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Remember that, while prices have soared, electricity generation has not become more expensive. The "electricity crisis" is a crisis for European consumers but a

Remember that, while prices have soared, electricity generation has not become more expensive. The "electricity crisis" is a crisis for European consumers but a massive windfall for producers. This is a market failure - not an electricity failure.

sph 4y ago
Can anybody explain why that is? Why a country that generates 99+% of its own electricity like UK is seeing price increases? Everybody blames the war, but AFAIK UK imports 1% of its gas from Russia, and its electricity is generated locally, so why are prices increasing? I would expect grain and wheat to increase 500%, not power.
- deleted 4y ago
  [deleted]
- im3w1l 4y ago
  Electricity is very inelastic, which means that a tiny change in supply can massively affect the price. Only when it gets super expensive do people to start cutting down on their consumption, and supply and demand come into balance.
- locallost 4y ago
  It's because not all electricity costs the same to produce, but the price is the same, determined by the most expensive producer. There is a shortage of electricity because France is generating a lot less than normal and this is made up by other countries. I would guess the UK is impacted by higher demand as well, thus the more expensive producers are delivering jacking up the prices for everyone.
  - dkjaudyeqooe 4y ago
    > determined by the most expensive producer That's wrong. The price is determined by demand and supply, which in turn is determined by what prices producers are willing to sell at and consumers are willing to buy at, plus other traders in the market.
    - the_mitsuhiko 4y ago
      That’s not entirely true. The prices of the underlying different electricity sources is different but they can’t be traded separately. As a result the market is very dysfunctional.
      - dkjaudyeqooe 4y ago
        > As a result the market is very dysfunctional. You're stating that without evidence, but the kind of auctions that the electricity market requires are similar to opening auctions for stocks. Would you claim they're very dysfunctional?
        the_mitsuhiko 4y ago
        The kind of trades that are currently happening in Europe for electricity are removed from the reality on the ground. You can look through this Twitter thread for some good commentary on what is happening: https://twitter.com/yakutsavas/status/1563529006997450752?s=21&t=dILZXGAjbEkQ9xA9jW58Hw https://twitter.com/yakutsavas/status/1563529006997450752?s=...
        dkjaudyeqooe 4y ago
        Probably, but that's evidence of a free market in operation, craziness happens sometimes but it sorts itself out. There is a massive supply squeeze, these things are to be bound to happen.
    - locallost 4y ago
      It's correct for the day ahead price [1]. Of course the most expensive producer needs to be actually needed to satisfy the demand side. [1] https://en.m.wikipedia.org/wiki/Merit_order https://en.m.wikipedia.org/wiki/Merit_order
      - makomk 4y ago
        Which is to say that it's determined by both the supply and demand side: if the price were lower there would be people willing to buy at that price but not enough to sell them, and if it were higher there would presumably be people willing to sell at that price but not enough buyers. It is, in some fairly fundamental sense, the actual market price of electricity at that point in time.
- dazc 4y ago
  We generate a lot of this electricity by burning gas which we have to buy from the market where prices are set relative to global supply and demand. This is why we originally stopped mining coal - because Russian gas was so cheap at the time that it was a no-brainer. What could possibly go wrong?
  - origin_path 4y ago
    UK stopped mining coal mostly in the 1980s when Russia was still the Soviet Union. The cause was not Russian gas which isn't a direct substitute for coal anyway and especially not back then, but rather that the NUM destroyed the domestic coal industry, which became totally uncompetitive relative to more or less any foreign producers. It wasn't Russia specifically, it was that UK mining became dysfunctional and unreliable.
    - ClumsyPilot 4y ago
      is it fair to call it disfunctional? Are you expecting to compete on price with countries where workers have no rights, no health and safety and live a dog's life?
      - trasz 4y ago
        Those stereotypes about Australia are mostly unfounded nowadays.
    - dazc 4y ago
      Perhaps I'm mis-remembering but I was certain that the abundance of cheap gas was one of the main arguments for closing down a lot of mines that were considered to uneconomical as a result. Maybe we were also importing cheaper coal from elsewhere?
    - synotna2 4y ago
