Professor suggests true origin of energy price rises.

OK - pre-post disclosure - I read the Guardian online. Politically I could be described as to the right of Genghis Khan but it has no paywall and I like the idea of them providing me their 'journalism' for free - they're good socialists so they should approve of the result of their labours going to other people for free. Anyway...

First link is an article I read, included for completeness - not really relevant to the discussion:

Britain’s consumer champions are on fiery form – it must really be time to worry | Zoe Williams

And in this article the guardohack referred to this tweet by a Professor of Economics. Again, included for completeness:



Now, coming to the point. In said tweet, the Professor makes a claim that a breakdown of costs, based on a publication by the supplier SSE, is as follows:

36% energy, 24% delivering the energy, 20% customer 'service' (including IT, billing etc), Government green schemes etc 13%, VAT 5%, their claimed profit the remainder at 2%.

This is where I flashed and thought the issue worthy of discussion - I could not find it expressed as starkly elsewhere on the site.

Prof claims that of all the increases, the only one really increasing is the cost of energy. So in that 36% bracket above. He acknowledges that that will have some follow on increases, but not all at the same ratio as the increase to energy. All the fixed costs outwith that 36%, remain roughly same. So, Prof reckons the table below (if I include it correctly) is the true cost breakdown of the energy rises, using his bill as an exemplar and the percentages trailed by SSE to work out proportions of billing.

I am insufficiently informed to discount his point but if true, is outrageous. So I thought I'd put on here to see what the general thought of the accuracy or otherwise was.

energy.jpg
 
OK - pre-post disclosure - I read the Guardian online. Politically I could be described as to the right of Genghis Khan but it has no paywall and I like the idea of them providing me their 'journalism' for free - they're good socialists so they should approve of the result of their labours going to other people for free. Anyway...

First link is an article I read, included for completeness - not really relevant to the discussion:

Britain’s consumer champions are on fiery form – it must really be time to worry | Zoe Williams

And in this article the guardohack referred to this tweet by a Professor of Economics. Again, included for completeness:



Now, coming to the point. In said tweet, the Professor makes a claim that a breakdown of costs, based on a publication by the supplier SSE, is as follows:

36% energy, 24% delivering the energy, 20% customer 'service' (including IT, billing etc), Government green schemes etc 13%, VAT 5%, their claimed profit the remainder at 2%.

This is where I flashed and thought the issue worthy of discussion - I could not find it expressed as starkly elsewhere on the site.

Prof claims that of all the increases, the only one really increasing is the cost of energy. So in that 36% bracket above. He acknowledges that that will have some follow on increases, but not all at the same ratio as the increase to energy. All the fixed costs outwith that 36%, remain roughly same. So, Prof reckons the table below (if I include it correctly) is the true cost breakdown of the energy rises, using his bill as an exemplar and the percentages trailed by SSE to work out proportions of billing.

I am insufficiently informed to discount his point but if true, is outrageous. So I thought I'd put on here to see what the general thought of the accuracy or otherwise was.

View attachment 647708

A couple of quick points.

5% VAT is "only" 4.76% of the total bill.

£100 + 5% = £105.
5 ÷ 105 = 4.76%.

So his VAT figures are wrong.

He is also assuming that the base energy cost remains at £389/36%. Since that is what is going up its proportion of the bill will rise. SSE profits might rise, but basically he is talking bollocks.
 
A couple of quick points.

5% VAT is "only" 4.76% of the total bill.

£100 + 5% = £105.
5 ÷ 105 = 4.76%.

So his VAT figures are wrong.

He is also assuming that the base energy cost remains at £389/36%. Since that is what is going up its proportion of the bill will rise. SSE profits might rise, but basically he is talking bollocks.
Yes, if you read all his tweets, one of his "assumptions" is that it doesn't cost any more to generate the energy. In other words, the whole thing is campaigning against the structure of the energy market.
 
Look I don't deny they're unrepentant lefties with an agenda. I am not surprised at businesses making profits and trying to increase these. I find some of his figures suspect and I don't quite follow it all.

That said, even if he is percentage points out, the fixed costs surely, remain closer to last years so the delta should be mainly the increased cost of energy?
 
