Tuesday 11 October 2022

Demand Destruction

 ... the no-nonsense name given to the situation where end-users of energy just stop using because the price is higher than they can justify paying.  There are shades of this phenomenon:  sometimes reduced demand for (e.g.) power or gas is actually fuel-switching; sometimes it's locational (switching production to another site).  It shouldn't include short-term temporal flexibility, though, which is more properly "demand-side response / management", and if based on intelligent price signals and value-sharing, is just optimisation.

True demand destruction is demand just gone, totally unsatisfied.  Like demand for haircuts: a haircut delayed is an absolute reduction in demand.

It's been happening at the industrial level ever since this energy crisis kicked off, i.e. in 1Q 2021 (sic) - ironic, since the initial cause was increased industrial demand arising from all nations' post-covid recovery efforts.  Across Europe, demand for natural gas has fallen noticeably (5-10%) this year, not all of which will have been switching.  But neither electricity demand, nor residential demand altogether, has really dropped off at all.  Winter is likely to change all that.

So: gas and electricity, generally thought of as highly inelastic in most sectors, may be about to be stretched quite considerably.  What will we find?  Some BTL commenters here have suggested it could prove unprecedentedly elastic.  That may be right: the price pressures are certainly unparalleled.  And BG / Octopus et al are coming up with incentive-based schemes (long overdue) that will hopefully contribute a bit of intelligent assistance to end-user decision-making.

While the market evolves its new dynamics, in the UK for some reason politicians want no part of it.  Truss won't hear the word 'rationing' mentioned, and Labour don't want to 'patronise' people by telling them to think about putting on the extra jumper.  Commendable laissez-faire?  

Well, Teenager Truss is certainly in the grip of some caricature drunken Speccie drinks-party doctrine: but I think it's rather that she doesn't want to be associated publicly with anything that smacks of failure or defeatism.  Absolutely pathetic: all that happens is that the National Grid, by default, imposes whatever rationing regime it sees fit.  And/or, a more considered form of rationing is indeed being hatched between Whitehall and the Grid, but nobody's to mention it in Her presence.  These are the ways of the Court in absolute monarchies with very weak rulers.  Even Thatcher made a proactive response to the AIDS crisis, and wanted to be told the facts (at least, until she went poll-tax potty after 1987).

And of course, end-users will form their own action plans, however blunt and sub-optimal they may be.  We can only wish them all well, when cold weather afflicts us in the coming 6 months.



Matt said...

With the cap on unit prices and the energy bill discount of around £66 per month for the next 6 months, the cost to run my electric AGA for the winter is only around £50 per month more than last year. I was expecting it to have been about £300 per month without the government support which would have meant it stayed off.

So, no demand destruction in my household despite it being required to ensure we don't need gas powered electricity generation at the point of highest gas prices and/or shortages.

Anonymous said...

I see the IMF is in "let them freeze" or demand destruction mode, depending on outlook

"Winter 2022 will be challenging, but winter 2023 will likely be worse. Price signals will be essential to curb energy demand and stimulate supply. Price controls, untargeted subsidies, or export bans are fiscally costly and lead to excess demand, undersupply, misallocation, and rationing."

Interesting piece on Corbyn's IMHO suicidal 2019 election promise of a rerun Brexit vote, which IMHO cost him hugely in Labour seats.


Corbyn and his advisors failed to consider whether those leading the push for a second referendum were truly motivated by their adoration for Brussels bureaucrats, but instead a determination to scupper Labour’s electoral prospects.

Corbyn’s commitment to a second Brexit referendum should be regarded as one of the gravest political missteps in recent British political history. Rather than provide a popular alternative to the Conservative government’s floundering Brexit negotiation process, Labour aligned itself with a nascent, fringe political movement borne of the very elite British voters sought to reject.

And they may have engaged in this act of willful political suicide with a quiet but concerted nudge from the intelligence services which saw Corbyn’s ascent as an existential threat.

lilith said...

I predict a massive surge in house fires and carbon monoxide deaths. (Youtube is full of DIY heating schemes involving a flowerpot, some candles and a sieve.)

Bill Quango MP said...

In Dominic Sandbrook’s book on the winter of discontent, there are a few pages about a London shop that was more of a commune.
A dilapidated store selling home made furniture and painted t/shirts and lentils. They did a decent, if limited trade in home made, poorly finished, candles too.