      > but rather that the NUM destroyed the domestic coal industry, which became totally uncompetitive relative to more or less any foreign producers. It wasn't Russia specifically, it was that UK mining became dysfunctional and unreliable. If you think miners should not be fairly compensated for their work you're free to go work as one for one of those foreign producers that less "dysfunctional" and more "reliable"
- dkjaudyeqooe 4y ago
  Because electricity is sold across the entire European market. Low cost producers are going to sell to those who pay the most, to maximise profit, unless they're unable to move the electricity ( or more likely 'contra' it) to where it is intended to be consumed. Just like oil. The US has cheap oil but it's a global market, so everyone pays the (more or less) the same price regardless of how close they are to the oil.
  - Ekaros 4y ago
    Also because electricity market is bit special how it operates. Suppliers tell what price they will sell and and then buyer at what price they will buy. And the price for all transactions will be set at highest match of supply to demand. Because demand side has no upper price limit the whole market price can raise to very high. Ofc, this ignores cases of own production, futures and so on.
    - konschubert 4y ago
      You're describing an auction principle. It's called merit-order. It is very efficient at creating a transparent market and finding the "natural" market price. The same price that a free and transparent market would converge to. The alternative are price caps. Which could be considered. But it's a choice between free and non-free markets. Blaming merit-order is shooting the messenger.
- deleted 4y ago
  [deleted]
- balderdash 4y ago
  What makes gas different from wheat? US is a huge exporter of wheat, that doesn’t mean us farmers/traders don’t have their eye on what Ukrainian shortfalls imply for global balances? Same thing for gas, uk is competing with their neighbors for a resource that just got a whole lot more scarce (locally), causing prices to rise
  - neural_thing 4y ago
    Gas is, well, a gas. The only way to transport it in the absence of pipelines is liquifying it. LNG infrastructure is very hard to build, and right now there's no additional LNG capacity to ship gas to Europe. It takes a while to build. See https://doomberg.substack.com/p/have-fun-staying-cold https://doomberg.substack.com/p/have-fun-staying-cold From last November
    - balderdash 4y ago
      Obviously, and obviously transporting and storing nat gas drives pretty large basis spreads globally. You still haven’t addressed WHY the fundamental price setting mechanism of nat gas would be any different from any other commodity.
- qwertyuiop_ 4y ago
  It’s a self inflicted green transition with no back up plan or a plan
  - thfuran 4y ago
    Are you saying things would've worked out better if Russian gas accounted for a higher percentage of eu energy before the sanctions?
- Sakos 4y ago
  https://www.eia.gov/todayinenergy/detail.php?id=52758 https://www.eia.gov/todayinenergy/detail.php?id=52758 > The United Kingdom has the second-largest LNG regasification capacity in Europe (4.7 Bcf/d), and it can export up to 2.5 Bcf/d of natural gas to the European Union via the Interconnector pipeline into Belgium and the BBL pipeline into the Netherlands. Regasified LNG volumes in the United Kingdom averaged 2.9 Bcf/d from January through May 2022, and regasification facilities ran at a 63% utilization rate, up from 30% last year. Exports from the United Kingdom via interconnecting pipelines to the European Union have run at close to maximum rates since March 2022. I would assume because of this.
dkjaudyeqooe 4y ago
> electricity generation has not become more expensive A lot of generation in Europe is using gas, so it very much has. It's more or less a normal market experiencing a jump in price on inputs. If you can produce cheaper than the market price then you make lots of money. That's normal. The market is telling buyers to use less electricity and sellers to produce more. It's how markets work.
- andrepd 4y ago
  That is predicated on the rational market hypothesis: that all agents have perfect information, make perfectly rational decision, there is no market friction, and goods are perfectly elastic. Of course, neither of these assumptions are true in this case. Back in the real world, we can look at hard data. Margins for energy producers and retailers have increased massively in the latest quarter. Also, we know that markets don't react directly (and exclusively) to fundamentals. They react to panics, they react to extremely complex interactions of manual and automatic trading algorithms. Reality is far from the simple "supply and demand" that economics 101 textbooks portray.
  - vorpalhex 4y ago
    1. You mean the efficient market hypothesis? 2. That does not apply here since we are talking cost/profit and not share price > The efficient market hypothesis (EMH), alternatively known as the efficient market theory, is a hypothesis that states that share prices reflect all information and consistent alpha generation is impossible. Nothing you say is about EMH. Nor does EMH predict that markets react only to "fundamentals", only in that shares reflect the whole set of information.
