demand falls, less raw material needs to be purchased, thus reducing that expenditure. Plus the price for said raw material is actually falling as demand falls, so why the price rise?
It's not a scam, it's business.
My personal definition of "business": making the greatest possible amount of money, in return for the least possible effort, in the shortest possible time, with an acceptably low chance of doing jail time.
More like "bankruptcy 101".
Basic economy policy of 'what the market will bear'. If someone is prepared (or even happy) to pay £100 per month on electricity why shouldn't you continue charging them the same or even slightly higher while getting them to use less of your product.
And the great thing is, if the customer complains, just bleat on about how much power their standby devices are using (using incorrectly calculated research).
It's not even what the market will bear. It's more: "This is what we're charging. Tough shit."
As all the companies increase their prices at about the same time, it's not like you can go elsewhere to get it cheaper. None of them are going to decide to cut prices by 50% because there's no reason for them to do so. They know we have to use it, so they keep increasing the prices and therefore their profits and we keep on paying the extra because we've got no choice.
Bastards. All of 'em.
"Demand Side Management" is great (good for the environment) but it can only go so far. It's a bit like a company thinking about resolving a problem with profitability by banning people from travelling and ordering biscuits for meetings.
The problem we face is energy planning is not a 4 year parliamentary issue - cross party agreement is required for a 5-10 year plan. We need to buy ourselves time. Renewables are great but in their infancy, over time solar, wind and wave power will increase in efficiency and cost less to manufacture significantly. We're in a recession so energy demand is low and we are manufacturing less - we do face increase demands due to population growth.
We need to either invest in cleaner fossil fuels generation capacity or - dare I say it - nuclear. Nuclear would buy us perhaps 25 years if we invested in all the plants proposed. It's a bit like the early plans for the M25, hard to predict but if we get it very badly wrong the light might have to go out for period of time which we are not used to.
I'm willing to bet that there are a number of households that have never changed their gas and electricity since privatisation. I would bet that these people account for a large proportion of the power companies profits.
@Valerion: Can you suggest an alternative to the current circus though? Supposedly we have competition but really it's just follow-the-leader on price rises.
If you want to bring prices down, we the consumer need to do this: Select one power company and use the internet to encourage everyone to boycott it. As people leave to join the other suppliers that company WILL lower it's price. It will be sitting on fuel that it cannot sell. When that company is on the brink of bankruptcy, rinse and repeat with another one. When the big five or six realise that the customer has some power they won't all raise prices come the winter or they could be next.
I would have thought the actual cost to the consumer would be the main factor in determining energy usage.
The problem is that the DECC is staffed mainly by green activists that want want to impose their religion on all of us.
Once you get down to a certain level, consumption isn't optional, and it's not like people can go somewhere else. You're not going to let the pipes freeze in winter or stop going to work just because prices bumped up again, are you?
This is all, IMHO, one big game of regulatory capture. The government may really think they're helping Gaia/climate by bending their citizens over on energy prices, but either stupidity or malice the end result is the same... interested parties are lining their pockets at the public's expense.
If the state was in charge (i.e. prior to 1990) then the costs would be related to the cost of production. It is not. So market rules apply - charge what you can get away with - if you're charging too much, customers can move to an alternate supplier. Unless, of course, a cartel is in operation (it's remarkably difficult to prove this). Note cartels are fine if we're talking about petrol as OPEC operates as a cartel.
It's called deregulation and is the bane of capitalism. Regulation is 'Communism' in the West and it doesn't matter that airlines, power companies and public transportation have to be bailed out every few years with taxpayer dollars; that's just the market...
*Corporate Greed Factor
If they did we'd only use 1 watt of power per year...
...and we'd be charged £20,000 for it.
What is a Watt per Year? Is it 1 Watt used constantly for a year (i.e. 8.8kWh) or is it a Watt used just once for an infinitesimal amount of time? Or do you mean 1kWh per year?
This confusion is exactly why I think we should dump the kWh unit and replace it with something else. I'd like to suggest we call the new unit the "cuppa", which is the amount of energy used to boil a cupful of water (like many things cup size is relevant (see icon), also relevant are ambient temperature, altitude etc, so let's peg it at 10 cuppas = 1 megajoule). Everyone is familiar with a cup of tea (or coffee) and how hot it is, so hopefully people will be able to relate the unit "cuppa" to the amount of energy it represents.
I notice that El Reg does not currently have a standard unit of energy (presumably relying on the somewhat clumsy Norris-linguine) and a cuppa would nicely fill the gap. Especially if accompanied by a biscuit or two. www.theregister.co.uk/Design/page/reg-standards-converter.html
For all it's positive contributions to the stewardship of this planet's resources (and there have been many, many positives) I take issue with the irresponsible brinksmanship of the green movement over energy generation.
The very clear evidence in publicly available records of energy generation that we cannot depend on renewables (ie. wind) for energy. The reason is that it is just too unreliable (the wind that is, not the hardware - though when was the last time you drove past a wind farm and didn't see a number of non-rotating units?). Even averaged nationally the wind is far too variable to be used as the majority energy source for the national grid.