It briefly became the busiest store in town when news that they had stockpiles of candles in wine bottles. Queues around the street. They sold out of all they could make when the power started going off.

Anonymous said...

Government gilt yeilds back over 4%.

Well done Truss and the Tories.

When the Labour party under the liar Blair rebranded Labour, New Labour, somehow he managed to sanitize the Labour party brand.

Somehow, I doubt that tactic will work for the Tories for what, a century?

Anonymous said...

I see Biden's carers now want to punish the Saudis for not pumping enough oil. They've pushed Russia and China together, now it looks as if they might accomplish the impossible and unite the Saudis and Iranians.

US policy seems to be based on pushing their luck in pretty much every direction simultaneously. Do they know something we don't? Do the entire stock of Russian nukes have Stuxnet or something?

jim said...

When petrol prices went up you could see people driving more cautiously - for about 2 days. In our house we have the 'I turn the CH down and Mrs J turns it up' game. This is a traditional and widespread game I understand.

Looking in our kitchen the oven/hob is looking to be an endangered species. Expensive to run, the small oven is never used - full of plates and grill pans. So either a much more efficient version comes along or the oven concept gets outed. Which may be bad news for fish cakes - they say you can't microwave them.

Then UK energy consumption has been going down as we and others exported our industry to China. Energy consumption due to road & rail transport has dropped due to Covid and WFH and general inconvenience. Domestic energy consumption has not dropped much at all. What you gain on the led lights you lose on the air fryers.

Globally we could probably do with a good reduction in overweight Caucasoids. Unfortunately the usual Malthusian cures don't seem very effective on them. But wealth and comfort might, babies are an expensive luxury for the middle classes - not so much for the rest. Or Mr Putin might help us out.

Don Cox said...

I've used a halogen oven for years. Definitely more efficient than the traditional type, and easily cleaned.


Wildgoose said...

Thank you to the "Anonymous" poster above.

That site also has the following video interview with a 13 year old girl on a Ukrainian Government kill list:


I also saw on a pop-up news alert this morning that Truss' government has declared China to be "an enemy state". (OK, it was reported in "The Sun").

Are the madmen (and women) in charge of the West determined to declare war on the whole world?

Anonymous said...

And sterling is on the slide again, pension funds looking hooky, it's all going pearshaped.

Still, if Starmer and Streeting were in charge we'd still be freezing for Ukraine, the borders would still be open, the only real difference would be that "speculators" would be the ones being blamed.

When you think back, December 2019 starts to look like a Golden Age.

Anonymous said...

and employers are still whining about a "tight labour market" i.e. we can't get £40k people for £12k

immigration now, immigration tomorrow, immigration forever!

DJK said...

Never mind energy demand destruction, Truss seems determined to destroy the housing market and DB pensions, as well as any shreds of economic credibility that the Conservative party once had.

She is utterly demented, thinking that more immigration (1 million people/year not enough?) plus concreting over the south of England will solve our economic woes. Do these people even realise how large the balance of payments deficit has become?

Truss has been one of the most bellicose of the war hawks this year, still living in the fantasy that Britain is a Great Power and can afford to declare war on Russia. Wildgoose mentions the Ukrainian government kill list. (I've seen it said that the kill list is hosted on US government servers, but I've no idea if that's true.) Since it's received no coverage in the MSM, may I also draw your attention to some of the war crimes being committed by our allies in Ukraine.

Maybe the Russians are as bad, but it's really not my fight.

My 90 year old neighbour won't turn her heating on "because there's a war on". People will be literally freezing to death this year, all to support Hunter Biden and a bunch of Slavic Nazis.

Anonymous said...

When you see a young girl, hands tied, being led away by Azov, and next you see them dumped in a pit with other young people, hands tied behind their backs - and all this recorded the day after Kupiansk was recaptured. Not nice.


Anonymous said...

The thing I can't get over is - nasty things happen in war, people take private revenges, all sorts - but these guys boast and laugh and post video about what they're doing. I begin to understand why in Severodonetsk months ago a tearful woman was saying to DPR soldiers "you won't go away again, will you?". Because in Severodonesk the same guy was boasting about 'disappearing' people back in March.