- bjourne 4y ago
  But that just moves the question. Why has natural gas become more expensive when it has not become more expensive to produce? Furthermore, only 15% of Germany's power production comes from natural gas (https://www.cleanenergywire.org/factsheets/germanys-energy-consumption-and-power-mix-charts https://www.cleanenergywire.org/factsheets/germanys-energy-c...) and the market price has "only" tripled in the last year (https://www.euronews.com/my-europe/2022/08/25/europes-gas-prices-have-broken-a-new-record-how-high-can-they-go https://www.euronews.com/my-europe/2022/08/25/europes-gas-pr...) while electricity prices have increased over 600%. This is price gouging.
mytailorisrich 4y ago
Depends on the country. Certainly this applies to a country like France that produces most of its electricity through nuclear, which they are in the process of fully nationalising. This gives them a lot of leeway to control prices without actually costing them anything.
- origin_path 4y ago
  Of course it costs them! Nationalisation just means the losses of the nuclear industry are born by the taxpayer, which will surface in worse services in other areas.
  - mytailorisrich 4y ago
    What I'm saying is that since production costs are stable, as long as they set a price that covers actual costs then this price control does not actually cost them money, only potential profits, so it is sustainable.
    - origin_path 4y ago
      It leads to shortages instead as people find ways to arbitrage the price - buy French nuclear power cheap then export it for profit. Fundamentally you can have high prices, shortages or you can disconnect France from the rest of the European grid but you cannot just have cheaper prices in France.
      - ClumsyPilot 4y ago
        This is absurd in several levels - you can't move electricity in a box, there are only a few interconnects, all of them regulatable and controllable, they can only move like 15% of tital supply and prices are different for business and for home use. And nothing you've said seems to have relevance to shortages
        origin_path 4y ago
rconti 4y ago
It's not a market failure. Markets are not supposed to keep a steady profit margin regardless of demand. Production cannot be scaled up and down infinitely and immediately. The price is a market signal. The fact that production cannot be immediately scaled to serve the customer demand and bring prices (and therefore profits) back down to a "normal" level is not a market failure either; it's simply a physical reality.
- Ekaros 4y ago
  The true market failure is on demand side. Demand is what drives the price not the supply. With low enough demand the price just doesn't go very high.
  - vorpalhex 4y ago
    Sure, you are free to be the first one to freeze to death this winter or melt during the summer. I don't think anyone is meaningfully wasting electricity in Europe currently. Demand can't go to zero. Supply dropped significantly.
    - ZeroGravitas 4y ago
      Ekaros is correct. Lots of people pay a fixed cost for their electricity whether it is generated at peak time with lots of gas or in the middle of the night with wind and nuclear. We don't currently do a good job of responding to price signals. We have some plans to expand this, which are being rushed into service after being neglected for a long time. https://www.bbc.co.uk/news/business-61949246 https://www.bbc.co.uk/news/business-61949246 And even that has to lie about "it not being about rationing" because price signals are so foreign to the consumer energy market.
- tenpies 4y ago
  The problem is the huge role government has had in this, which means regular market mechanisms won't work for a while. 1. The Western governments have spent a decade demonizing fossil and nuclear energy. For that whole time, big funds have divested, and investors punished. No major fund is going to touch this sector, especially not if the intent is a capital project. Nuclear is just seeing a turnaround as some governments regain their rationality (e.g. Japan), but others seem to be utterly hopeless (Canada, Germany). 2. The above means that schools stopped offering the programs necessary to train the workers for the industry. There is an entire generational gap now in oil and gas trades, from the roughneck to the engineers. 3. The government's incompetence has caused rampant inflation which, affects these industries too. Suddenly you have to deal with the labour shortage, there being no raw inputs (the year supply of anything from pipe to mud was sold out in most markets by Q1 of '22), and you have no idea what great ideas government will pass by next quarter so you have to price high to build a buffer. All of this leads to huge uncertainty. The worst part in my eyes, is that we're only really seeing the beginning of this. Governments are still on their ESG-above-reality stance. Approval from their UN SDG and WEF cronies is still more important than their constituents well-being. I honestly feel for the Europeans that saw this coming and voted accordingly - but more for the Africans and Asians who will be bid out by Europe and be faced with starvation of freezing. They had no say in this and they will pay the steepest price for Europe's ESG hubris.
