4 ms·

I had the same thought back when the Ukraine war started and gas prices soared. "It's ok" I thought " I am on a tarrif that pays a penny more per kWh to use 10

I had the same thought back when the Ukraine war started and gas prices soared. "It's ok" I thought " I am on a tarrif that pays a penny more per kWh to use 100% renewable energy so my price should not be impacted by gas prices". How naive was I - prices obviously shot up. They just charge for the most expensive generation method for all electric usage on the grid from what I can tell, regardless of source. Not sure if this is a "UK problem" in terms of regulations or legacy infrastructure, or if there is some more general economic-theory behind it.

mavhc 2y ago
Why should the wind farm get paid less than the gas power station? They should be paid more for not polluting
- mattlondon 2y ago
  Because their costs didn't increase was my naive assumption.
  - IshKebab 2y ago
    Prices are affected by supply and demand.
    - vfclists 2y ago
      If there is a genuinely free market.
    - mavhc 2y ago
      But also by the ability to get the supply to the demand, what would be the term? The bandwidth? You're free to make your own electricity grid
    - orwin 2y ago
      Not electricity prices. You can't have a free market when it comes to electricity. You can fake one, but it's like a ptomelaic solar system.
      - IshKebab 2y ago
        You definitely can have a free market for electricity. Why do you think you can't?
        orwin 2y ago
        Because of how electricity works. You have to produce exactly what you're consuming (or extremely close to) to avoid dephasing the network, not less, not too much. The carrier will have to shut down part of the network if that happen (rolling blackout) if you're not producing enough, but producing too much is as dangerous and will end up in blackout too. You actually have a lot of literature on OEMs, Capacity market, SPOT and other creation to try to simulate a free market, but it's always exploitable, and it makes money (a lot). Investing in an electricity company that do not produce any electricity is still a profitable venture.
        IshKebab 2y ago
        Yeah sure so you need to pay people to generate (or in extreme cases not generate) that electricity. You are allowed to negotiate how much you pay them. Free market. There are some issues, like for some reason the UK national grid doesn't pay different amounts for different locations, even though our grid capacity is too low to transport all the electricity we need from Scotland to England. They could fix that if they wanted. You might say it's not an "open market", in that it has to be tightly controlled by the grid operators to ensure that it doesn't dephase. But it's still a free market. If you build a power station and undercut everyone else they will have to lower their prices, just like every other market.
        orwin 2y ago
        > If you build a power station and undercut everyone else they will have to lower their prices, just like every other market. It does not work like that. You're paid the price the most expensive power station running is setting. And as the most expensive power stations earn via the capacity market, what you do is keep your old gas/coal power station spot price set really high, and you'll profit anyway. Also, electricity 'price' set for wind and solar are 0, good luck getting lower.
  - ZeroGravitas 2y ago
    In the long term, you want the cleaner, cheaper sources to be paid the same as the gas, as the short term profit encourages businesses to enter the market and build more solar and wind, and this then decreases the price. Kind of basic market dynamics. In the short term, when a geopolitical rival is invading your neighbours and using its control of certain resources to destabilise your own country, the windfall profits should be seized and returned to the people. This happened somewhat slowly and piecemeal in europe because big energy companies had too much sway over the political process.
Someone 2y ago
> I am on a tarrif that pays a penny more per kWh to use 100% renewable energy so my price should not be impacted by gas prices". How naive was I - prices obviously shot up. > or if there is some more general economic-theory behind it. It’s economics 101: supply and demand. If electricity from renewable sources wouldn’t get more expensive, demand for it would soar. Since supply can only follow slowly (it takes time to build wind farms/install solar panels), demand would outstrip supply, so prices go up.
rjwilmsi 2y ago
To me it made sense to price electricity at retail based on gas price when gas was the main source and the cost for that source is mostly about the market fuel cost. (There were and are other price guarantee schemes for nuclear where the ongoing fuel cost is only a small part of total costs. And the grid electricity price for wind is agreed by another set of rules - strike price). However, we're now beyond that point so it seems to me that the pricing model should change. With the planned growth rate of new wind (and solar) by 2030 for the UK I assume it's going to happen one way or another.
andrepd 2y ago
This is a good explanation (ignore the inflammatory/propagandistic title): https://www.youtube.com/watch?v=R3bo-s_OY4Q https://www.youtube.com/watch?v=R3bo-s_OY4Q
tialaramex 2y ago
Nobody else seems to have explained what happened here so I guess I'll attempt to do so. As you probably noticed, although you have a "100% renewable energy" tariff, the company who sold you this tariff did not lay new cables to your home to supply this energy. Indeed, they don't lay any cables, anywhere, they're just a paper company, they have an office maybe, a call centre, maybe a few web servers in the cloud. Clearly they do not make "100% renewable energy" and they couldn't deliver it to you if they did. Instead your home is hooked up to exactly the same electricity as everybody else in your area, by a specialist supplier who deliver electricity to everybody (well, all ordinary residential customers and most small businesses, the situation for an industrial Aluminium Smelter or whatever isn't the same) but don't have you (or any of your neighbours) as direct customers. This is good news - when it's dead calm and dark, but freezing cold, your electricity still works because it's the same electricity as your neighbours. So what were you buying for one penny per kWh extra? In the UK when a wind farm makes electricity they get an imaginary coupon for the fact that this is "green" renewable energy called a Renewable Energy Guarantee of Origin or REGO, they can snip this coupon off the electricity and sell these two things separately. The electricity is valuable (in another response elsewhere I might cover why it might be more valuable for them but it's irrelevant to you) and so obviously they should sell that for the prevailing market price or better if they can. But the REGO eh, not so much. But they can sell it, even if for not very much, and so they do. You are paying one penny per kWh for a promise that your supplier will buy enough REGOs to add up to the amount of electricity you used. That probably cost them much less than a tenth of a penny per kWh. So, really you just gave them free money. In theory if most electricity users in the UK cared, and bought these "100% renewable" tariffs, the REGOs could go up in value and you'd make a real difference and it would all be worthwhile. In reality very few UK consumers even bother to pick a cheaper electricity tariff, let alone seeking a "renewable" tariff. So, next time your tariff renewal comes up, ignore whether it's "renewable" that's not better or worse, just focus on price. Wanting to do good is an excellent motive, but this is the wrong place to attempt that.