Anonymous said...

Zero Hedge - "What we are seeing in real time in the UK is a decades-long hyper-financialisation of the economy being partly unwound on fast-forward at gunpoint"

It's true that in every financial crisis since the dot-com bubble the answer has been - "print money and cut interest rates" - it looks as if at least for the latter we've hit the zero bound.


McElligott pointed to the 20 per cent slide in the Japanese yen this year, a sell-off in British sovereign debt in recent weeks, and a smattering of loans stuck on banks’ balance sheets that lenders are unable to offload to investors even with deep discounts, as signs of the strains in markets. He added that the strength of the dollar was “causing tremendous strains economically . . . and increasingly, metastasising in markets”.

andrew said...

Completely off topic. The Economist has cast judgement on the current PM

"Liz Truss has already secured a place in history. However long she now lasts in office, she is set to be remembered as the prime minister whose grip on power was the shortest in British political history.
Ms Truss entered Downing Street on September 6th. She blew up her own government with a package of unfunded tax cuts and energy-price guarantees on September 23rd. Take away the ten days of mourning after the death of the queen, and she had seven days in control. That is the shelf-life of a lettuce."

Anonymous said...

But a lettuce has a heart ..

dearieme said...

This all smells of a quisling anti-Brexit coup to me.

andrew said...

Much as many may want to rejoin the EU, I am pretty sure we will not be welcome. For a very very long time.

E-K said...

We are on the C team after all.

Conservative, Cunts or just plain 'C' ... as you wish.

Truss was only ever meant to have been a Jnr Minister at most.

Diogenes said...

I'll second Andrew on this. We've served our purpose which initially was to bolster the German side against the "Non" of France. Now that Germany is top dog and France have reached an accommodation, we are surplus.

US doesn't need us nor Japan (or Japanese business) as a way into the EU. We've been trussed up like a turkey and left to float mid-Atlantic with neither a political home in one place or another.

And the blame lies in the second rate politicians we have elected (and ignored) hoping they actually knew what they were doing.

jim said...

Slowly slowly it is becoming clearer to the slow of understanding that Brexit was the most stupid idea on the face of the planet.

In effect we are back to 2015/16, no further forward and going backwards fast. The things that held us back in the years leading up to the referendum are still holding us back - an aversion to concreting over the Green Belt.

Something that frightens the horses and gets a government un elected. Tough luck, its that or penury. Worse, a nasty letter from one's pension provider 'From next month we will be paying you 10% less. Tough luck. Yours Aunty Liz'.

While we are doing unpopular things perhaps the National Trust, and the RSPB among others can have their charitable status taken away. That will raise a few bob and cut back one of the many make-work schemes. That will teach them to be 'unhelpful'.

Don Cox said...

Brexit wasn't about money, it was about independence. Being ruled by a bunch of dodgy characters in Brussels was not good.


Wildgoose said...

As Don says, Brexit was about being able to make our own decisions rather than be ruled by the corporatist mafia in Brussels.

The problem we have is that our decision-makers are lightweights who aren't up to the job. Where are the cold-eyed pragmatists willing to take hard decisions in favour of our long-term interests?

If we are lucky, seeing as the Tories seem to have decided to render themselves unelectable, they might realise that they can just ignore the media and simply do what needs to be done. Scrapping the Climate Change Act would be a good start.

I'm not holding my breath though.

Don Cox said...

Scrapping the Climate Change Act would be a very good start.

Climate change is certainly happening, and it's caused by CO2, but the CO2 output will go down automatically when nuclear fusion makes electricity cheaper.


andrew said...

Indeed it was about independence - powers that could be used to make ordinary people's lives better, things that have not happened for the last 20 years because EU.

Back in '16 I put it that to a housewife in Liverpool, a decision to close the local primary school taken in London is for all practical purposes as far away as the EU. Things will not get better unless we decentralise.

My other top 3 were
1. Create a mass public transit system that is about as good as London's in all UK cities. This enables people to get to suitable jobs.
2. Adult education. It is weird that we stop learning at 18-21. People are about the only natural resource we have. We should invest in that.
3. Cheaper houses - obvs.

The point I made at the time was none these things needed to wait until we left the EU, and if we leave, the central govt have no-one to blame any more, it is all up to them.

