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> Officials never asked for electricity companies to lower their profit margins during last year's high prices. Presumably they also didn't offer to subsidise

> Officials never asked for electricity companies to lower their profit margins during last year's high prices. Presumably they also didn't offer to subsidise them during periods when demand was much lower, such as during the pandemic?

tialaramex 3y ago
For the fossil fuel plants, fuel costs money so you spend most of your revenue on buying fuel. Less power usage => Less fuel used => Lowers costs. That doesn't mean the pandemic wasn't painful for them, but they were likely a long way down the list. For a solar or wind plant, construction costs are almost the entire cost, there's no fuel and low maintenance, but almost nowhere has saturation, so outside of freak situations you're always selling into a willing market anyway.
- robertlagrant 3y ago
  Also, depending on the market solar and wind get priority, so any energy generated is always sold.
  - tialaramex 3y ago
    Are you aware of examples with a formal priority? My understanding was that solar and wind are just necessarily the low bids so that's why they always sell into basically any market until they saturate all demand. They're the low bids because if your power plant needs fuel, you must bid high enough to pay for the fuel, at least on average and at least most of the time, or else you go bankrupt when you can't pay your fuel bills. But wind and solar don't need fuel. While you're not going to make a profit selling wind electricity for $5 per MWh because of your enormous capital costs - you make more money doing that than if you bid $50 per MWh and lost the auction to a gas plant. These auctions actually pay everybody the same price, so even though your bid was $5, if some $45 per MWh gas plants were needed to hit the target capacity, you're getting $45 per MWh for your wind power. But because your bid was low, you always sell at whatever the price is.
    - robertlagrant 3y ago
      Good challenge! This is how I understand the UK government's CfD[0] regarding renewable energy strike prices. As long as you don't go above the max, you can always sell. [0] https://www.gov.uk/government/news/boost-for-offshore-wind-as-government-raises-maximum-prices-in-renewable-energy-auction https://www.gov.uk/government/news/boost-for-offshore-wind-a...
      - tialaramex 3y ago
        Ah, I see, you've misunderstood what the strike price is. The electricity market isn't paying that strike price, it's just paying the market rate. The government (via the "Low Carbon Contracts Company" which it owns for this purpose) settles the difference (hence "Contracts for Difference") between the strike price† and the market price of electricity when you sell it. There are three prices to think about here: A. The price you are willing to sell your electricity to the market for. This is probably very low, let's say it's £1 per MWh. B: The settled price for a period, paid by the market. The market pays everybody a price determined by finding the minimum price for which it could buy enough electricity (with some margin). This will usually be higher than A, if it was lower you just won't sell electricity, for a coal or gas plant this means you needn't burn fuel to make electricity. Maybe B is £48 per MWh. C: The strike price from your government auction. This will often be higher than prevailing market prices (B) but not always. LCCC settles the difference with you, if C is higher than B (the usual case) you get enough money to make that up, if B is higher than C, you pay them the difference. C might be £67 per MWh. So in our worked example we bid A = £10, the market settled at B = £48, but our net reward is C = £67. If other people's prices were way higher maybe a major gas pipeline exploded, maybe A = £10, but B = £200, however our net reward is still C = £67. Why would anybody want a CfD? Because all the cost is in building the wind farm, whereas all the profit comes from long term energy supplying, and it's hard to predict what that'll pay. Knowing, a decade in advance, that you're getting £67 per MWh, no matter what, makes it much easier to find investors for your wind farm project.
  - henryaj 3y ago
    Or, as in the UK, they can be paid not to run if they would be otherwise generating too much power.
- henryaj 3y ago
  Then for power companies we wouldn't expect them to make high profits during periods of high energy prices (they're just passing on the higher cost of fuel to the consume) - sort of defeating the OP's point. For fossil fuel companies, their costs of exploration and development remained the same during the pandemic, forcing them to eat the losses - https://www.theguardian.com/business/2021/feb/02/bp-loss-covid-19-oil-demand#:~:text=The%20oil%20company%20reported%20an,the%20global%20market%20to%20tumble https://www.theguardian.com/business/2021/feb/02/bp-loss-cov....
jampekka 3y ago
Energy companies are subsidied all the time. About year ago to date a 10 billion subsidy program (in the form of gov backed dirt cheap loans) was started in Finland. In the meantime people struggling with inflation are getting huge cuts to benefits, pay and public services.
- henryaj 3y ago
  https://www.reuters.com/markets/europe/nasdaq-says-sweden-finland-guarantees-support-orderly-power-trade-2022-09-05/ https://www.reuters.com/markets/europe/nasdaq-says-sweden-fi... > The Finnish government said its loans to power companies under the guarantee scheme would initially come at an interest rate of 10% plus the six months Euribor daily reference rate. Not dirt cheap at all!
  - jampekka 3y ago
    I wasn't referring to that. https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-valtiontukiohjelmat https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-v...
- doikor 3y ago
  > Energy companies are subsidied all the time. About year ago to date a 10 billion subsidy program (in the form of gov backed dirt cheap loans) was started in Finland. Uh no. Government gave above market rate short term loans (literally mostly 1 day) so the electricity producers could sell their electricity to the market due to the price being high and the market rules requiring you to put money into escrow as insurance. Basically if you had 200 million worth of electricity to sell and had to put 1 billion into escrow as insurance but did not have that money it meant you could not sell that electricity and it would have driven the price up further forcing every producer to not sell their electricity crashing the whole system.
  - jampekka 3y ago
    You are probably referring to how governments bailed out the Uniper situation? I'm not talking about that. There are a lot of energy subsidies, to the electricity companies and to energy intensive companies. https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-valtiontukiohjelmat https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-v...