mavhc 2y ago

Why should the wind farm get paid less than the gas power station? They should be paid more for not polluting

mattlondon 2y ago
Because their costs didn't increase was my naive assumption.
- IshKebab 2y ago
  Prices are affected by supply and demand.
  - vfclists 2y ago
    If there is a genuinely free market.
  - mavhc 2y ago
    But also by the ability to get the supply to the demand, what would be the term? The bandwidth? You're free to make your own electricity grid
  - orwin 2y ago
    Not electricity prices. You can't have a free market when it comes to electricity. You can fake one, but it's like a ptomelaic solar system.
    - IshKebab 2y ago
      You definitely can have a free market for electricity. Why do you think you can't?
      - orwin 2y ago
        Because of how electricity works. You have to produce exactly what you're consuming (or extremely close to) to avoid dephasing the network, not less, not too much. The carrier will have to shut down part of the network if that happen (rolling blackout) if you're not producing enough, but producing too much is as dangerous and will end up in blackout too. You actually have a lot of literature on OEMs, Capacity market, SPOT and other creation to try to simulate a free market, but it's always exploitable, and it makes money (a lot). Investing in an electricity company that do not produce any electricity is still a profitable venture.
        IshKebab 2y ago
        Yeah sure so you need to pay people to generate (or in extreme cases not generate) that electricity. You are allowed to negotiate how much you pay them. Free market. There are some issues, like for some reason the UK national grid doesn't pay different amounts for different locations, even though our grid capacity is too low to transport all the electricity we need from Scotland to England. They could fix that if they wanted. You might say it's not an "open market", in that it has to be tightly controlled by the grid operators to ensure that it doesn't dephase. But it's still a free market. If you build a power station and undercut everyone else they will have to lower their prices, just like every other market.
        orwin 2y ago
        > If you build a power station and undercut everyone else they will have to lower their prices, just like every other market. It does not work like that. You're paid the price the most expensive power station running is setting. And as the most expensive power stations earn via the capacity market, what you do is keep your old gas/coal power station spot price set really high, and you'll profit anyway. Also, electricity 'price' set for wind and solar are 0, good luck getting lower.
- ZeroGravitas 2y ago
  In the long term, you want the cleaner, cheaper sources to be paid the same as the gas, as the short term profit encourages businesses to enter the market and build more solar and wind, and this then decreases the price. Kind of basic market dynamics. In the short term, when a geopolitical rival is invading your neighbours and using its control of certain resources to destabilise your own country, the windfall profits should be seized and returned to the people. This happened somewhat slowly and piecemeal in europe because big energy companies had too much sway over the political process.