It now becomes clear that we are ruled by a bunch of dodgy characters in London who are incompetent and have no great interest in the lives of the bottom 90% of the country.

Brexit only "wins" if we govern for the good of the whole UK differently to the EU and and about as competently as the EU.

I do not see that happening.

I do see parts of the UK's business sliding to Europe. Companies will open a Paris / Cologne office and when a vacancy cones up in London, it gets filled in Europe because that is where the work is. And the work of the supporting trades / services goes there too.

Wildgoose said...

@Andrew Yes, we need to massively reinvigorate Local Government. Make it a real job again and maybe we will get serious people involved again.

As for "Create a mass public transit system that is about as good as London's in all UK cities. This enables people to get to suitable jobs", we used to have just such a thing in South Yorkshire. A comprehensive, fast, reliable and cheap public transport system. Absolutely vital given the rocketing unemployment at that time. (Sheffield lost over 25% of all its jobs in a period of just two years).

It was scrapped by government fiat in the mid-1980s. But notice how "bus deregulation" was carried out. It didn't apply to London. And if it wasn't good enough for London, it shouldn't have been forced on the rest of us.

Wildgoose said...

Oh, and people may find this information about the loathsome Nick Clegg interesting:

Nick Clegg identified in court as the Facebook executive bribed by OnlyFans to blacklist its rival adult entertainers.

jim said...

Sad to say some seem to suffer from the 'if only we had good leaders' syndrome. The idea that there may out there be some people with a special ability to run a country without fuss or inconvenience is a complete fallacy. No such people exist, not even from Oxbridge. I have worked with some of those - they are nothing special - but they speak nicely and confidently and often talk bo%^oks.

The problem is the system of running things. The UK Parliament grew up from being a mini-monarchy and has not really moved on. The continentals have benefitted from some good killing and revolution and some very rough times. That has improved the breed a bit and the expectations of the populace. Their system may be a bit ponderous and even a bit corrupt but its not actually stupid and corrupt.

I liked being in the EU - it usefully constrained the lunacy of the UK parliament. They need constraint because otherwise they will never do anything wise and always do the easy thing and the nasty thing. As we now see, the children have made a mess of the job on their first outing and KK crashed the car five minutes after getting the key.

Caeser Hēméra said...

I'm pretty upbeat for the mid-term, short-term, yes, it's an absolute shitshow and will be for months to come.

Cheap debt shifted us into a spending spree, and that party was always going to end, and here we are, the hangover kicking in after years of buying things on the financial equivalent of Kestrel Super Strength.

Now was not the time to challenge the current orthodoxy, and the UK certainly wasn't the country to do it - the US is far better placed for that, just they've two insane political parties - but, we're here now, Pandora Truss has opened the box, so lets fish out hope.

What'll come on Halloween is anyones guess, and Truss cannot keep all her claims, but whatever, we've started on the path to higher interest rates and saving might just become a thing again. Hopefully house prices will crater - and I speak as an owner of multiple houses, personally, being in negative equity on a home and rental properties is small price to pay if it means houses being in reach again for most of the population.

It's going to be horrible for the nation, and hopefully we'll pass through with the minimum of suffering, but the Tories have had 12 years to orchestrate a soft landing and just failed and blamed Labour. After 12 years, excuses ring hollow, and the voters will repay them accordingly.

Wildgoose said...

@Jim It's not 'if only we had good leaders' syndrome, because as you say that is highly unlikely. No, I would settle for competent leaders, which is both reasonable and possible.

andrew said...

Dont even need competence, just leaders who

1 Understand the machinery of govt is not there to stop you doing things, it is there to stop you setting the economy/your party/yourself on fire
2 Do not make judgements based on their inner voices, rather on facts and the opinions of experts

No, this will not always end up with the right result, but we have spent the last 5-6 years seeing the alternative.

Anonymous said...



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BlokeInBrum said...

The problem is that the people 'running' things have too much power and influence in the first place.
I would rather that the Government had a very limited budget and sphere of influence.
Administer Law & Order, protect our Borders etc.
Other than that, you're on your own. Pay for your own health insurance. If you want to give charity to India or similar countries, fund it out of your own pocket.
Look at Belgium, who didn't have a government for nearly 600 days.
Didn't do them any harm.