vorpalhex 4y ago
That's just wrong. The components of electricity generation - the fuel - has exploded in price. You may not be aware, but there's a war going on that is sort of impacting things on top of existing inflation. I realize picking a scape goat feels easy but it's poor form and leads to not fixing the actual problem.
- seydor 4y ago
  If that were true countries that don't depend on russia would not be affected. Greece uses little natgas, and only only 4% of it is russian, yet it sees some of the most steep rises.
  - origin_path 4y ago
    Lots of countries import gas using LNG terminals. Those gas ships can go to any country that has import terminals and they set sail for the highest bidder. So gas is like oil, there's only a few global prices.
  - DIARRHEA_xd 4y ago
    Similar price trends are to be expected across all nodes in highly interconnected grids.
  - ZeroGravitas 4y ago
    It's not the Russian gas that is expensive, it's the intentional lack of supply of Russian gas that makes the market price for all gas go up (plus some other general market tightness due to COVID).
calaphos 4y ago
Capacity has decreased - mainly due to a lot of french nuclear reactors offline for scheduled and (correlated) unscheduled maintenance. France went from Europe's largest exporter to largest importer of power this year. Add to that a dry summer woth historically low water levels in rivers, disrupting cooling as well as things like coal transport for power plants. And natural gas, which usually covers the more elastic power demands is dramatically more expensive.
- adventured 4y ago
  Not to mention Germany (largest economy in Europe) and their nuclear debacle. They could have spent the last 20 years building additional nuclear power and reducing dependency on Russia, instead of doing the opposite. 15+ years ago it was obvious what Putin was and the direction Russia was heading. Germany should be a super exporter of energy to the EU/Eurozone (they are a big electricity exporter, they should and could be considerably more so). They land border nine other nations (and are of course very close to Italy). They have the technical and financial ability to do it.
Joeri 4y ago
Market price is based on the price of the most expensive megawatt produced. The price moves up and down to balance production with consumption, a necessity for every grid, and producers set prices at which they are willing to inject quantities. The current problem is that in europe a lot of the electricity is made by gas plants and those plants are seeing their costs rise. They therefore increase the price at which they are willing to inject capacity, and that means the market price moves up because that power is needed to satisfy demand. Gas plant operators are not making a lot of profit. Because every party injecting power at market rates (some of it is actually locked up in long term contracts) is paid the market rate, those not using gas to produce power are actually the ones making record profits. Wind is literally making windfall profits. There are talks of having an excess profit tax because right now governments are going into debt to finance energy subsidies that line the pockets of wind and nuclear operators (and of vladimir putin).
- ZeroGravitas 4y ago
  The people selling the gas plants the gas are also making windfall profits.
cinntaile 4y ago
It's not a market failure, this is how marginal pricing is supposed to work. This incentivizes market participants to build out production thus pushing prices down again.
Fiahil 4y ago
> The "electricity crisis" is a crisis for European consumers Well. I don't know where you live, but I'm not paying more than last year. I read about soaring prices being an issue in the UK. Prices, here, in France are fixed twice a year by the energy commission. Right now, residential electricity increased by 4% last February and remained unchanged at the start of August. So it means that whatever is happening in the market, is not affecting us. Actually, I will probably have 2-3 months of cash back at the end of the year. Not really a crisis, to be honest. However I would be very interested to know what is the situation like for my fellow European citizens !
- synotna2 4y ago
  Fortunately you are being in part subsidised thanks to EDFs profits in other countries :) You very seriously need to check out news or Twitter from any other Western European country If what was happening in UK happened in France, Paris would have been burnt to the ground months ago

