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Page added on August 24, 2017

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Electricity is a Rip-Off

Alternative Energy

British Gas has raised electricity prices by 12.5% and its rivals are likely to follow suit. Another round of inflation-busting increases has put calls for an energy price cap back on the agenda.

When then Labour leader Ed Miliband first proposed a cap in 2013 it was dismissed by the Tories as coming from a “Marxist universe”. Four years later, Theresa May flirted with the idea ahead of the 2017 election, while Labour included the policy in its manifesto. But whatever it is, it’s not a Marxist idea.

For a start, the price cap won’t work because the market is not only broken, it never worked in the first place. Incredibly high start-up costs mean energy is a natural monopoly, in which a small number of companies have been protecting significant investments in fossil fuels and nuclear power since the sector was first privatised.

Yes, you can regulate markets, but that requires a regulator with both sufficient teeth and the nerve to use them, and one which does not believe that switching suppliers is the answer to all its problems.

British Gas’s move will add £76 to an average family’s bills each year. In theory, people could simply choose a different supplier, most likely from another of the “Big Six” energy firms who dominate the UK market. But there are lots of reasons why people won’t switch.

First of all, humans are generally poor at envisioning their future circumstances. Offer someone an amount of money in six months’ time, and then see how quickly they’ll take a fraction of that now instead.

Second, energy supply is something householders fundamentally rely on, and the difference between one supplier and another really isn’t that much extra if you’re happy with the service you have. So for those who can afford it, paying less than a tenner extra a month to avoid the hassle and for a bit of reassurance they won’t be left hanging in the case of a power cut is going to be worth it. And there are many more reasons people won’t switch, simply because humans are highly complex and rarely completely rational creatures.

Should’ve switched after all. TeodorLazarev / shutterstock

The belief behind the cap is that up to 10m “disengaged” Big Six customers could’ve been protected from price hikes if they’d switched.

This may be true, especially in the short term or if they’d switched away from the Big Six, but it conveniently ignores the fact that a common cause of price hikes is governments signalling their intent to intervene in the market. And unlike governments, energy suppliers think in decades, so any threat of a cap will merely be seen as a signal to drive up prices while they can, and then start lobbying like hell to get the cap raised by justifying the need for more of their costs to be passed to the consumer. An effective regulator might withstand this onslaught, but if we had an effective regulator there wouldn’t be a need for the cap in the first place.

Price collusion can’t be avoided

The problem with competition in the energy market is it encourages the sort of collusion and price fixing that even classical liberal economist Adam Smith warned about centuries ago. You can’t completely design out the potential for collusion because suppliers and network operators have to work together, otherwise the lights go off. And those who control the greatest assets in the market will exert the greatest influence on it – it doesn’t have to be active collusion, it’s a natural feature of imperfect markets.

Ours for just £150. SamJonah / shutterstock

Competition also means companies waste vast amounts of money paying staff to develop competing applications for different locations and technologies, when what is really required is a national strategy that sets out what is needed, and where, over the sorts of multi-decade periods energy suppliers need to justify investment. And then why bother wasting money putting those contracts out to tender? It clearly hasn’t worked for the railways.

Eco-socialism

A price cap is hardly a “Marxist” solution to all this. A traditional Marxist energy policy would of course start with renationalising the industry, as energy supply is an issue that requires strategic planning at a national level. A Marxist solution would also push highly-skilled workers towards the socially-productive renewables sector, which even government estimates say could support more than 35,000 jobs across the UK.

Where eco-socialists, including myself, sometimes differ from traditional Marxism is on quite how much state ownership we see is necessary. I see a lot of value in community ownership because it doesn’t just help solve the energy problem, it also helps make people and communities more resilient. Towns and villages can’t become energy cooperatives overnight, however. They need investment, technical expertise, and an awful lot of support to get up and running. Does that sound Marxist? We already do it with private companies.

The Labour manifesto included support for a publicly owned energy company in each region, and the SNP has proposed something similar. It’s not a complete solution, but it’s a big step in the right direction. Maybe it’s another idea Theresa May could consider borrowing?

