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> 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 exper

> 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.
- logicchains 4y ago
  >Why has natural gas become more expensive when it has not become more expensive to produce? Price is a function of supply and demand. Supply was massively reduced by sanctions and war, so price goes up, simple as that. >This is price gouging. If electricity producers had enough pricing power to set the price to whatever they wanted without competition they'd already have done so years ago. Again, price is a function of supply and demand, cost of production is only one component.
  - seydor 4y ago
    No, the EU wholesale market uses a marginal price, that does not reflect the cost of generation (supply), but the highest cost available at any moment sets the price for everyone (at least as far as i understand). It s a free market but prices are set by a very inflexible rule.
    - kitkat_new 4y ago
      this doesn't change anything. If supply was higher, e.g. using solar/wind/nuclear/coal, prices would be lower
      - seydor 4y ago
        that would work only if non-gas sources generated enough so that gas is not needed at all. As it is right now, solar producers are getting a bonanza in profits because they are being paid at exorbitant prices. At this level, they have no incentive to ramp up production to remove gas from the equation.
        candiodari 4y ago
        > At this level, they have no incentive to ramp up production In a monopoly situation, yes. Luckily there is competition, and at this level their competition has a great incentive to ramp up capacity. Which, frankly, is going to make them ramp up production so they can capture a bigger piece of the market when the situation isn't quite as ridiculous as it is today anymore.

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.

logicchains 4y ago
>Why has natural gas become more expensive when it has not become more expensive to produce? Price is a function of supply and demand. Supply was massively reduced by sanctions and war, so price goes up, simple as that. >This is price gouging. If electricity producers had enough pricing power to set the price to whatever they wanted without competition they'd already have done so years ago. Again, price is a function of supply and demand, cost of production is only one component.
- seydor 4y ago
  No, the EU wholesale market uses a marginal price, that does not reflect the cost of generation (supply), but the highest cost available at any moment sets the price for everyone (at least as far as i understand). It s a free market but prices are set by a very inflexible rule.
  - kitkat_new 4y ago
    this doesn't change anything. If supply was higher, e.g. using solar/wind/nuclear/coal, prices would be lower
    - seydor 4y ago
      that would work only if non-gas sources generated enough so that gas is not needed at all. As it is right now, solar producers are getting a bonanza in profits because they are being paid at exorbitant prices. At this level, they have no incentive to ramp up production to remove gas from the equation.
      - candiodari 4y ago
        > At this level, they have no incentive to ramp up production In a monopoly situation, yes. Luckily there is competition, and at this level their competition has a great incentive to ramp up capacity. Which, frankly, is going to make them ramp up production so they can capture a bigger piece of the market when the situation isn't quite as ridiculous as it is today anymore.