Consider that a percentage of your fixed costs will also be energy (ditto that of your suppliers' fixed costs) and using your own energy to cover that isn't cost-neutral (since you now can't sell the power you're using yourself). If you or your suppliers are importing LNG, a major part of the shipping cost is fuel and that's just massively increased in price.

Consider also that your administrative costs will rise as you have to turn over more cash, both in losses and in increased insurance.

This may then drive increases in state levies, even those not levied as a percentage of your generating or operating costs.

In short, his assumptions are wholly unsustainable.
 

jrwlynch

LE
Book Reviewer
I am insufficiently informed to discount his point but if true, is outrageous. So I thought I'd put on here to see what the general thought of the accuracy or otherwise was.

It's complete Horlicks.

What Murphy (who's something of a figure of fun, having founded the Tax Justice Network and then flounced out of his own organisation when they weren't sufficiently worshipful of him) gets wrong, is to declare that the entire increase in the energy bill is profiteering by the Evil Energy Company, leeching the lifeblood from the veins of the Honest Proletariat.

Note that the cost of "bought in energy" - i.e. buying power off the Grid, or gas from the distribution network - remains the same in his analysis. Apparently, this never happened:-
1647364306687.png


If "cost of bought in energy" has quintupled, as has pretty much happened, then that's bashing the cost of "bought in energy" up from £389 to nearly £2,000 - enough to account for pretty much the entire projected increase he's bemoaning. Which is why Murphy's financial incompetence is oft mocked.


The other fault in his logic - common to all campaigners against Evil Capitalists Drinking The Sweat From The Workers' Brows - is that he assumes SSE can magically increase their profit (per bill) from £43 to £1,717 and nobody will notice, and nobody will react.

In Murphy's world, there's no "market" or "competition", just Evil Business Trampling The Poor Under Its Jackboots. So, if SSE say "we're upping your bill to £3,000, what are you gonna dee about it pal?", it's absolutely impossible for NPower to say "Psst! Over here! We'll only charge you £2,500, we can get by on £1217 profit..." and then E.On say "Never mind them, we'll only charge you £2,000, if we make £717 profit that's us in champagne for the year..."
 

Powerbroker

Old-Salt
As I work in the energy industry, I can give some light on this. The good Professor is talking out of his backside.

The increases are under the energy cap system to cover actual energy purchase from the generators and suppliers, the main rise is on gas and oil, and this has a knock on effect as we generate the majority of our mains electricity by gas fired CCGT stations. The increases are for three purposes:

1. The increase in the standing charge is for the ongoing modernisation and upgrade to the grid network and local distribution (The local distributors are gradually upgrading the network to three phase, and increasing the capacity of the wiring ready for increased electricity usage as people come off of gas and also for EVs).

2. The increase in the gas and electricity charges is to cover the increase in gas prices on the spot market, and to cover the first of the subsidies for the developing nuclear fleet replacement programme (This latter one will go up again when Hinckley C goes live, and when Sizewell C comes on stream after being built).

3. The extra uplift is to cover the cost of supplying consumers from collapsed energy sales companies, and especially the Bulb energy ones, as none of the big six would take on 1.5 million loss making accounts.

And just to make your day, the cap is reviewed twice a year, and there is the very real chance of another rise in October, thanks to Putin. You have also got the problem of the £200 loan that each of us got given to the suppliers to mitigate the rise, which theoretically would be covered by the normal seasonal drop in energy costs in October, but as this will not happen, this little plan is going to bite all of us.
 
Two things I wonder about...one for a long time the second more directly linked to the current situation.
As the world becomes more and more digital, how come admin costs remain the same or increase? Smart meters reduce the need for meter readers. My LPG tank is fitted with telemetry that tells a system somewhere that it needs a top up. Most of my banking is now done online. Insurance automatically renews.

Then there are the fuel increases. Last week it was reported that Brent crude, the international trigger commodity, wascat its highest price for 14 years. Now, 14 years ago fuel didn't increase to 170p+ per litre. I get inflation, and I understand capitalism, but it will become counter productive if no one can afford to live surely?
 

HE117

LE
Not sure I buy the "paying for the upgrading of the infrastructure" bit.. and "switching to 3 phase"!