The Conversation



34 Comments on "Electricity is a Rip-Off"

  1. Cloggie on Thu, 24th Aug 2017 6:43 am 

    1. Picture yourself at the top of the Eiffel tower, lifting a small car from the ground to the top with a complex pulley system and a rope.

    2. Picture yourself on a trainer bike in your local gym, start paddling until the display says 100 Watt and keep going for 10 hours. It is easy for the first 30 minutes.

    3. Picture yourself on top of the Mount Everest and that you forgot your backpack of 30 kg deep in the valley, 8000m below. Fortunately there is a weightless rope with which you can pull the backpack up. It will take you at least a day to pull the back pack up.

    In all three cases we are talking about the human labor equivalent of 1 kWh.

    Once you have actually completed one of the three tasks, your will NEVER EVER say again that 30 cent for a kWh is a “rip-off”.

  2. Makati1 on Thu, 24th Aug 2017 6:59 am 

    In another comment here, I figured that a gallon of oil is about 14 kWh of electric energy. At 30 cents/ kWh, a gallon would be worth $4.20 US, so again, electric is cheap energy and oil is way under priced.

  3. Davy on Thu, 24th Aug 2017 8:07 am 

    Renewables cost something. They have upfront cost that are financed. These are real costs not fake green theory. They could be much worse except for near zero range cost of money. They true cost are more involved than the actual startup cost of a new renewable unit of generation. The rest of the grid requires indirect support. Expect more expensive everything as we try to fix and change everything. At some point it may just quit working like we have grown accustomed to. IOW, at some point a recession will show us malinvestment and overextension. That said they are probably our only hope for extension of the status quo so bend over and quit whining.

  4. Cloggie on Thu, 24th Aug 2017 8:21 am 

    Dutch national (neutral) energy institute:

    https://www.ecn.nl/publicaties/PdfFetch.aspx?nr=ECN-E–15-052

    Dutch context:

    Price onshore wind: 7.0-9.3 eurocent/kWh
    Price offshore wind: from 13,9 to 11,5 ct/kWh in a few years

    This is without storage cost.

    Lazard nuclear energy cost: will increase from 9,7 to 13,6 dollarcent per kWh, without storage problem but also without externalized costs.

  5. forbin on Thu, 24th Aug 2017 8:22 am 

    the UK market in gas and electricity started off with the suppliers be separate from the generators.

    then some bright spark allowed them to merge – guess when our prices started to rise ?

    it’s not just about the cost of wind/gas/ coal generation – although that plays its part

    there’s also the cost of social – if someone don’t pay or can’t pay – they’re not cut off
    their bill is added to everyone else’s bill

    imagine that(!)

    Forbin

  6. Cloggie on Thu, 24th Aug 2017 8:26 am 

    Do I have a treat for you!

    https://deepresource.wordpress.com/2017/08/24/stanford-global-road-map-100-renewable-energy/

    Stanford has released a 200p report with a roadmap towards a global renewable energy base per 2050 (are you listening sunweb?). The report to silence all renewable energy skeptics.

    Good news: it can be done.

    Footprint: 1.7 million wind towers, on- and offshore and 87k km2 solar panels (2 x Holland) + geothermal.

    Go out and buy that e-Porsche now.lol

  7. Cloggie on Thu, 24th Aug 2017 8:28 am 

    https://www.youtube.com/watch?v=hlS2WBE0dNs

    e-Porsche does indeed exist.

  8. Davy on Thu, 24th Aug 2017 9:43 am 

    Stanford has released a 200p report with a roadmap towards a global renewable energy base per 2050

    Nice cloggie, now get to work and quit cheerleading

  9. Outcast_Searcher on Thu, 24th Aug 2017 10:13 am 

    Davy, so you control things here and only one sided cheering for doom is allowed?

    That’s even sillier than most of your opinions.

  10. rockman on Thu, 24th Aug 2017 11:15 am 

    Regardless of how the free enterprise system is applied to the U.K. electricity market the assumption is that low electricity rates will still guarantee sufficient supply. Yep, that THEORY served the Russians well some years ago. LOL.

    If the UK electricity provider system can be modified to make it more competitive then they should do so. But given they import a significant amount of the fuel used to generate power AT A RELATIVELY LOW COST they better start preparing thei public for much higher electricity costs when NG prices increase 2X to 4X the current rate. Even if the utilities provided at cost (and zero profit for them) the consumer cost will be much higher then currently.