For a dependable energy supply that doesn't involve CO2 emissions we have to go nuclear. If you're green and are true to your principles you have to accept this. All the fears and scaremongering about nuclear energy over the years has been shown to be unfounded. Not to say the track record is unblemished, far from it, but, in comparative terms, which has been the statistically safest way to generate energy over the past 60 years?
To ignore nuclear as an option for the majority energy source for the future is short-sighted brinksmanship. Greens, you want to preserve a world for future generations? Then start to live in the real one. Nuclear energy is your friend.
Not strictly speaking true - there are plenty of options to pursue for storing excess energy when the renewable sources are available (i.e. the wind is blowing or the sun is shining) - hydroelectric (pumping water into a reservoir), molten salt, massive flywheel installations, etc.
Whilst I would say that Wind is not the only renewable, your basic assumption is correct; none of the renewable options will provide a steady supply in sufficient quantity at this time - I wish that they would, but all the wishing in the world won't make it happen.
Successive governments (and their civil servants) have taken the nimby view; we don't care where the power is generated, just as long as it's not here. The problem is that this has had a bad effect on the balance of payments because we have to pay for all that oil & gas (or electricity) that we import.
Britain as a country is rich in coal; yet now we produce so little that we have to import the stuff. As a result, we are buying crap from Eastern Europe that is a bugger to work with because the quality is so poor.
With regard to nucear power, there are options; but almost no research has been put into developing fusion technology. Thorium reactors could provide a sensible approach to replacing the older fast breeder technology and we have enough of the basic material in the UK to provide energy for hundreds of millenia; the Chinese have now started working on this, but our elected leaders won't even discuss the principle.
There will come a time when the lights start to go out because the country is just not generating enough power. Short sighted? Totally myopic.
We'd need tens if not hundreds of GWh of storage - remember that flywheels and salt batteries are still fairly experimental and are really intended to provide the few minutes of UPS before the diesel generators kick in at sites like data centres and power stations.
So the only storage technology that could actually scale far enough is pumped storage hydroelectric.
Yet oddly enough, the Scottish seem unwilling to let us drown most of Scotland to provide the capacity.
"To ignore nuclear as an option for the majority energy source for the future is short-sighted brinksmanship. Greens, you want to preserve a world for future generations? Then start to live in the real one. Nuclear energy is your friend."
So so true. Sadly the idiocy of the green movement stop at nuclear - they can't even agree amongst themselves about renewables. One lot say build wind turbines , another lot say no , they kill birds , destroy habitats. One lot say burn biosmass , another lot says that destroys habitats too.
As far as renewables are concerned tidal power is 100% reliable and would meet a substatial portion of the UKs energy budget but the greens killed that too - check out the severn barrage.
Oh , and they don't like underwater turbines - might hurt some fish. FFS , its enough to make you weap.
yes but then they would have to admit that the 60 plus years of protesting anything nuclear was wrong. look at the article with the cofounder of green piece (the one they kicked out) a while back who basically said build nukes, plant tree's and burn them.
nuclear lobby needs to stop going on about thorium, sure it has potential but nuclear is bad enough for nimby and "think of the children" factor without adding on "new unproven technology". just refine existing designs and continue with the research then build out thorium when its proven reliable (i.e mini reactors by US gov etc).
Will never happen though after all gov has been telling everyone to be green can't u turn on this old chap so lets throw money down the toilet
"If you're green and are true to your principles you have to accept this."
Many, many of us are. Unfortunately an aging Old Guard have a lock on most of the environmental organizations. It's why I'm not a member of groups like Friends of the Earth. I actually would be if they focused on positive environmental issues such as preventing deforestation of the rain forests (care about CO2 or not, it's an environmental tragedy for all sorts of other reasons). But you can't be a member of these groups if you are pro-nuclear. You wont be listened to by the people who manage all the campaigns and press-releases, they simply will not hear you. They are people (specifically referring to the FoE leadership now) who will knowingly distort figures and omit data so that people 'reach the right conclusions'.
The only place for nuclear-minded environmentalists to go is single-issue groups or campaigns. For example, I'm part of some wildlife conservation movements. But even there it's hard to contribute without suddenly finding cross-polination from FoE or similar has infected the group. Next thing you know, you're watching it spout rubbish about Fukishima and wondering why you ever bothered to get involved.
And this is a big shame because we need public pressure in order to keep the environment something that is a factor in our country's decisions. But any environmental pressure suddenly finds a bunch of dishonest life-style environmentalists swooping in to speak on behalf of it and turn it to their own aims.
Fuck Friends of the Earth's leadership! Plenty of people who care in that organization being lied to and misled and even more being dissuaded from calling themselves environmentalists because of the anit-intellectualism of those fossils. We need to care about the environment. And the absolute best thing we could do right now is start moving our energy base to nuclear.