tialaramex 3y ago

For the fossil fuel plants, fuel costs money so you spend most of your revenue on buying fuel. Less power usage => Less fuel used => Lowers costs. That doesn't mean the pandemic wasn't painful for them, but they were likely a long way down the list. For a solar or wind plant, construction costs are almost the entire cost, there's no fuel and low maintenance, but almost nowhere has saturation, so outside of freak situations you're always selling into a willing market anyway.

robertlagrant 3y ago
Also, depending on the market solar and wind get priority, so any energy generated is always sold.
- tialaramex 3y ago
  Are you aware of examples with a formal priority? My understanding was that solar and wind are just necessarily the low bids so that's why they always sell into basically any market until they saturate all demand. They're the low bids because if your power plant needs fuel, you must bid high enough to pay for the fuel, at least on average and at least most of the time, or else you go bankrupt when you can't pay your fuel bills. But wind and solar don't need fuel. While you're not going to make a profit selling wind electricity for $5 per MWh because of your enormous capital costs - you make more money doing that than if you bid $50 per MWh and lost the auction to a gas plant. These auctions actually pay everybody the same price, so even though your bid was $5, if some $45 per MWh gas plants were needed to hit the target capacity, you're getting $45 per MWh for your wind power. But because your bid was low, you always sell at whatever the price is.
  - robertlagrant 3y ago
    Good challenge! This is how I understand the UK government's CfD[0] regarding renewable energy strike prices. As long as you don't go above the max, you can always sell. [0] https://www.gov.uk/government/news/boost-for-offshore-wind-as-government-raises-maximum-prices-in-renewable-energy-auction https://www.gov.uk/government/news/boost-for-offshore-wind-a...
    - tialaramex 3y ago
      Ah, I see, you've misunderstood what the strike price is. The electricity market isn't paying that strike price, it's just paying the market rate. The government (via the "Low Carbon Contracts Company" which it owns for this purpose) settles the difference (hence "Contracts for Difference") between the strike price† and the market price of electricity when you sell it. There are three prices to think about here: A. The price you are willing to sell your electricity to the market for. This is probably very low, let's say it's £1 per MWh. B: The settled price for a period, paid by the market. The market pays everybody a price determined by finding the minimum price for which it could buy enough electricity (with some margin). This will usually be higher than A, if it was lower you just won't sell electricity, for a coal or gas plant this means you needn't burn fuel to make electricity. Maybe B is £48 per MWh. C: The strike price from your government auction. This will often be higher than prevailing market prices (B) but not always. LCCC settles the difference with you, if C is higher than B (the usual case) you get enough money to make that up, if B is higher than C, you pay them the difference. C might be £67 per MWh. So in our worked example we bid A = £10, the market settled at B = £48, but our net reward is C = £67. If other people's prices were way higher maybe a major gas pipeline exploded, maybe A = £10, but B = £200, however our net reward is still C = £67. Why would anybody want a CfD? Because all the cost is in building the wind farm, whereas all the profit comes from long term energy supplying, and it's hard to predict what that'll pay. Knowing, a decade in advance, that you're getting £67 per MWh, no matter what, makes it much easier to find investors for your wind farm project.
- henryaj 3y ago
  Or, as in the UK, they can be paid not to run if they would be otherwise generating too much power.
henryaj 3y ago
Then for power companies we wouldn't expect them to make high profits during periods of high energy prices (they're just passing on the higher cost of fuel to the consume) - sort of defeating the OP's point. For fossil fuel companies, their costs of exploration and development remained the same during the pandemic, forcing them to eat the losses - https://www.theguardian.com/business/2021/feb/02/bp-loss-covid-19-oil-demand#:~:text=The%20oil%20company%20reported%20an,the%20global%20market%20to%20tumble https://www.theguardian.com/business/2021/feb/02/bp-loss-cov....

jampekka 3y ago

Energy companies are subsidied all the time. About year ago to date a 10 billion subsidy program (in the form of gov backed dirt cheap loans) was started in Finland. In the meantime people struggling with inflation are getting huge cuts to benefits, pay and public services.

henryaj 3y ago
https://www.reuters.com/markets/europe/nasdaq-says-sweden-finland-guarantees-support-orderly-power-trade-2022-09-05/ https://www.reuters.com/markets/europe/nasdaq-says-sweden-fi... > The Finnish government said its loans to power companies under the guarantee scheme would initially come at an interest rate of 10% plus the six months Euribor daily reference rate. Not dirt cheap at all!
- jampekka 3y ago
  I wasn't referring to that. https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-valtiontukiohjelmat https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-v...
doikor 3y ago
> Energy companies are subsidied all the time. About year ago to date a 10 billion subsidy program (in the form of gov backed dirt cheap loans) was started in Finland. Uh no. Government gave above market rate short term loans (literally mostly 1 day) so the electricity producers could sell their electricity to the market due to the price being high and the market rules requiring you to put money into escrow as insurance. Basically if you had 200 million worth of electricity to sell and had to put 1 billion into escrow as insurance but did not have that money it meant you could not sell that electricity and it would have driven the price up further forcing every producer to not sell their electricity crashing the whole system.
- jampekka 3y ago
  You are probably referring to how governments bailed out the Uniper situation? I'm not talking about that. There are a lot of energy subsidies, to the electricity companies and to energy intensive companies. https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-valtiontukiohjelmat https://tem.fi/-/komissio-hyvaksyi-suomen-energiayhtioiden-v...