DJK said...

Belgium may not have had a government for 600 days but it still had a functioning state, with police, schools, social security, etc.

Britain is suffering from too little state capacity, not too much. Think there are too many immigration officers at Heathrow, or on the beach at Dover? How about police numbers, or doctor numbers?

Money may not be the sole issue here, but it's not obvious that cutting government spending is going to make anybody's life better, or attract all those international investors who Liz Truss thinks are dying to set up factories in Britain.

If cutting expenditure is really the answer, then the government should start with pensions and force some of the fit fifty and sixty-somethings back to work. Not sure that's really a vote winning strategy though.

Incidentally, we should resurrect the Dominic Cummings idea of creating a British version of the German Fraunhofer Institutes, to create long term growth.

Don Cox said...

I'm reading this book and finding it very interesting:

PUGNARE: Economic Success and Failure
Paperback – 2 Feb. 2021

It's an economic history of the Roman Empire with comparisons to the modern world. Definitely a different view of Roman history.


Anonymous said...

Dom was full of bright ideas - I still think if he'd kept his gob shut he could have been a great asset to the UK. Boris might have been forced by events to bring him back.

Trouble is, every admin these days has a kind of Palace feel to it, who's in, whose out, who's got the ear of power and who hasn't.

Dom and his team pretty much won the election for Boris, admittedly helped by a huge chunk of the Labour Party plus MI6 working against Corbyn.


Having got him to #10, you might think Boris might listen to Dom on the subject of keeping him there. But no, he had too much of a 'northern chemist' vibe for Carrie & Co. It's odd that BoJo listened to her, and much good it did him.

Dom really is different class, if you read his substack. We might even have made Singapore-On-Thames a reality. To think he got Steve Hsu through the doors into #10!


One of the wonderful things about Prof Hsu (Physics with a side of genetics but a general polymath - consultant to the Beijing Genomics Institute) is that his blog is absolutely vanilla Blogger circa 2001 - no neat videographic intros, just information, information, information.

Anonymous said...

Just spent the morning with a charity team on "Winter preparation" - the real Climate Emergency when it's brass monkey's outside and the pre-pay meter has been exhausted for the second time that day.

Questions like how do we get Utilities to turn the heat and light back on. If the can't/won't how do we get people warm again or into warm spaces. Can we provide an emergency backup pack of clothes, blankets and food

And who is leading this work? Why local government and the NHS who have an interest in keeping people from freezing to death.

Not all politicians are a waste of time. Some actually do something such as planning ahead.

God knows why we have ended up with this shit show at Westminster but it needs purged.

Sobers said...

"Do not make judgements based on their inner voices, rather on facts and the opinions of experts"

Ah yes, experts. People who have lots of vested interests and have wormed their way into positions of power enabling them to push them to the fore.

The idea there are saintlike 'experts' out there who only have the good of the nation at heart is on a par with the one that says politicians never lie.....the experts have been telling us to go net zero, stop using fossil fuels and get into a fight with Russia. If thats the experts, give me some idiots instead.

dearieme said...

"Back in '16 I put it that to a housewife in Liverpool, a decision to close the local primary school taken in London is for all practical purposes as far away as the EU."

When did that come in? In all the cases I've known the decision has been made by the Local Authority, not in London. Who changed it?

Don Cox said...

"Ah yes, experts. People who have lots of vested interests and have wormed their way into positions of power enabling them to push them to the fore."

I've known many experts on various subjects, and only a small minority were interested in gaining power. Bullying professors do exist, but they are a small minority.


Sobers said...

We've just tried government by 'expert', the entire Covid response was delegated to the 'experts' on SAGE, and look what an unmitigated f*cking disaster that was. You need your head examining if you think 'more experts' is what the UK needs.

My proposal is to ban anyone who has been to university from any position of power within government or the senior civil service. The so called 'educated' graduate class has got us into this mess, they should all be sent off to hoe cabbages in Norfolk and give the job of running the country to those who may not be able parse ancient greek but have a good deal more common sense. A government composed entirely of bricklayers wouldn't have messed things up as badly as all the PPE tw*ts have.

Don Cox said...