sph 4y ago

Can anybody explain why that is? Why a country that generates 99+% of its own electricity like UK is seeing price increases? Everybody blames the war, but AFAIK UK imports 1% of its gas from Russia, and its electricity is generated locally, so why are prices increasing? I would expect grain and wheat to increase 500%, not power.

deleted 4y ago
[deleted]
im3w1l 4y ago
Electricity is very inelastic, which means that a tiny change in supply can massively affect the price. Only when it gets super expensive do people to start cutting down on their consumption, and supply and demand come into balance.
locallost 4y ago
It's because not all electricity costs the same to produce, but the price is the same, determined by the most expensive producer. There is a shortage of electricity because France is generating a lot less than normal and this is made up by other countries. I would guess the UK is impacted by higher demand as well, thus the more expensive producers are delivering jacking up the prices for everyone.
- dkjaudyeqooe 4y ago
  > determined by the most expensive producer That's wrong. The price is determined by demand and supply, which in turn is determined by what prices producers are willing to sell at and consumers are willing to buy at, plus other traders in the market.
  - the_mitsuhiko 4y ago
    That’s not entirely true. The prices of the underlying different electricity sources is different but they can’t be traded separately. As a result the market is very dysfunctional.
    - dkjaudyeqooe 4y ago
      > As a result the market is very dysfunctional. You're stating that without evidence, but the kind of auctions that the electricity market requires are similar to opening auctions for stocks. Would you claim they're very dysfunctional?
      - the_mitsuhiko 4y ago
        The kind of trades that are currently happening in Europe for electricity are removed from the reality on the ground. You can look through this Twitter thread for some good commentary on what is happening: https://twitter.com/yakutsavas/status/1563529006997450752?s=21&t=dILZXGAjbEkQ9xA9jW58Hw https://twitter.com/yakutsavas/status/1563529006997450752?s=...
        dkjaudyeqooe 4y ago
        Probably, but that's evidence of a free market in operation, craziness happens sometimes but it sorts itself out. There is a massive supply squeeze, these things are to be bound to happen.
  - locallost 4y ago
    It's correct for the day ahead price [1]. Of course the most expensive producer needs to be actually needed to satisfy the demand side. [1] https://en.m.wikipedia.org/wiki/Merit_order https://en.m.wikipedia.org/wiki/Merit_order
    - makomk 4y ago
      Which is to say that it's determined by both the supply and demand side: if the price were lower there would be people willing to buy at that price but not enough to sell them, and if it were higher there would presumably be people willing to sell at that price but not enough buyers. It is, in some fairly fundamental sense, the actual market price of electricity at that point in time.
dazc 4y ago
We generate a lot of this electricity by burning gas which we have to buy from the market where prices are set relative to global supply and demand. This is why we originally stopped mining coal - because Russian gas was so cheap at the time that it was a no-brainer. What could possibly go wrong?
- origin_path 4y ago
  UK stopped mining coal mostly in the 1980s when Russia was still the Soviet Union. The cause was not Russian gas which isn't a direct substitute for coal anyway and especially not back then, but rather that the NUM destroyed the domestic coal industry, which became totally uncompetitive relative to more or less any foreign producers. It wasn't Russia specifically, it was that UK mining became dysfunctional and unreliable.
  - ClumsyPilot 4y ago
    is it fair to call it disfunctional? Are you expecting to compete on price with countries where workers have no rights, no health and safety and live a dog's life?
    - trasz 4y ago
