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>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 red

>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.
    - PeterisP 4y ago
      There's no single "they" for "solar producers". No matter what the existing producers do, even if they would all illegally collude, the current prices make it attractive for individual households to install solar panels and thus add new solar capacity.
    - iso1631 4y ago
      If I'm making $10 a day from my solar panel, so after 30 days I'll make $300. Job done. It instead makes sense for me to buy a new second panel for $100 after 10 days and then I can make $20 a day, then 5 days later buy a 3rd. 30 days into this I'll have made $45, and be making $30 a day instead of $10.
- dkjaudyeqooe 4y ago
  The marginal price of any good is the cost to produce one additional unit of that good. That applies to electricity too. Saying "the highest cost available at any moment sets the price for everyone" is misleading, it's also the lowest marginal price required to satisfy the total load required to supply the market.
  - seydor 4y ago
    i meant that in the EU wholesale market , everyone gets the marginal price. It is not the cost of an additional unit, a mwh of renewables is practically free (if paid-as-bid) but gets paid as natgas (because it gets paid-as-cleared)
    - dkjaudyeqooe 4y ago
      Yeah but that's how the market pricing works, it's a function of the auction process. Everyone pays the price required to satisfy the demand. See stock opening and closing auctions for a similar process. It feels odd that sellers get the higher price but it makes sense ultimately. The margin price in that market is the marginal cost of a GW hour by for the last GW that satisfies the load required (demand).
bjourne 4y ago
> Price is a function of supply and demand. Supply was massively reduced by sanctions and war, so price goes up, simple as that. But this is not true. Price is a function of whatever price the seller sets. Look at the actual circumstances rather than on mathematical models with no bearing on reality.
- merely-unlikely 4y ago
  > Price is a function of whatever price the seller sets. Only if customers are willing to buy at that price. Which is only true now because there are no cheaper competitors to turn to, which in turn is because the entire system is operating at capacity. Over time the high prices incentivizes bringing more power generation and transport online, which is exactly what we are seeing - new/reopened nuclear, coal, and nat gas plants are all planned or coming online across Europe and imports have spiked from places like the US. No one likes high prices but it does incentivize building more capacity that might lose money when prices are low, but make up for that when prices are high. This process doesn't happen over night but sanctions + war (roughly) did. Europe was lulled into complacency by consistent and cheap Russian gas for years. Also, don't overlook those transport costs. Networks across all energy types are severely constrained and underinvested in. Doesn't matter how cheap you can produce energy if you can't get it to your customers cheaply.
  - candiodari 4y ago
    > Only if customers are willing to buy at that price. Which is only true now because there are no cheaper competitors to turn to, which in turn is because the entire system is operating at capacity. In other words, the price is the marginal price: at the very edge. What is the highest price consumers want to pay for X amount of electricity. You should split it up: say price of electricity is 5$. That means: Electricity produced at 1$: sells for 5$ Electricity produced at 2$: sells for 5$ Electricity produced at 3$: sells for 5$ Electricity produced at 4$: sells for 5$ Electricity produced at 5$: sells for 5$ Electricity produced at 6$: does not sell, plants get paused
    - 4y ago

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.
  - PeterisP 4y ago
    There's no single "they" for "solar producers". No matter what the existing producers do, even if they would all illegally collude, the current prices make it attractive for individual households to install solar panels and thus add new solar capacity.
  - iso1631 4y ago
    If I'm making $10 a day from my solar panel, so after 30 days I'll make $300. Job done. It instead makes sense for me to buy a new second panel for $100 after 10 days and then I can make $20 a day, then 5 days later buy a 3rd. 30 days into this I'll have made $45, and be making $30 a day instead of $10.
dkjaudyeqooe 4y ago
The marginal price of any good is the cost to produce one additional unit of that good. That applies to electricity too. Saying "the highest cost available at any moment sets the price for everyone" is misleading, it's also the lowest marginal price required to satisfy the total load required to supply the market.
- seydor 4y ago
  i meant that in the EU wholesale market , everyone gets the marginal price. It is not the cost of an additional unit, a mwh of renewables is practically free (if paid-as-bid) but gets paid as natgas (because it gets paid-as-cleared)
  - dkjaudyeqooe 4y ago
    Yeah but that's how the market pricing works, it's a function of the auction process. Everyone pays the price required to satisfy the demand. See stock opening and closing auctions for a similar process. It feels odd that sellers get the higher price but it makes sense ultimately. The margin price in that market is the marginal cost of a GW hour by for the last GW that satisfies the load required (demand).

bjourne 4y ago

> Price is a function of supply and demand. Supply was massively reduced by sanctions and war, so price goes up, simple as that. But this is not true. Price is a function of whatever price the seller sets. Look at the actual circumstances rather than on mathematical models with no bearing on reality.

merely-unlikely 4y ago
> Price is a function of whatever price the seller sets. Only if customers are willing to buy at that price. Which is only true now because there are no cheaper competitors to turn to, which in turn is because the entire system is operating at capacity. Over time the high prices incentivizes bringing more power generation and transport online, which is exactly what we are seeing - new/reopened nuclear, coal, and nat gas plants are all planned or coming online across Europe and imports have spiked from places like the US. No one likes high prices but it does incentivize building more capacity that might lose money when prices are low, but make up for that when prices are high. This process doesn't happen over night but sanctions + war (roughly) did. Europe was lulled into complacency by consistent and cheap Russian gas for years. Also, don't overlook those transport costs. Networks across all energy types are severely constrained and underinvested in. Doesn't matter how cheap you can produce energy if you can't get it to your customers cheaply.
- candiodari 4y ago
  > Only if customers are willing to buy at that price. Which is only true now because there are no cheaper competitors to turn to, which in turn is because the entire system is operating at capacity. In other words, the price is the marginal price: at the very edge. What is the highest price consumers want to pay for X amount of electricity. You should split it up: say price of electricity is 5$. That means: Electricity produced at 1$: sells for 5$ Electricity produced at 2$: sells for 5$ Electricity produced at 3$: sells for 5$ Electricity produced at 4$: sells for 5$ Electricity produced at 5$: sells for 5$ Electricity produced at 6$: does not sell, plants get paused
  - 4y ago