Reply to post: Re: No shocks here

Smart meter benefits even crappier than originally thought

Anonymous Coward
Anonymous Coward

Re: No shocks here

The only point I can see for having smart meters is so that the electric company can charge me the spot price instead of the average for a month.

That might work for generators, it doesn't work for suppliers. What suppliers actually do (and is little understood by customers, and not at all understood by politicians) is to act as a risk manager for residential customers, providing (as far as practical) a flat rate price in a volatile market where the wholesale costs vary half hourly, with big seasonal swings, where transmission costs are allocated by peak demand, where distribution charges vary by location, time, peak demand and connection capacity, plus an overlay of government costs like the Renewables Obligation, Warm Homes Discount, Energy Company Obligation, Smart Metering, etc etc. The suppliers buy forward contracts to guarantee they have the necessary energy to sell, they hedge demand, weather, gas prices, and currencies. And if they get the forecasting and hedging wrong, they are "out of balance" in the wholesale markets, and not only do they have to pay penal prices for the extra spot capacity they have to buy, they also have all of the costs of the balancing systems thrown at them. If a supplier gets those complexities wrong, they'll find themselves losing so much money that they'll be out of business in days.

In theory you could set up a supplier selling "spot" to consumers, and avoid some of these risks as a supplier - but then the customers take that risk, because no generator would seek to sell all their capacity on the spot market as there's too much risk. If you're buying forward capacity as a consumer, that works like a take or pay contract. if you're under your forecast then you paid for energy that you didn't use, if you're over then you could be looking at the excess being charged at £35/kWh on a winter peak, or a whole lot more.

So do suppliers want you to pay a wholesale tracker rate? Not at all. We make money by managing wholesale market risks to a flat rate. The people who want you to be faced with either time of use tariffs (or worse still "dynamic pricing" that's a step closer to following wholesale prices) are the clowns of DECC (now BEIS) and Ofgem, because it suits their agenda of forcing customers to adapt to the system they've built, rather than building a system to deliver what customers might want.

Another commentard make the observation that in energy markets don't appear to work, and he's right, but perhaps for the wrong reasons. Markets don't work here because government want the market to produce a specific answer they've pre-decided is the right answer - a market outcome is not what the policy makers want. However, the conclusion that if markets don't work we should re-nationalise the lot is similarly flawed, because the problems stem exactly from public sector ineptitude in policy and decision making. The market (mostly) doesn't want to pay for expensive "solutions" chosen by a climate change industry that has captured all recent governments; Government demands that you do pay for those. Until you've squared that difference, neither markets nor state ownership will produce an adequate answer.

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