      Those stereotypes about Australia are mostly unfounded nowadays.
  - dazc 4y ago
    Perhaps I'm mis-remembering but I was certain that the abundance of cheap gas was one of the main arguments for closing down a lot of mines that were considered to uneconomical as a result. Maybe we were also importing cheaper coal from elsewhere?
  - synotna2 4y ago
    > but rather that the NUM destroyed the domestic coal industry, which became totally uncompetitive relative to more or less any foreign producers. It wasn't Russia specifically, it was that UK mining became dysfunctional and unreliable. If you think miners should not be fairly compensated for their work you're free to go work as one for one of those foreign producers that less "dysfunctional" and more "reliable"
dkjaudyeqooe 4y ago
Because electricity is sold across the entire European market. Low cost producers are going to sell to those who pay the most, to maximise profit, unless they're unable to move the electricity ( or more likely 'contra' it) to where it is intended to be consumed. Just like oil. The US has cheap oil but it's a global market, so everyone pays the (more or less) the same price regardless of how close they are to the oil.
- Ekaros 4y ago
  Also because electricity market is bit special how it operates. Suppliers tell what price they will sell and and then buyer at what price they will buy. And the price for all transactions will be set at highest match of supply to demand. Because demand side has no upper price limit the whole market price can raise to very high. Ofc, this ignores cases of own production, futures and so on.
  - konschubert 4y ago
    You're describing an auction principle. It's called merit-order. It is very efficient at creating a transparent market and finding the "natural" market price. The same price that a free and transparent market would converge to. The alternative are price caps. Which could be considered. But it's a choice between free and non-free markets. Blaming merit-order is shooting the messenger.
deleted 4y ago
[deleted]
balderdash 4y ago
What makes gas different from wheat? US is a huge exporter of wheat, that doesn’t mean us farmers/traders don’t have their eye on what Ukrainian shortfalls imply for global balances? Same thing for gas, uk is competing with their neighbors for a resource that just got a whole lot more scarce (locally), causing prices to rise
- neural_thing 4y ago
  Gas is, well, a gas. The only way to transport it in the absence of pipelines is liquifying it. LNG infrastructure is very hard to build, and right now there's no additional LNG capacity to ship gas to Europe. It takes a while to build. See https://doomberg.substack.com/p/have-fun-staying-cold https://doomberg.substack.com/p/have-fun-staying-cold From last November
  - balderdash 4y ago
    Obviously, and obviously transporting and storing nat gas drives pretty large basis spreads globally. You still haven’t addressed WHY the fundamental price setting mechanism of nat gas would be any different from any other commodity.
qwertyuiop_ 4y ago
It’s a self inflicted green transition with no back up plan or a plan
- thfuran 4y ago
  Are you saying things would've worked out better if Russian gas accounted for a higher percentage of eu energy before the sanctions?
Sakos 4y ago
https://www.eia.gov/todayinenergy/detail.php?id=52758 https://www.eia.gov/todayinenergy/detail.php?id=52758 > The United Kingdom has the second-largest LNG regasification capacity in Europe (4.7 Bcf/d), and it can export up to 2.5 Bcf/d of natural gas to the European Union via the Interconnector pipeline into Belgium and the BBL pipeline into the Netherlands. Regasified LNG volumes in the United Kingdom averaged 2.9 Bcf/d from January through May 2022, and regasification facilities ran at a 63% utilization rate, up from 30% last year. Exports from the United Kingdom via interconnecting pipelines to the European Union have run at close to maximum rates since March 2022. I would assume because of this.