We have used 3 phase for distribution down to street level since the 1930s.. are you suggesting this needs extending to house level? I would love 415v 3ph in my workshop, but I think the domestic kit would be a bit alarmed! I do acknowledge that the introduction of more charging points will add load, however this is not the time or place to slap this onto current consumers.

The usual way for a supplier to fund infrastructure is to either borrow capital against future returns or divert a percentage of profit.. this smacks much too much of monopolistic behaviour IMHO..

My own understanding of the energy fluctuation is that we have allowed ourselves to become far too dependent on external supplies, which may have been cheap at certain points in history, but are now reeling us in as we have no alternatives. I would love someone to explain why we allowed all the local coal, oil and gas supplies to either be flogged off or shut down when we continued to import it? We still need coal to process steel and for other chemical processes, we are still using oil and gas, so why are we importing it rather than using our existing supplies?

Ok Greens.. show us your working...?
 

jrwlynch

LE
Book Reviewer
Then there are the fuel increases. Last week it was reported that Brent crude, the international trigger commodity, wascat its highest price for 14 years. Now, 14 years ago fuel didn't increase to 170p+ per litre. I get inflation, and I understand capitalism, but it will become counter productive if no one can afford to live surely?

Back in 2008 petrol was about £1.05 a litre, of which 66p was tax (fuel duty and VAT).

Adjust for inflation (using RPI if anyone cares) and that would be £1.57 today, of which 99p would be tax if we'd only stuck with inflation-linked increases. Oddly enough, that's not far off the overall average at the moment.

It's higher in some places (that are usually expensive - Rownhams Services on the M27, I'm looking at you!) but it's not skyrocketed compared to "the last time oil was this expensive"
 

Powerbroker

Old-Salt
Not sure I buy the "paying for the upgrading of the infrastructure" bit.. and "switching to 3 phase"!

We have used 3 phase for distribution down to street level since the 1930s.. are you suggesting this needs extending to house level? I would love 415v 3ph in my workshop, but I think the domestic kit would be a bit alarmed! I do acknowledge that the introduction of more charging points will add load, however this is not the time or place to slap this onto current consumers.

The usual way for a supplier to fund infrastructure is to either borrow capital against future returns or divert a percentage of profit.. this smacks much too much of monopolistic behaviour IMHO..

My own understanding of the energy fluctuation is that we have allowed ourselves to become far too dependent on external supplies, which may have been cheap at certain points in history, but are now reeling us in as we have no alternatives. I would love someone to explain why we allowed all the local coal, oil and gas supplies to either be flogged off or shut down when we continued to import it? We still need coal to process steel and for other chemical processes, we are still using oil and gas, so why are we importing it rather than using our existing supplies?

Ok Greens.. show us your working...?
Western Power Distribution gave a talk on this in January, at a workshop, the DNSOs as they are now called, are gradually upgrading the local network to three phase and fitting bigger gauge cables partly via a rolling refit programme and partly on a as and when needed route. The funding for this comes through the standing charge, and is part of the increase.

The decision to stop coal production in the UK was due to the then unprofitable business case, but potentially with international prices having risen, this could be relooked at. Whether this is desirable is another matter.
 
Two things I wonder about...one for a long time the second more directly linked to the current situation.
As the world becomes more and more digital, how come admin costs remain the same or increase? Smart meters reduce the need for meter readers. My LPG tank is fitted with telemetry that tells a system somewhere that it needs a top up. Most of my banking is now done online. Insurance automatically renews.

Then there are the fuel increases. Last week it was reported that Brent crude, the international trigger commodity, wascat its highest price for 14 years. Now, 14 years ago fuel didn't increase to 170p+ per litre. I get inflation, and I understand capitalism, but it will become counter productive if no one can afford to live surely?

And Brent crude is now below $100/bbl.

But shock news the prices keep on going up. Whilst the professor is obviously economically illiterate, it also does not remove the fact the oil companies may be price gouging a touch…
 

anglo

LE
Not sure I buy the "paying for the upgrading of the infrastructure" bit.. and "switching to 3 phase"!