    In Texas our utilities have a built in profit margin set by the public utility commission that few complain about. But the rate includes a fuel adjustment factor: any increase in fuel costs (NG, coal, nuclear or renewable) gets passed along 100% to the consumers. Our utilities aren’t allowed to gouge the consumers. But in return they aren’t required to suffer a loss.

  11. Cloggie on Thu, 24th Aug 2017 11:35 am 

    Here more data to get an impression of what energy really means, which most take for granted.

    Ever watched the Tour de France? These guys sit on a bike for ca. 5 hours per day and realize ca. 3500 km in 18 days or so. Average speed, something like 40 kmh. These folks are trained through and through. Energy?

    https://www.sportzorg.nl/sporttakken/wielrennen/overig/vermogensmeting-in-de-tour-de-france

    On average for 5 hours: 225 Watt.

    Peak output: 1029 Watt for 15 seconds, 650 Watt for 1 minute and 390 Watt for 3 minutes.

    That is a little more than 1 kWh/day.

    And now realize the multiplier that is technology.

    This is a relatively small hydro plant in Switzerland. It was built by say 100 men over a period of 2-3 years (300 man years):

    https://deepresource.wordpress.com/2012/11/25/mattmark-hydro-power-plant/

    Once that is in place, you have behind your dam a source of energy at your disposal which is the equivalent of the physical work potential of the entire male population of f* Sweden.

  12. Kenz300 on Thu, 24th Aug 2017 11:42 am 

    Solar panels with battery storage are looking better all the time. No monthly fuel cost.

  13. Davy on Thu, 24th Aug 2017 11:52 am 

    Please, OS, I don’t care for you either. Feel better?

    BTW, no cheering either side, am looking for the truth and adapting. I have significantly moderated my doom. You have shown more moderation too but you are still a cocky cornucopian bastard. To be fair a cocky bastard like me.

  14. Outcast_Searcher on Thu, 24th Aug 2017 1:52 pm 

    Davy, I’m perfectly fine with being called X by anyone willing to be realistic in an honest self-assessment.

    I do try to look at data instead of just having agenda X based on some kind of philosophy or agenda. And I apparently look at different data than the hard core short term crash doomer types. So be it.

    By the way, overall, I’m a moderate. I am just hopeful that, for a change, society actually manages to make a real improvement with EV’s over time vs. ICE’s — it would be a nice change given how much we get wrong.

    However, long term, with endless BAU, population growth, and overall society being all about consuming as much as we can possibly earn and borrow (and to hell with the consequences of that), the end result looks ugly indeed — eventually.

    I just strongly object to those that post FUD to claim doom is in our face. And then repeat the claim next month, year after year, and expect that to be credible.

  15. MASTERMIND on Thu, 24th Aug 2017 2:00 pm 

    Makati1

    Is everyday for you a partial solar eclipse? You bottom feeding cum sucking Asian Carp? LOL

  16. MASTERMIND on Thu, 24th Aug 2017 5:15 pm 

    Conventional Oil Peaked in 2006 –IEA

    http://imgur.com/a/uCz7V

    https://www.scientificamerican.com/article/has-peak-oil-already-happened/

    New Oil discoveries by scientists have been declining since 1965 and last year was the lowest in history –IEA

    http://imgur.com/a/W60yn

    International Energy Agency Chief warns of world oil shortages by 2020 as discoveries fall to record lows

    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Aramco CEO believes world oil shortage coming despite U.S. shale boom

    http://www.foxbusiness.com/markets/2017/07/10/saudi-aramco-ceo-believes-oil-shortage-coming-despite-u-s-shale-boom.html

    UAE warns of world oil shortages ahead by 2020 due to industry spending cuts

    http://www.arabianindustry.com/oil-gas/news/2016/nov/6/more-spending-cuts-as-uae-predicts-oil-shortages-5531344/

    Wood Mackenzie warns of oil supply crunch and world oil shortages by 2020-2022

    http://oilprice.com/Energy/Crude-Oil/The-Next-Oil-Price-Spike-May-Cripple-The-Industry.html