dkjaudyeqooe 4y ago

> electricity generation has not become more expensive A lot of generation in Europe is using gas, so it very much has. It's more or less a normal market experiencing a jump in price on inputs. If you can produce cheaper than the market price then you make lots of money. That's normal. The market is telling buyers to use less electricity and sellers to produce more. It's how markets work.

andrepd 4y ago
That is predicated on the rational market hypothesis: that all agents have perfect information, make perfectly rational decision, there is no market friction, and goods are perfectly elastic. Of course, neither of these assumptions are true in this case. Back in the real world, we can look at hard data. Margins for energy producers and retailers have increased massively in the latest quarter. Also, we know that markets don't react directly (and exclusively) to fundamentals. They react to panics, they react to extremely complex interactions of manual and automatic trading algorithms. Reality is far from the simple "supply and demand" that economics 101 textbooks portray.
- vorpalhex 4y ago
  1. You mean the efficient market hypothesis? 2. That does not apply here since we are talking cost/profit and not share price > The efficient market hypothesis (EMH), alternatively known as the efficient market theory, is a hypothesis that states that share prices reflect all information and consistent alpha generation is impossible. Nothing you say is about EMH. Nor does EMH predict that markets react only to "fundamentals", only in that shares reflect the whole set of information.
bjourne 4y ago
But that just moves the question. Why has natural gas become more expensive when it has not become more expensive to produce? Furthermore, only 15% of Germany's power production comes from natural gas (https://www.cleanenergywire.org/factsheets/germanys-energy-consumption-and-power-mix-charts https://www.cleanenergywire.org/factsheets/germanys-energy-c...) and the market price has "only" tripled in the last year (https://www.euronews.com/my-europe/2022/08/25/europes-gas-prices-have-broken-a-new-record-how-high-can-they-go https://www.euronews.com/my-europe/2022/08/25/europes-gas-pr...) while electricity prices have increased over 600%. This is price gouging.

mytailorisrich 4y ago

Depends on the country. Certainly this applies to a country like France that produces most of its electricity through nuclear, which they are in the process of fully nationalising. This gives them a lot of leeway to control prices without actually costing them anything.

origin_path 4y ago
Of course it costs them! Nationalisation just means the losses of the nuclear industry are born by the taxpayer, which will surface in worse services in other areas.
- mytailorisrich 4y ago
  What I'm saying is that since production costs are stable, as long as they set a price that covers actual costs then this price control does not actually cost them money, only potential profits, so it is sustainable.
  - origin_path 4y ago
    It leads to shortages instead as people find ways to arbitrage the price - buy French nuclear power cheap then export it for profit. Fundamentally you can have high prices, shortages or you can disconnect France from the rest of the European grid but you cannot just have cheaper prices in France.
    - ClumsyPilot 4y ago
      This is absurd in several levels - you can't move electricity in a box, there are only a few interconnects, all of them regulatable and controllable, they can only move like 15% of tital supply and prices are different for business and for home use. And nothing you've said seems to have relevance to shortages
      - origin_path 4y ago

rconti 4y ago

It's not a market failure. Markets are not supposed to keep a steady profit margin regardless of demand. Production cannot be scaled up and down infinitely and immediately. The price is a market signal. The fact that production cannot be immediately scaled to serve the customer demand and bring prices (and therefore profits) back down to a "normal" level is not a market failure either; it's simply a physical reality.

Ekaros 4y ago
The true market failure is on demand side. Demand is what drives the price not the supply. With low enough demand the price just doesn't go very high.
- vorpalhex 4y ago
  Sure, you are free to be the first one to freeze to death this winter or melt during the summer. I don't think anyone is meaningfully wasting electricity in Europe currently. Demand can't go to zero. Supply dropped significantly.
  - ZeroGravitas 4y ago
    Ekaros is correct. Lots of people pay a fixed cost for their electricity whether it is generated at peak time with lots of gas or in the middle of the night with wind and nuclear. We don't currently do a good job of responding to price signals. We have some plans to expand this, which are being rushed into service after being neglected for a long time. https://www.bbc.co.uk/news/business-61949246 https://www.bbc.co.uk/news/business-61949246 And even that has to lie about "it not being about rationing" because price signals are so foreign to the consumer energy market.
tenpies 4y ago
The problem is the huge role government has had in this, which means regular market mechanisms won't work for a while. 1. The Western governments have spent a decade demonizing fossil and nuclear energy. For that whole time, big funds have divested, and investors punished. No major fund is going to touch this sector, especially not if the intent is a capital project. Nuclear is just seeing a turnaround as some governments regain their rationality (e.g. Japan), but others seem to be utterly hopeless (Canada, Germany). 2. The above means that schools stopped offering the programs necessary to train the workers for the industry. There is an entire generational gap now in oil and gas trades, from the roughneck to the engineers. 3. The government's incompetence has caused rampant inflation which, affects these industries too. Suddenly you have to deal with the labour shortage, there being no raw inputs (the year supply of anything from pipe to mud was sold out in most markets by Q1 of '22), and you have no idea what great ideas government will pass by next quarter so you have to price high to build a buffer. All of this leads to huge uncertainty. The worst part in my eyes, is that we're only really seeing the beginning of this. Governments are still on their ESG-above-reality stance. Approval from their UN SDG and WEF cronies is still more important than their constituents well-being. I honestly feel for the Europeans that saw this coming and voted accordingly - but more for the Africans and Asians who will be bid out by Europe and be faced with starvation of freezing. They had no say in this and they will pay the steepest price for Europe's ESG hubris.

