Shale Gas 2008
Tories embrace smart meters
We don't flatter ourselves that the recent Tory conversion to smart metering is a sincere form of imitation. In fact it makes us more likely to think that if they like the idea there may be something horribly wrong that we've missed.
Struggling homeowners would have their fuel bills cut by hundreds of pounds under radical plans unveiled by the Tories.
David Cameron wants to make it illegal for energy companies to impose higher charges on customers with pre-payment meters.
Instead, they would have to install state-of- the-art 'smart meters' in every home. Experts say these meters encourage lower energy use because they show how much it is costing to leave the lights on or keep TVs, DVD players and other devices on standby. The Tories said it could save families as much as £300 a year.
Smart metering would among other things, remove the confusion marketing that energy marketing has degenerated into. Simple Time of Use tariffs would enable consumers to make decisions not on the essential irrelevance of who supplies energy, but on how much they use and can they save anything by either cutting use or timeshifting it. The cheapest kilowatt is the one you don't use.
Actually this may be a case of the Tories proposing something that the government is already considering, in order to later accuse them of stealing the idea. Either way, this news and the revelation from The Guardian re Ed Miliband recently that "Business leaders are telling us they can't remember the last time a secretary of state pissed off their lot so quickly," can only bode well.
On the subject of PPM meters and smart meters in general, it's worth noting that it in Northern Ireland Phoenix Natural Gas rates for standard tariff or Pay As You Go meters are virtually identical, and actually lower for small users. Since Phoenix rose from the ashes of what little mains gas industry Ulster ever had relatively recently, these costs reflect 21st century meter infrastructure, further confusing the issue of why do PAYG/PPM on mainland Britain carry such a premium?
Why the Green Gloom?
Disturbing, but not in the least surprising news from an FT poll:
About 30 per cent of Britons thought efforts to combat global warming would reduce the number of jobs available, compared with 24 per cent who said it would increase job numbers.
The British gloom will come as a disappointment to the UK government, which is preparing a “green industrial strategy” to boost manufacturing activity through focusing on environmental goods and services. Ministers have estimated that seeking to improve the country’s environmental performance, and generate 15 per cent of energy from renewables by 2020, would generate 160,000 new jobs.
We say that apart from the natural British (English) tendency to almost enjoy a disaster instead of expending energy on providing solutions, this is a result of simply not knowing too much about energy except the price is going up. The cheapest kilowatts are those that are not used, but since few business or domestic consumers have any idea of how much energy they use or what they pay for, highlighting areas for improvement is either difficult or just too much trouble: One example is how SME's have a lower switching rate than domestic customers. And as the Public Accounts committee highlighted last week, almost a third of those who do switch actually end up paying more!
There is a solution, but one which, until recently, the UK government has been not simply going slow on but actually obstructing: our old favourite Smart Metering, which would also allow the solution of index pricing. Both of these would make energy far more transparent than the current confusion which serves no one, although possibly suppliers have yet to be brought to that conclusion.
A crisis is a terrible thing to waste. We could just muddle through, but elsewhere, especially in the US, current events are seen as an opportunity to create, among other things, a wholesale decarbonising of the economy. We could muddle through. But the new paradigm of investment and spending, if it is not wasted can also give the UK hope for the future. Smart Metering, apart from making consumers aware can also solve a number of other problems:
Jobs: an accelerated SM program could create thousands of installer and meter manufacturing jobs
Fuel Poverty: SM will allow new thinking on energy pricing that will change the current mess where the poorest and those in fuel debt, sink deeper into a hole because the costs of prepay meters are inordinately high. This will naturally impact government targets on Child Poverty.
Carbon Reduction: Less Energy is less Carbon
Finally, lower energy costs will impact the wider economy. Energy is analogous to taxes in that everyone pays for both. Lower energy costs have an impact equal to lower taxes in the wider economy, but with the virtue of not being funded by government.
Does the public have the imagination to see this? Judging by the poll, not yet. But government can create some leadership that may yet achieve it.
When the Commons Public Accounts Committee entitles a report on regulation "Protecting Consumers?" Ofgem should be getting nervous. The question mark in the title shows for the second time this year that Parliament's patience with Ofgem's combination of excuses and inaction is wearing thin.
An important part of the displeasure is over the failure of the market. Ofgem has confused choice of supplier with competition for some years now. Ofgem's continual trumpeting of "Choice, Choice" made them sound like a throwback to Majorism at the best of times which was when prices were coming down. Energy prices declined for nothing to do with competition of course. Bad luck for Ofgem that prices are rising for nothing to do with competition either, but at a time when Reaganesque solutions appear ridiculous.
The Committee Chairman referred to a "confusopoly" which is a compound of monopoly and a complex pricing structure.
The Public Accounts Committee seems impatient with Ofgem's inablility, and seeming unwillingness, to act. The PAC noted, as we have, that a market where a quarter of electricity consumers actually switched to a more expensive rate is more a sign of confusion marketing than a reliable market.
They also recommended that suppliers are to offer the lowest rate to customers, a hard habit to break when there are a dozen or more tariffs per supplier on the average switching site.
High energy prices are unfortunate. Where they are made worse is deliberate confusion marketing strategies, lack of reliable volume or time of use data, third-party introducers with hidden agendas and all users being discriminated against by being denied access to wholesale prices that are readily available to larger users. Ofgem is being told to shape up, but is it too late?
Predicting prices, fulfilling disaster.
It remains to be seen if the results of both SME and domestic customers fixing energy costs this year will be ironic or tragic.
Scottish and Southern, regularly one of the lower cost domestic suppliers, now predict domestic energy price reductions in the New Year.
NHO dependably recommends index pricing to reflect changes in wholesale markets. Our thinking is that markets are sometimes irrational, but are never consistently irrational.
Could a retail market that pushes promotes stability in pricing as a way of ensuring low prices actually have delivered the opposite? Did people fulfil the tragedy they sought to avert? The answer is probably yes.In which case, how did so many people act counter to their best interests?
First a reminder of the numbers. February peak power was 12.9 a kWh a month ago and had been even higher over the summer: Today it’s 9.4.
November is even more dramatic: it was as high as 15 and now it’s 8.5.
Gas for January, the most expensive month was over 110 pence per therm during July, with a one year commodity only cost of 99. Today, January is below 70 and one year is nearing 60. Day ahead is averaging 60 for November. November is often the most expensive month for gas and barring major accidents or very severe cold snaps, we should see January end up being 50 at best.
The end result: fixed prices for power give suppliers 40% more than they can buy it for between each other on wholesale markets. Floating prices for gas look like they can end up being well over 50% cheaper.
This isn’t the place to discuss how these numbers got here. The signs pointed to a correction pushing prices to the edge way before the financial crisis pushed them over it.
This is a good time to discuss why they got here:
- Without knowledge of energy issues, including such basics as when, how and how much gas and power is used, consumers operate in the dark.
- That made people liable to act on scare stories in the press. Tell people who don’t know the issues and don’t have any benchmarks that gas or electricity or oil is running out and they usually pay up to secure supplies.
- The myth of competition, a fantasy that markets provide efficient long term outcomes made things worse. These fallacies have been pushed by a self-reinforcing cabal of regulators, third party introducers and consultants who have a vested interest in keeping their fees and/or jobs.