    HSBC Global Bank warns 80% of the worlds conventional fields are declining and world oil shortages by 2020

    https://www.research.hsbc.com/R/24/vzchQwb

    UBS Global Bank warns of industry slowdown and world Oil Shortages by 2020

    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/12136886/Oil-slowdown-to-trigger-supply-crisis-by-2020-warns-bank.html

    MarketWatch : Why investors’ should brace for a devastating oil shortage & shock ahead

    http://www.marketwatch.com/story/why-investors-should-brace-for-a-devastating-oil-shock-ahead-2017-07-03

    German Government (leaked) Peak Oil study concludes: oil is used directly or indirectly in the production of 90% of all industrial goods, so a shortage of oil would collapse the world economy & world governments/democracies

    http://www.spiegel.de/international/germany/peak-oil-and-the-german-government-military-study-warns-of-a-potentially-drastic-oil-crisis-a-715138.html

    The Oil Age may come to an end for a shortage of oil. -Saudi Oil Minister Sheikh Yamani

  17. Davy on Thu, 24th Aug 2017 5:34 pm 

    “I just strongly object to those that post FUD to claim doom is in our face. And then repeat the claim next month, year after year, and expect that to be credible.”

    I agree but remember some of the doom is built in and systematic like a cancer cell not yet cancerous. We have risk just waiting to explode. Maybe they won’t explode and maybe we can make wiser choices to prevent new problems. So, some doom is built in and that doom is legitimate IMO. Short term I have moderated but not at all longer term in fact longer term I am more doomish. I feel if we can keep from killing ourselves in war then the next decade maybe 2 might be manageable for some. Manageable for 7BIl and growing nope but maybe those who are located right and connected right. Somebody is going to get kicked under the bus sooner or later and it is not going to be pretty

  18. Plantagenet on Thu, 24th Aug 2017 5:40 pm 

    The Brits are lucky to even have electricity, given their notorious racist and imperialist past. Instead of whining about the cost of electricity, the Brits should (1) fall on their knees and wail for forgiveness for their pass sins and (2) starting digging up all the statues that glorify people who ever did anything that denigrates other people, just as we are doing here in the USA.

    Cheers!

  19. onlooker on Thu, 24th Aug 2017 5:46 pm 

    People have been getting kicked under the bus systematically throughout the 20th and now into the 21st century. We are just going to be more direct and open about it going forth. And no it will not be pretty as it will involve brute force. As in what Clog is contemplating for Europe a Wall, Fence to keep millions out. When it comes to survival the gloves will come off, that is how us humans roll. So, I think we know already who are the doomed. The Middle East, Africa and parts of Asia. Already, in Africa, wealthy entities are buying up the land. They call it renting but its buying. The rule of money will prevail as long as certain countries enforce that rule with the military and police. So, the descent in the near future favors the rich countries. Makati is out on the limb seeing the US as the first going down. We have a long way to fall, we have a rich continent with no other military force of similar stature and we still have a relatively adequate compared to other countries resource per capita ratio. So, this is working seamlessly because disparity has been a fixture in this modern world. The moves of the potent countries are not so much antogonism against each other as power plays against defenseless areas and peoples. Might makes right

  20. Davy on Thu, 24th Aug 2017 6:02 pm 

    Onlooker, I think luck is going to play a part. So many things can happen but where they happen first is going to be significant. Look what war did to Syria. It is likely the place will never recover. At some point major catastrophic happenings both natural and manmade will be a significant precursor of failure. This is the case if we are really in decline as it appears we are.

  21. Anonymouse1 on Thu, 24th Aug 2017 6:43 pm 

    Exactly exceptionalist, look what the uS-raeli initiated and sponsored war did for Syria. I am sure your masters never intended for Syria for recover either, except, the Syrians and Russia went off-script on that one. Ah well, cant win every regime change eh? Maybe Syria will recover, Russia, Iran, and others once under the amero-zionist empires thumb have managed to recover and re-assert their sovereignty, so we know it is possible.

    Alternately, you americants could have stopped funding and training your Al-CIA-da legions in the middle east at any time. If that had happened, the ‘war’ in Syria would have ended years ago, or more likely, would never have begun in the first place.