vorpalhex 4y ago

That's just wrong. The components of electricity generation - the fuel - has exploded in price. You may not be aware, but there's a war going on that is sort of impacting things on top of existing inflation. I realize picking a scape goat feels easy but it's poor form and leads to not fixing the actual problem.

seydor 4y ago
If that were true countries that don't depend on russia would not be affected. Greece uses little natgas, and only only 4% of it is russian, yet it sees some of the most steep rises.
- origin_path 4y ago
  Lots of countries import gas using LNG terminals. Those gas ships can go to any country that has import terminals and they set sail for the highest bidder. So gas is like oil, there's only a few global prices.
- DIARRHEA_xd 4y ago
  Similar price trends are to be expected across all nodes in highly interconnected grids.
- ZeroGravitas 4y ago
  It's not the Russian gas that is expensive, it's the intentional lack of supply of Russian gas that makes the market price for all gas go up (plus some other general market tightness due to COVID).

calaphos 4y ago

Capacity has decreased - mainly due to a lot of french nuclear reactors offline for scheduled and (correlated) unscheduled maintenance. France went from Europe's largest exporter to largest importer of power this year. Add to that a dry summer woth historically low water levels in rivers, disrupting cooling as well as things like coal transport for power plants. And natural gas, which usually covers the more elastic power demands is dramatically more expensive.

adventured 4y ago
Not to mention Germany (largest economy in Europe) and their nuclear debacle. They could have spent the last 20 years building additional nuclear power and reducing dependency on Russia, instead of doing the opposite. 15+ years ago it was obvious what Putin was and the direction Russia was heading. Germany should be a super exporter of energy to the EU/Eurozone (they are a big electricity exporter, they should and could be considerably more so). They land border nine other nations (and are of course very close to Italy). They have the technical and financial ability to do it.

Joeri 4y ago

Market price is based on the price of the most expensive megawatt produced. The price moves up and down to balance production with consumption, a necessity for every grid, and producers set prices at which they are willing to inject quantities. The current problem is that in europe a lot of the electricity is made by gas plants and those plants are seeing their costs rise. They therefore increase the price at which they are willing to inject capacity, and that means the market price moves up because that power is needed to satisfy demand. Gas plant operators are not making a lot of profit. Because every party injecting power at market rates (some of it is actually locked up in long term contracts) is paid the market rate, those not using gas to produce power are actually the ones making record profits. Wind is literally making windfall profits. There are talks of having an excess profit tax because right now governments are going into debt to finance energy subsidies that line the pockets of wind and nuclear operators (and of vladimir putin).

ZeroGravitas 4y ago
The people selling the gas plants the gas are also making windfall profits.

cinntaile 4y ago

It's not a market failure, this is how marginal pricing is supposed to work. This incentivizes market participants to build out production thus pushing prices down again.

Fiahil 4y ago

> The "electricity crisis" is a crisis for European consumers Well. I don't know where you live, but I'm not paying more than last year. I read about soaring prices being an issue in the UK. Prices, here, in France are fixed twice a year by the energy commission. Right now, residential electricity increased by 4% last February and remained unchanged at the start of August. So it means that whatever is happening in the market, is not affecting us. Actually, I will probably have 2-3 months of cash back at the end of the year. Not really a crisis, to be honest. However I would be very interested to know what is the situation like for my fellow European citizens !

synotna2 4y ago
Fortunately you are being in part subsidised thanks to EDFs profits in other countries :) You very seriously need to check out news or Twitter from any other Western European country If what was happening in UK happened in France, Paris would have been burnt to the ground months ago