You seem to be assuming that the only degree offered in universities is PPE, which I agree is a dubious qualification. But there are good courses on civil engineering, electrical engineering, immunology, chemistry, agriculture, nuclear physics, computer games design, mathematics, and so on.

The problem is that these practical courses are extremely expensive to run. Purely verbal courses such as French Literature are cheap and can subsidize the hardware based subjects.
And in some, you learn about human nature, which is very useful for potential managers.

I don't agree that the response to Covid was an unmitigated disaster. Certainly the furlough grants were rather lavish, but remember that this was uncharted territory and at the beginning people were dying like flies. The government did move as fast as possible to get vaccines organised. Would you have done better ? The hospitals were very nearly overwhelmed.

Don Cox

shiney said...


"But there are good courses on civil engineering, electrical engineering, immunology, chemistry, agriculture, nuclear physics, computer games design, mathematics, and so on. "

And most of the people who have those degrees AND, crucially, were actually really good at the practical/applied aspects of their subjects are out here in the real world doing their stuff and making money - not fucking about in government.

Don Cox said...

@ Shiney

True, but politics is also a way to make money, especially for those with limited practical skills.


Old Git Carlisle said...


the trouble with you lad is that you are educated to the point of stupidity .
cannot understand how we can establish balanced economy with 50% university educated population.

Who drives trains (if drivers actually needed) who does social care, etc etc what are the actual figures for distribution of work force.

Sobers said...

"True, but politics is also a way to make money, especially for those with limited practical skills."

Well precisely. We end up being governed by people who have never had to manipulate reality (ie work with the forces of nature) and have thus never gained a natural understanding of what can and what cannot be done. The university educated arts types who run everything have lived in their heads (ie purely intellectual work) for their entire lives. In their world if you can argue something well enough it is right. A bricklayer (or train driver, or docker, or miner as the old school Leftists used to be) knows that reality doesn't care for us and you have to respect it. You can't will a brick wall to stand up, you have to build it right on the correct foundations. Whereas a PPE graduate thinks you can create your own reality if you have the will to make it happen (in this they are rather like Hitler - he too thought that the will to do something was more important than the physical reality on the ground).

I would posit that the decline of the UK can be directly linked to the rise of non-technical university education. All we should have is technical universities that teach people STEM stuff, information that they will need to do those jobs. All the rest is guff, and just allows the narcissistic fakers to rise to the top because 'I've got a degree you know!'.

jim said...

Not often I agree with Sobers, but regarding but "In their world if you can argue something well enough it is right" he hits the nail. I really have had this from the company's intellectual giant - "just make it internally consistent - then it will OK".

All very well until the intellectual giant has left out a major component of the job. Then there is a clearing up job to be done....

Back 35 years ago the fashion was for getting rid of Civil Servants and bringing in consultants and assorted bright sparks. TBH the senior civil servants did know their stuff but the systems were very fusty. Now I fear the pendulum has gone too far with people who don't know their stuff and distinctly too un-fusty. Bring back Northcote Trevelyan and some lively project managers and very little 'in commercial confidence'.

To upset a few IMHO we should say stuff the newts and the NIMBYs - you will build 5000 houses on the outskirts of Virginia Waters and offices and a railway station. Rinse and repeat. Action This Day, they can scream all they like. Alternatively I have another solution to our ills - based on a variation of an old book 'A Modest Proposal'.

Don Cox said...

"I would posit that the decline of the UK can be directly linked to the rise of non-technical university education. "

University education was originally non-technical -- Theology and Classics. Science and technology degrees are recent arrivals (mid 19C at the earliest).

(You could argue that theology is technical as it deals with the techniques required to get into Heaven.)


Old Git Carlisle said...

I was an early entry to ta sandwich course at Northampton College of advanced Technology - now University of London City.

It was90% stem now a very different beast. To be fair I exchanged my hard won Dip Tech with a BSc as soon as possible.

I was junior lab boy and after getting A levels on day release and being assessed by hard headed old school managers and being sent to Outward Bound was transferred to the Grammar school entry stream in status of Pupil Chemist. In my final year at college I was earning as much as junior lecturers as I was getting travel expenses and lodging when placed away from home. Just got short of £1,000 in first year after graduation. (1963) - downhill ever since!
I believe this is how we should operate - understand similar system operates in other countries eg Switzerland.