  22. Davy on Thu, 24th Aug 2017 6:57 pm 

    Is that the English they teach in Canadian schools these days. LOL. Go back to high school and redo English for dumbasses and then try again.

  23. Makati1 on Thu, 24th Aug 2017 7:24 pm 

    Onlooker, “a long way to fall” is not correct. You are already in free fall and just refuse to recognize it. A few years should see you in the 3rd world openly, or sooner. Whereas, some countries are not tied to imported energy and globalization as tight as the US is. The Ps for one. The culture here is thousands of years old. Ditto for most of Asia. The US has no cultural glue to hold it together, as recent events show. Just snowflakes, hate and greed. Not good glue.

    90% of the things you need and use comes from Asia or other foreign countries. The major things made in the FSA are weapons systems that are junk. When Fukushima blew, trade stopped. All the parts for etoys stopped, for months. It brought a lot of American companies to their knees.

    The financial collapse in 2008 almost ended the US in a few days. The next one will be the coup de grâce to the American way of life. And it will happen at the speed of electronics. End of story.

    Not to mention that it is the intent and plans of TPTB to reduce the West to the level of the rest of the world so they can have their one world government. The cards are stacked against the US in so many ways. I hope you are preparing for a much less affluent life. I am.

  24. MASTERMIND on Thu, 24th Aug 2017 8:22 pm 

    TROUBLE FINANCING ITS DEBT: Massive Decline Rates Push U.S. Shale Oil Industry Closer Towards Bankruptcy

    https://srsroccoreport.com/trouble-financing-its-debt-massive-decline-rates-pushes-u-s-shale-oil-industry-closer-towards-bankruptcy/

  25. Boat on Thu, 24th Aug 2017 9:01 pm 

    Davy,

    “Manageable for 7BIl and growing nope but maybe those who are located right and connected right. Somebody is going to get kicked under the bus sooner or later and it is not going to be pretty”

    I can agree with all of that. Anybody on the coast will be hit more severely and the oceans will keep getting hotter with rising oceans. Tomorrow I may evacuate my area depending on what the hurricane does.
    My house can handle 12″ of rain but one forecaster said potential of 33 inches.

  26. Makati1 on Thu, 24th Aug 2017 9:19 pm 

    Realy Boat? You might want to consider:

    “Global temperatures are rising faster on the land, where we live, than the oceans, where we don’t, NASA charts reveal. Since scientists have long predicted this trend and say it will continue, it’s worth a closer look.”

    https://thinkprogress.org/global-warming-now-twice-as-fast-over-land-than-the-ocean-nasa-chart-shows-52b4afe01345/

    Seems to me that islands like the Ps will be cooler, longer. No large land mass to heat up and cooling breezes from wide oceans to keep island temps lower.

  27. Boat on Thu, 24th Aug 2017 9:36 pm 

    mak,

    The point is most people live near the coast. Oceans are rising. The storms are becoming sever.

  28. Makati1 on Thu, 24th Aug 2017 10:42 pm 

    Boat, near the coast? I’m taking about the Ps, not the serfs in the US who are coastal rats, soon to drown in their own stupidity as storms get worse and more frequent and the ocean rise makes even tides dangerous. Not to mention the coastal water aquifers soon to turn to salt water.

    There is no huge land mass here in the Ps to heat up. Look at a map of the Ps and see for yourself. Nothing wider than Pennsylvania. Ocean breezes cross the Ps in hours, not days. A huge difference.

    Yes, sea rise will affect some places here, but I think it will be decades away before it is serious. Manila is protected by a huge bay. It is not facing an ocean and tides will be slower to rise here.

    Not that it matters to me in the long run. I will be living at a higher altitude and not close the shore. THAT is all that is important to me.

  29. Cloggie on Fri, 25th Aug 2017 5:23 am 

    Here is the face of peakoil.nl RIP,

    Rembrandt Koppelaar.

    I was on that board when they closed down ca. beginning 2012, because they probably knew something, the oildrum.com folks also began to understand, namely that the catastrophic ASPO-2000/Heinberg tale of immanent collapse of industrial society was total bunk. But they could not admit that because of major loss of face. So instead they quietly dropped the subject by closing down the site. You would not do that if you were convinced that the prophesy you had been telling for years was about to materialize.

