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Anyone else see a problem with this?

Suppose that regulation was changed. Instead of all producers, whether of gas or electricity, being paid the price of the highest cost supplier in their market they were instead paid their own fair marginal cost of production, including a reasonable profit margin.

Then presume that the energy regulator priced the onward supply of wholesale gas and electricity to the energy distribution companies on the basis of the actual cost to produce (including fair profit) of the gas and electricity actually sold into the market each day.

Detailed price fixing by the bureaucracy, on a day to day basis, on a cost plus basis?

7 thoughts on “Anyone else see a problem with this?”

  1. That’d be nice. Every low cost electricity producer would presumably suddenly discover a lot more costs that they need reimbursing for. A Rolls Royce for every worker, that sort of thing. And anyone with a generator they could hook up to the grid and pour diesel into would be guaranteed a reasonable profit. Sounds good to me. I’ll have a 100 of them humming away in one of my fields in next to no time.

  2. The big oil & gas producers already do this internally. BP and Shell know how much each of their fields costs to run. All big companies face this principal-agent problem, which is why they have reams of bureaucracy.

    The UK government could set up its own StatOil / Aramco / Pemex and operate the fields themselves. It’s not clear whether they are any worse run than the big listed oil companies.

  3. I assume the renewable generators will be charging a price that includes the maintenance of backup generation needed should the wind be to weak or too strong. And that covers the extra cost of CCGTs running below peak efficiency when wind is in the right window? And the additional grid costs for frequency maintenance they force on everone? No?

  4. How about, instead of getting paid per word, Spud gets paid per letter, to make sure he’s not getting superfluous income from definite articles and conjunctions? That’s the reasonable way to measure the value of his writing, no?

  5. Who decides who gets to buy the windmill power and who has to buy the gas power?

    Anyone who has spent the last few years on an eco tariff hopefully. And who else?

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