We have used 3 phase for distribution down to street level since the 1930s.. are you suggesting this needs extending to house level? I would love 415v 3ph in my workshop, but I think the domestic kit would be a bit alarmed! I do acknowledge that the introduction of more charging points will add load, however this is not the time or place to slap this onto current consumers.

The usual way for a supplier to fund infrastructure is to either borrow capital against future returns or divert a percentage of profit.. this smacks much too much of monopolistic behaviour IMHO..

My own understanding of the energy fluctuation is that we have allowed ourselves to become far too dependent on external supplies, which may have been cheap at certain points in history, but are now reeling us in as we have no alternatives. I would love someone to explain why we allowed all the local coal, oil and gas supplies to either be flogged off or shut down when we continued to import it? We still need coal to process steel and for other chemical processes, we are still using oil and gas, so why are we importing it rather than using our existing supplies?

Ok Greens.. show us your working...?
. I would love someone to explain why we allowed all the local coal, oil and gas supplies to either be flogged off or shut down when we continued to import it?

Because we have idiots in charge.
Our troubles are only just starting, 12 nuclear reactors {6 power stations} are due to be shut down
in the next few years, the only coal power station left is due to close next year
The first of the two new nuclear reactors, being built, as been put back to 2026.
Then,
UK electricity generation to be fossil fuel free by 2035, says Boris Johnson. The prime minister has confirmed plans to eliminate fossil fuels from UK electricity generation by 2035.
Don't forget, everything is going to be using electricity in the near future,
if we have a bad winter, 22/23, we are in deep sh*t
 

anglo

LE
Western Power Distribution gave a talk on this in January, at a workshop, the DNSOs as they are now called, are gradually upgrading the local network to three phase and fitting bigger gauge cables partly via a rolling refit programme and partly on a as and when needed route. The funding for this comes through the standing charge, and is part of the increase.

The decision to stop coal production in the UK was due to the then unprofitable business case, but potentially with international prices having risen, this could be relooked at. Whether this is desirable is another matter.
The UK could have used all its opencast coal reserves to run the power stations,
The coal power stations were shut down because gas was said to be cleaner
EDIT, Gas plants are easier to shut down and open up, fast operation is required if wind turbines
are too used in the grid system, and gas plants are cheaper to build than nuclear,
one of the reasons nuclear plants stopped being built.
 
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Powerbroker

Old-Salt
Just as a follow on, the upgrading of the local distribution network to three phase for domestic use is part of the forward planning (Apparently, Ofgem does actually plan ahead - who knew!?!), ready for consumers to move from gas fired heating to heat pumps, which need three phase.

I have actually delivered on several projects to fit solar, battery storage and air source heat pumps as a combined approach which works pretty well. A lot of customers are beginning to look at this route.
 

Maximus Acidus

Old-Salt
I've just recently had my increased bill projection from SSE (now part of OVO) and by far the largest increase is in the standing charge, which has almost doubled for the gas. The per unit charges haven't gone up by much, and even if the do go down, or we use less as the lighter and warmer days come in, as the standing charge is a fixed amount, my bill isn't gonna drop by as much as it's gone up. It's one way for the power companies to ensure they get their money, no-matter how many low energy LEDs and A+ rated white goods we buy.
 

Powerbroker

Old-Salt
I've just recently had my increased bill projection from SSE (now part of OVO) and by far the largest increase is in the standing charge, which has almost doubled for the gas. The per unit charges haven't gone up by much, and even if the do go down, or we use less as the lighter and warmer days come in, as the standing charge is a fixed amount, my bill isn't gonna drop by as much as it's gone up. It's one way for the power companies to ensure they get their money, no-matter how many low energy LEDs and A+ rated white goods we buy.
The standing charge does not have a profit element as such, but does have a fixed payment fee, and covers actual costs of the national grid, local distribution and metering. The level is set by Ofgem, as part of an agreed maintenance and improvement plan.

Ovo hasn't had a large energy increase due to mainly buying electricity from renewable sources and their gas as part of a fixed forward purchase agreement (known as hedging). When their prepurchased agreement finishes, that is when you will see a major increase in your gas.
 
I know a little about this subject. The rise in electricity prices is due to the influence of the world economy and the development of the economy of a particular country. For the average person, this is primarily reflected in the bills. To lower your bill, you can resort to solar panels.
 
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