Agree 100% that medium-term (50 to 100-year) bulk supply of reliable energy requires nuclear as renewables still need improving + capacity-building and fossil fuels get scarcer. But, to be completely honest, since this article is about cost, it has to be acknowledged that nuclear power is expensive. Not unreasonable expensive, but certainly more than fossil fuels, and energy prices will go up long-term . Tough shit, that's the way the cookie crumbles, I doubt there will ever be a time when energy is as cheap as it is now, when we (humanity as a whole) are living off the 'inheritance' of millions of year of captured sunlight converted into oil/coal/gas (and blowing through that inheritance at an impressive rate)
The world needs to build up a global non-fossil supply of about 20-25 TW within the next century or else it's going to be one hell of a hangover when the party's over
"Wind and hydro remain a minuscule part of the energy supply, at under one per cent. If the renewable energy sector has a star, it's bioenergy - capturing gas from landfill and waste combustion."
I don't agree. We simply don't have enough wind farms. Build more. Cover the countryside. Sod green-belt, this is green. Now where did I put that taxpayer subsidy cheque? Must have left it in the East wing of the weekend house.
wish that ofcom or some other body would start regulating the price on energy. In the modern era its a required commodity. Year on year british gas and other energy suppliers are registering record profits while at the same time increasing their prices. It's just absurd.
There should be a cap on the amount these companies are charging for gas and electric. I mean for goodness sake, everything in thsi bloody country is too expensive now. The area I live in, with my monthly wage, if I were to move out of my parents house (yes I still live with my parents) on my current wage (which is good for my area) of 20k I get around 1.2k per month
Rent for a 1 room studio apartment is about £450. Add bills, and the other basics I need to y'know... live and by the end of the month I have absolutely no disposable income.
The country wonders why nobody is buying anything anymore? How about because we can't afford it, because anyone earning less than a maanger is bled dry through bills rent and taxes,
When nuclear power was just beginning, it was suggested that in the future energy would be provided, like water, to houses in such quantities that it would be:
'... too cheap to measure...'
and it would just be paid for with a fixed connection fee, like water.
There is NO technical reason why this should not be the case. In the case of water, there is no reason at all to introduce water meters, since there is in effect an infinite supply, because water moves in a cycle and can never be used up. The cost of production for both water and energy, depending on economies of scale, can be reduced to practically nothing per head, with the only costs being maintenance and, for energy, fuel.
What has gone wrong with this vision is the privatisation process. It is NOT to the advantage of a company to produce its output for free. Instead, all sorts of arguments are used to keep the unit cost as high as possible, because profit is a percentage of unit cost.
We should get back to 1950s thinking....
Me and the wife just moved into a new house, it's a fairly large house but there is only two of use and we have new "efficient" appliances. However the water company says we have to pay £38.00 per month for 12 months before they will review how much water we actually use!
Now, in the last house witht the old appliances we didnt need to pay 1/2 of that (to the same supply company), seems to me that the companies want to charge you a loadso they can have your surplus cash x x number of customers in their accounts earning them interest?
Actually, your domestic water supply uses energy to purify it, and you could argue that they are effectively the same thing.
At the end of the day, all your domestic services (Electricity/gas, water, sewerage, broadband, phone) come down to energy, maintenance and capital infrastructure costs.
Such a shame that the first is being squeezed by short-term thinking... As is the second and third...
> ... there is in effect an infinite supply, because water moves in a cycle and can never be used up
Are you serious? You may be technically correct on the first part, but there were points at which demand outstripped supply and we then started hammering the reservoirs. What would happen when the reservoirs run dry? Would you stick by your assertion that it can never be used up?
My water meter is ready every three months. What idiots are you buying your water from?
With Nuclear we have a Policy of "if at first you don't succeed, try, try and then give up".
It may just be a matter of time before those people's comments about Nuclear (it being too cheap to meter) may still come true.
Current Nuclear plants aren't vastly more sophisticated than the ones created in the 50s. If computers had advanced at the pace of Nuclear Power we'd still be using punch cards in our biggest most powerful computers, forget the personal computer entirely.
Check out Terrapower if you want to catch a glimpse of something that might be real progress.
In the end, e=mc^2 trumps everything. Just ask the sun.
"What idiots are you buying your water from?"
Er, the only one I'm allowed to, as the pivatised water companies in the UK have local monopolies. They don't operate in a competitive market.
We can't change supplier.
We don't have any choice.
Wonder how long it wil before all new houses have combi-boilers with solar electric/water heaters, ground source heat pumps etc etc.
Only the rich can afford that shit - it's expensive!
For the rest of us we'll grumble every time the rates increase, but won't be able to do anything about it because the rates are already bleeding us dry.
It's not the upfront expense that dooms micro-generation; it is local legislation that requires you to "sell" your power to the local utility then get a credit on your monthly bill. Until you can live in a township and generate your own electricity and use it directly then micro-generation is doomed.