Friday 5 February 2010

That Ofgem Report In Full

I may a bit more forgiving towards Ofgem than CU, and as part of our usual service to readers have read their Project Discovery document which confirms everyone’s worst fears about the looming electricity shortfall.

It’s a bit like the Butler Review – a lot of good stuff but as knee-jerk civil servants they’ve felt obliged to encrypt it & we’re supposed to decode for ourselves. It’s even quietly subversive in places:

If [sic] reductions in carbon dioxide emissions domestically is seen as important …(4.21)

If !?! What official body has dared to question the received wisdom like that in the past ten years ? And by way of further heresy, they register the point (albeit obliquely) that wind-power is getting too easy a ride, suggesting that price signals for balancing and peaking problems should be ‘sharpened’ (= greater penalty for intermittent output). Also this:

"The risk is that more generous subsidies are required … in order to stimulate the desired low carbon investment. Should carbon prices subsequently rise, low carbon generators may enjoy super-normal profits at the expense of consumers." (3.21)

We should be grateful these things can still be said, if only in code.

They shy away from the actual infeasibility of government targets: the coded statement is ‘There is a need for unprecedented levels of investment to be sustained over many years’ (a point I first made to the DTI in 2006 but they weren’t amused). This is a pity as a knock-down proof of outright infeasibility can be given.

Ofgem satisfies itself with worrying about a range of things including, most tellingly, the ‘risk of prices being greater than necessary’. Yes indeed - particularly if the 'possible policy measure' of reinventing a central energy monopoly/monopsony is adopted, Heaven help us.

We've cracked the code. Prices greater than necessary. And super-profits for the subsidy-wallahs. Yes indeed.



Demetrius said...

The first glitches and occasional outages are occurring already. It is going to gradually worsen. Will they have to cut off power in some areas to quarantee power in London during the 2012 Olympics as happened in China in 2008?

Elby the Beserk said...

The report headlines on the BBC were hilarious - having suffered a doubling in energy prices in two years, Ofgem scream hysterically that they may go up 25% in 10 years, and that people will not be able to afford these prices.

We can't afford the current prices. Who are these idiots? I assume they don't have to worry about their heating bills.

Nick Drew said...

Demetrius - you got it: local authorities in E.London have been told to come up with priority-lists for receiving electricity in the event selective power cuts are required to ensure the Olympic facilities don't suffer

Elby - yes those headlines were daft, not least because one of ofgem's 4 scenarios shows prices up 52% by 2016, which sounds much more likely

Anonymous said...

Only 52%??

Dream on!

Mark Wadsworth said...

Thanks for trawling through that and cracking the code! So basically, we're f***ed, aren't we?

Joanna Cake said...

So, guys, is there nothing that we can do about it?

Have we been completely stitched up like kippers from the time the first privatisations began back in 84/85?

Has putting public utilities into the hands of shareholders just been another extension of the whole banking bonus thing - where a few people can make a lot of money short term over investments that will go spectacularly tits up for the majority in the long run?

I still cannot believe that the Government the allowed those companies to then be sold off to foreign investors. As a simple housewife, it just seems like obvious bad sense to put a utility that is so crucial to the running of our country into the hands of someone who doesnt actually live here.

Nick Drew said...

Joanna you may have come to the wrong place, we are big believers in free markets and competition around here. Big topics, but ...

began back in 84/85 - good sense of history: 1st privatisation (BG) went off at half-cock because it was privatised whole, as a de facto monopoly (de jure it had lost its monopoly/monopsony in '82), and no-one managed to sell any gas in competition to them until '89

extension of the whole banking bonus thing - Enron (also a big topic) maybe did that more than privatisation per se, although it was inevitable that the development of trading in gas and elec - vital for competition - would bring trading-style peripherals: but in the utilities it's nowhere as extreme as in banking

sold off to foreign investors - not a problem: the public service obligations on them are great, the regulations tough; they've always over-paid, the physical assets are firmly bolted to the deck

nothing that we can do - watch this space, the Drew energy manifesto is due for an update

Joanna Cake said...

Nick, I am happy to be educated :)

I was working in the City as a humble secretary in the 80s and then I left to have a family. Two decades and one divorce later, Im trying to get my little brain back into gear and understand what's going on... I need to buy my own flat as well as work on my own fledgling business so I have to be more abreast of current affairs and economics. Just to try to be prepared for the future.

I used to watch and listen to the News for education, but it has become apparent that Im just being fed what those in authority want me to hear. When I speak to other bloggers in the States and they give me their version of current affairs, it's very different from what I have been spoonfed.

Please be patient with some of my more stupid and ingenuous comments/questions :)

Anonymous said...

Ecotricity are doing well out of all this.