    Here Rembrandt Koppelaar on Dutch TV in 2008 (English subs) when he was still heavily “into Heinberg”, still peddling the peakoil supply tale:

    https://www.youtube.com/watch?v=klFtVZ_bs60

    A lot of folks on this board btw are still struggling with the same dilemma; they can’t admit it because they are personally heavily invested in the bunk story they imprudently broadcasted to their wives and friends. It is one thing to quietly close down a web-site, admitting to your wife that you talked her into living in the bush as a prepping measure based on false premises is quite another (it is still a good idea to escape a civil war in the jungle, but I digress).

    In January 2012 I was still “deep into Heinberg”, so I came here out of lack of Dutch alternatives and it took me a full year extra to see through the peakoil-the-party-is-over bunk.

    Now back to Rembrandt Koppelaar. He came out of the woodwork of the Imperial College of London recently to inform us that a 100% renewable energy base is very well possible:

    http://www.resilience.org/stories/2017-05-18/can-renewables-power-world/

    He did research on EROI of PV (interesting for Altius):

    https://www.imperial.ac.uk/people/r.koppelaar12/research.html

    I have arrived long a at the same conclusion as of Koppelaar or Stanford and others: fossil fuel is going to be gradually replaced by renewable energy.

    There is no energy problem, over and out.

    If you have to worry, than worry about war, financial collapse, climate, mass migration and degradation of the biosphere. But not energy. The die is cast. Not fossil, not nuclear, but renewable.

    https://deepresource.wordpress.com/2017/08/24/stanford-global-road-map-100-renewable-energy/

  30. Davy on Fri, 25th Aug 2017 6:02 am 

    “A lot of folks on this board btw are still struggling with the same dilemma; they can’t admit it because they are personally heavily invested in the bunk story they imprudently broadcasted to their wives and friends.”
    Geeze, spare me the drama from the clown spewing the endless alternative energy paradise in 20 years chatter. Before you start stroking yourself in public let’s see some results from that. IMA, if that does not happen peak oil dynamics are going smack you upside the head in 10 years. There are multiple peak oil dynamics issues waiting to cause havoc on modern life. You are just acting like a child with a new toy.

  31. Cloggie on Fri, 25th Aug 2017 6:15 am 

    Before you start stroking yourself in public let’s see some results from that.

    https://cleantechnica.com/2017/07/24/record-june-wind-yields-record-six-months-scotland-wind-energy/

    https://www.theguardian.com/environment/2015/jul/10/denmark-wind-windfarm-power-exceed-electricity-demand

    https://energytransition.org/2016/05/germany-nearly-reached-100-percent-renewable-power-on-sunday/

    You are in deep denial Davy, a tragic victim of colossal wrong judgment in the past, that is keeping you hostage until today.

    Sad.

  32. Davy on Fri, 25th Aug 2017 6:45 am 

    “You are in deep denial Davy, a tragic victim of colossal wrong judgment in the past, that is keeping you hostage until today. Sad.”

    Explain yourself clog? A colossal wrong judgment on PO? POD is a reality. It is just one of those realities most don’t want to understand. We are not a renewable world yet and until we are we are still faced with peak oil dynamics with our foundational. There is nothing healthy about our oil complex now. The wrong judgment you were part of IMA. You are a clown that crows about a half-baked future. No, sorry, I am the one with balance and you are a cheerleader deep in fantasy and delusion. I am not saying no to the renewable future I am just saying keep it logical and balanced. I am saying it is likely only to be an extender and I am damn happy it is happening.

  33. MASTERMIND on Fri, 25th Aug 2017 2:12 pm 

    Here is a picture where mak1 the Asian carp lives? He left the US for this? wow he must have really lost his mind once his wife left him.

    https://i.imgur.com/foCVdCF.jpgines-budget-poverty.jpg

  34. rockman on Fri, 25th Aug 2017 3:48 pm 

    Cloggie – In case you’re not familiar with the teachings of a famous American philosopher, Yogi Berra:

    “Prediction are difficult. Especially about the future.”

    Still true today.

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