MorganEnergy

I’m back from Finland, and slowly catching up on everything that happened while I was away. In the meantime, however, you can all head over to the Menlo Energy Economics blog, where I have just posted the sample article from the July EEnergy Informer. Titled “Time Has Arrived For Time Variant Pricing, But What Kind?”, it looks at how California’s priorities for retail tariffs have changed as the issues facing the state regulators have changed.

Today the British government issued a new white paper on energy market reform. I have been on aircraft most of the day (and am now in Finland) so I have missed most of the excitement. Fortunately there are plenty of reports online. Reuters has a summary of what is proposed.

Basically it sounds like the government has come to the conclusion that electricity generators will not build new capacity unless they are given firm guarantees of long term prices (or spot prices are allowed to rise significantly, which is something the government is probably scared of). It all sounds very much like the dear old “dash for gas” of the 1990s. Let’s hope these new contracts don’t end up underwater.

Possibly the most interesting part of the report is this:

The government’s electricity market reform white paper, aimed at introducing reforms to take effect by mid-2013, failed to decide on a capacity mechanism which ensures enough back-up power capacity is available at peak demand times.

The government said it would make a decision on that by the end of the year with two alternatives possible.

Either it will opt for centrally procured capacity that is removed from the energy market or a market-wide mechanism in which providers offering peak capacity will be incentivized.

I foresee a big upsurge in the demand for market analysis.

There are slow news days, and fast news days. If you want to make a big splash with a press release, send it out on a day that no one has anything to talk about except the latest UFO sightings. If, on the other hand, you want to bury bad news, announce it on a day when everyone is distracted with the biggest story of the decade.

That’s what Centrica has done in the UK today. The whole of the country is gripped with fascination over the unfolding story of the News of the World phone hacking story, which has already cost the venerable newspaper its life (and all of its staff their jobs), and threatens to do major damage to both Prime Minister David Cameron, and media tycoon Rupert Murdoch. What better time could there be to announce that you are raising retail energy prices by 16% for electricity and 18% for gas?

Of course not every journalist in the UK is asleep at the wheel. The BBC has a lengthy report on the issue. This is full of the usual back-and-fore in which Centrica blames world wholesale prices for its problems and consumer organizations quote their own statistics, either about historical prices or Centrica profits, in order to claim that the price rise is nothing but an exercise in gouging.

Sky News, however, takes a very different tack. It quotes Ann Robinson of the consumer website uswitch.com as saying, “the days of cheap energy are over and it’s time that we all started to understand what this means for our bills and how we use energy.”

Why might this be? Well, The Economist recently held an energy summit in London. The keynote opening address was made by Sam Laidlaw, CEO of Centrica. Here’s part of what he had to say:

We are rapidly approaching a tipping point in the energy story of this country and there is a risk that society is not being realistic about the path ahead. (…) Over this next decade three forces are coming together – our growing dependence on increasingly volatile world energy markets; our commitment to make serious cuts in carbon emissions; and our obligation as a society to ensure that energy remains affordable at a time of huge pressure on household incomes.

That issue, which is by no means unique to the UK, is explored in great detail in an article by Hugh Sharman at European Energy Review. Sharman lays into government energy industry forecasters, led by the International Energy Agency, which he describes as being “consistently optimistic — and serially wrong”.

Of course Sharman has his own axe to grind. He has made something of a career out of criticizing UK energy policy through his blog, DimWatt, but there is little doubt that the UK is desperately in need of new investment in generating capacity, and transmission infrastructure as well if it wants access to the promised green energy bonanza from Scotland. It is unlikely to get that if consumers are not willing to pay more for power.

So Centrica has taken the plunge. It wasn’t the first major retailer to do so. Scottish Power put prices up by around 10% last week. But it has a much higher profile and has implemented much bigger price rises. The company is doubtless hoping that the rest of the industry follows suit.

Last week Google announced that it would be discontinuing its PowerMeter product, which allowed users with access to the requisite data to monitor their home energy use online. Within days Microsoft followed suit, announcing the end of their Hohm product.

Lack of customer interest was cited as the primary reason for the death of both products but, as Tom Raftery at Sustainable Business explains, that lack of interest was primarily a result of being unable to get access to the data that the applications needed. Even if suitable meters were available, the level public disquiet over smart meters must have deterred take-up.

Christine Hertzog at The Energy Collective suggests that what is needed is some sort of loyalty scheme that would somehow “gamify” the process of saving energy. I’m not entirely sure that would work. Most such schemes concentrate on encouraging the consumer to spend more in order to get yet more things cheaply. A system that encouraged people to consume less in order to save money would need a rather different dynamic. And if it resulted in the saved money being spent on more consumer goods, would that really reduce energy use?

The other problem, of course, is that the amount of money that can be saved has to be worth the effort. One of the reasons that retail competition has been such a damp squib is that the effort required to switch supplier has been quite large given the relatively small amount of money that can be saved by doing so.

Still, I don’t even have the option of installing a smart meter here in the UK. When I do, I shall be interested to see what energy management tools and incentive schemes I am offered with it.

The Scotsman reports that the UK energy retailer, Npower, currently owned by Germany’s RWE, is likely to be put up for sale. The German company has hired Goldman Sachs to consider options, which may include an auction. RWE is thought to want to raise money in order to reduce debts, or possibly to finance investment in new nuclear plants. The paper cites Spain’s Iberdrola, which already owns another retail company, Scottish Power, as a likely bidder. This may trigger further consolidation in the rest of the UK energy retail sector, which has for some time been accused of being overly concentrated.

At the end of last week the UK government found itself with considerable egg on its face when someone leaked a bunch of emails showing that the Energy Secretary, Chris Huhne, was apparently colluding with the nuclear industry to put a positive spin on the Fukushima disaster in order to forestall public unease about new nuclear build in the UK.

Huhne is a member of the minority Liberal Democrat party in the Uk government. His party colleagues are largely anti-nuclear, and permission for LibDem MPs to abstain on any votes on the issue was specifically negotiated as part of the coalition agreement. Understandably Mr. Huhne’s party colleagues are not best pleased with him.

Meanwhile the French have run into their own problems. The nuclear safety inspections I mentioned last week turned up 32 separate safety concerns at EDF’s Tricastin plant in Drôme in the Rhône valley. Two days later the plant obligingly suffered an explosion, sending a thick cloud of black smoke into the sky. The problem was not associated with the reactors, and French police have confirmed that no radioactivity has been released into the environment. Nevertheless, the British newspapers are making a meal of the story. Doubtless their colleagues around Europe are doing the same.