Someone 2y ago

> I am on a tarrif that pays a penny more per kWh to use 100% renewable energy so my price should not be impacted by gas prices". How naive was I - prices obviously shot up. > or if there is some more general economic-theory behind it. It’s economics 101: supply and demand. If electricity from renewable sources wouldn’t get more expensive, demand for it would soar. Since supply can only follow slowly (it takes time to build wind farms/install solar panels), demand would outstrip supply, so prices go up.

rjwilmsi 2y ago

To me it made sense to price electricity at retail based on gas price when gas was the main source and the cost for that source is mostly about the market fuel cost. (There were and are other price guarantee schemes for nuclear where the ongoing fuel cost is only a small part of total costs. And the grid electricity price for wind is agreed by another set of rules - strike price). However, we're now beyond that point so it seems to me that the pricing model should change. With the planned growth rate of new wind (and solar) by 2030 for the UK I assume it's going to happen one way or another.

andrepd 2y ago

This is a good explanation (ignore the inflammatory/propagandistic title): https://www.youtube.com/watch?v=R3bo-s_OY4Q https://www.youtube.com/watch?v=R3bo-s_OY4Q

tialaramex 2y ago

Nobody else seems to have explained what happened here so I guess I'll attempt to do so. As you probably noticed, although you have a "100% renewable energy" tariff, the company who sold you this tariff did not lay new cables to your home to supply this energy. Indeed, they don't lay any cables, anywhere, they're just a paper company, they have an office maybe, a call centre, maybe a few web servers in the cloud. Clearly they do not make "100% renewable energy" and they couldn't deliver it to you if they did. Instead your home is hooked up to exactly the same electricity as everybody else in your area, by a specialist supplier who deliver electricity to everybody (well, all ordinary residential customers and most small businesses, the situation for an industrial Aluminium Smelter or whatever isn't the same) but don't have you (or any of your neighbours) as direct customers. This is good news - when it's dead calm and dark, but freezing cold, your electricity still works because it's the same electricity as your neighbours. So what were you buying for one penny per kWh extra? In the UK when a wind farm makes electricity they get an imaginary coupon for the fact that this is "green" renewable energy called a Renewable Energy Guarantee of Origin or REGO, they can snip this coupon off the electricity and sell these two things separately. The electricity is valuable (in another response elsewhere I might cover why it might be more valuable for them but it's irrelevant to you) and so obviously they should sell that for the prevailing market price or better if they can. But the REGO eh, not so much. But they can sell it, even if for not very much, and so they do. You are paying one penny per kWh for a promise that your supplier will buy enough REGOs to add up to the amount of electricity you used. That probably cost them much less than a tenth of a penny per kWh. So, really you just gave them free money. In theory if most electricity users in the UK cared, and bought these "100% renewable" tariffs, the REGOs could go up in value and you'd make a real difference and it would all be worthwhile. In reality very few UK consumers even bother to pick a cheaper electricity tariff, let alone seeking a "renewable" tariff. So, next time your tariff renewal comes up, ignore whether it's "renewable" that's not better or worse, just focus on price. Wanting to do good is an excellent motive, but this is the wrong place to attempt that.