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More gorgeousness

There is also no reason why, at this moment, the cost of electricity is being priced by the government regulator at the cost of the most expensive single way to produce it – which is by using gas.

If the electricity price was instead based on the average cost of its production its price would fall, which would immediately and significantly cut energy bills – whilst still allowing producers a profit. But the regulator won’t do that. They’d rather allow excess profit instead.

Can anyone think of why the system works this way?

Hmm, class?

Yes, that’s right, think it through from the position of one of those marginal producers. Any one of them and yes, economics does happen at the margin.

So, your electricity costs more than the average price to produce. Dunno, you’re a gas plant, Or maybe we’ve an oil one left, something like that. So your electricity – when they’re only paying the average price, not the marginal price for the last piece of capacity, what do you do?

You don’t produce any electricity, do you? So at this time of high prices an average pricing scheme would lead to less electricity production. And why are prices high? Because there’s not much electricity around – just the time we want to be dissuading production, isn’t it?

The producers of the higher than average cost electricity wouldn’t produce electricity if they were only paid the average price.

Is it really true that a man who has held no fewer than three British professorships cannot grasp this?

And still we have no windfall tax, or even a hint of it. And that is also bizarre, because the fact is that almost penny of the costs that are fuelling inflation is becoming profit in the hands of exploitative oil and gas producers,

Titter – that very cheap to produce solar is also gaining these high prices, isn’t it? So they must be windfalled as well, no?

In the face of a crisis there is an urgent need for unconventional thinking to tackle something out of the ordinary.

There’s unconventional and there’s idiocy…..

12 thoughts on “More gorgeousness”

  1. Fracking, since it’s a cheap off-the-shelf solution. In the long term, abolish the regulations and build plenty of nukes.

    With lots of reliable power produced by nice cheap fuel, the prices will be as low as they can get.

    This does remind me of the latest junk in my letterbox saying the Labor and even more so the Liberal parties are going to open 114 new coal mines and gas wells. If only it was true!!!!!!

  2. That’s true (and even I managed to think of it when I paused to think). But just because paying-the-average is wrong doesn’t mean paying-the-max is right. Producers submit bids, after all. Why wouldn’t you pay people what they bid, instead?

  3. @ William Connolley
    Because the bids would all be set at the forecast maximum instead of those who really want to be chosen as suppliers putting in a low bid. Consequently the price paid would, for most of the time, be higher and more people would shiver in the cold.

  4. Energy is more important than money but we think otherwise because we use money to buy energy. Fred Hoyke I believe 45 years ago.

    Given that the market for energy is about as much of a market as a soviet 5 year plan, “cheapest” is whatever the politics decides.

  5. Murphy’s ignorance seemingly knows no bounds.
    Several offshore wind farms get paid £174/mWh for unreliable variable output (so true cost is significantly higher because you need a/several CCGT(s) on standby whenever the sails are turning).

  6. Bloke in North Dorset

    “ Several offshore wind farms get paid £174/mWh‘

    I hope that’s a typo.

  7. Pendant alert
    £174/mWh is actually £174,000 per Watt hour
    m is ‘milli’ not ‘micro’.
    Pendant alert ends

  8. Economics doesn’t always happen at the margin. Businesses use market segmentation to sell the same thing at different prices (most famously cheap airlines who can charge very different prices for adjacent seats). There’s no reason why purchasing cannot similarly pay different prices for the same thing from different suppliers. If that doesn’t happen for electricity it’s because of the regulator, as it would be quite possible to regulate the prices.

    Though, of course, the existing regulation isn’t exactly doing very well. If it continues as successfully as it is currently, it won’t be long before there are no distribution companies left to supply us at all.

  9. VP, I think it then goes on to say ‘and we will own it ALL and we’ll be happier’.

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