Can we say 1970s....:nohead:
Why power prices aren't falling
There was a hope that a global economic slowdown, which has led to a fall in oil prices, would also lead to a fall in the gas and electricity prices we all pay.
Well, don't hold your breath - for all the pressure that the prime minister, no less, put on the energy companies this weekend to cut their energy tariffs.
I've been talking to those who run our big power companies. And this is what they say:
1) gas prices are still 70% higher than where they were last winter, in spite of a fall in the past few weeks;
2) electricity prices are double where they were last winter;
3) there is very little spare capacity in the electricity generation market, because of the age and fragility of our generators, so there's a risk that - if another generator were to fall over - electricity prices could rise further;
4) over the summer, energy companies bought power on the forward market at prices that are higher than where they are today;
5) it's currently very difficult to hedge power prices at the slightly lower prices now prevailing, because the credit crunch has reduced the capacity of financial firms to take the other side of bets on the future path of energy prices (which is why certain power companies are no longer providing big fixed-price contracts to huge industrial consumers);
6) all the power companies are generating much reduced profits from their retail energy businesses, such that if they suffer a further margin squeeze they may well find it harder and more expensive to raise credit (another painful impact of the credit crunch);
7) power companies have no idea whether this winter will be cold, and therefore whether there will be a surge in demand for gas and electricity, which will lead to a spike in wholesale prices.
Put it altogether and what you've got is the near-certainty that those increased prices we saw in the summer - with British Gas increase the gas tariff by 35% and electricity by 9% - will prevail for many more weeks to come, and possibly all through the winter.
All the power companies will do what they can for those on lowest incomes. And they are conscious that for small businesses, the high cost of energy can prove fatal.
But the vast majority of us would probably be foolish to factor into our budgets any significant fall in what we pay for energy.
UPDATE, 10:40AM: If you are looking for gloom, today's public sector net borrowing figures are simply dreadful: £37.6bn for April to September, up from £21.5bn a year earlier.
And this horrible increment has come before we've seen any significant impact of the economic slowdown on personal and corporate tax receipts.
Public sector net borrowing in the current fiscal year may well turn out to be at least 50% greater than the £43bn forecast by the chancellor in March.
And, as I've been pointing out (see "Spend, Spend, Spend?") all the pressures on the government are to spend more in the short term, to lessen the downturn in the economy - which will lead to even greater public-sector borrowing.
Which is why many economists would argue that the priority for the Treasury is not to raise taxes or slash public spending now, but to map out a credible path for reducing public sector debt from 2010 onwards.
If the chancellor fails to do this, sterling and UK government bonds will come under very heavy selling pressure - and the cost for the government of servicing all that debt could rise quite sharply.
UPDATE, 12:36PM: I have looked again at where we are on wholesale gas and electricity prices - and they don't imply we are close to serious reductions in what we're charged.
Wholesale gas prices for delivery in the first quarter of 2009 are 62% above last winter's price. And electricity prices for the same period are 67% up, year on year.
As for wholesale electricity prices for November and December, they are even higher.
What's galling is that wholesale gas was supposedly priced off the oil price on the way up - but now that the oil price has more than halved, the gas price seems to have de-coupled (to use the awful jargon).
There's a bit of a smell around all of this. Few would probably argue that the gas market is either rational or efficient.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/why_power_prices_arent_falling.html
Why power prices aren't falling
There was a hope that a global economic slowdown, which has led to a fall in oil prices, would also lead to a fall in the gas and electricity prices we all pay.
I've been talking to those who run our big power companies. And this is what they say:
1) gas prices are still 70% higher than where they were last winter, in spite of a fall in the past few weeks;
2) electricity prices are double where they were last winter;
3) there is very little spare capacity in the electricity generation market, because of the age and fragility of our generators, so there's a risk that - if another generator were to fall over - electricity prices could rise further;
4) over the summer, energy companies bought power on the forward market at prices that are higher than where they are today;
5) it's currently very difficult to hedge power prices at the slightly lower prices now prevailing, because the credit crunch has reduced the capacity of financial firms to take the other side of bets on the future path of energy prices (which is why certain power companies are no longer providing big fixed-price contracts to huge industrial consumers);
6) all the power companies are generating much reduced profits from their retail energy businesses, such that if they suffer a further margin squeeze they may well find it harder and more expensive to raise credit (another painful impact of the credit crunch);
7) power companies have no idea whether this winter will be cold, and therefore whether there will be a surge in demand for gas and electricity, which will lead to a spike in wholesale prices.
Put it altogether and what you've got is the near-certainty that those increased prices we saw in the summer - with British Gas increase the gas tariff by 35% and electricity by 9% - will prevail for many more weeks to come, and possibly all through the winter.
All the power companies will do what they can for those on lowest incomes. And they are conscious that for small businesses, the high cost of energy can prove fatal.
But the vast majority of us would probably be foolish to factor into our budgets any significant fall in what we pay for energy.
UPDATE, 10:40AM: If you are looking for gloom, today's public sector net borrowing figures are simply dreadful: £37.6bn for April to September, up from £21.5bn a year earlier.
And this horrible increment has come before we've seen any significant impact of the economic slowdown on personal and corporate tax receipts.
Public sector net borrowing in the current fiscal year may well turn out to be at least 50% greater than the £43bn forecast by the chancellor in March.
And, as I've been pointing out (see "Spend, Spend, Spend?") all the pressures on the government are to spend more in the short term, to lessen the downturn in the economy - which will lead to even greater public-sector borrowing.
Which is why many economists would argue that the priority for the Treasury is not to raise taxes or slash public spending now, but to map out a credible path for reducing public sector debt from 2010 onwards.
If the chancellor fails to do this, sterling and UK government bonds will come under very heavy selling pressure - and the cost for the government of servicing all that debt could rise quite sharply.
UPDATE, 12:36PM: I have looked again at where we are on wholesale gas and electricity prices - and they don't imply we are close to serious reductions in what we're charged.
Wholesale gas prices for delivery in the first quarter of 2009 are 62% above last winter's price. And electricity prices for the same period are 67% up, year on year.
As for wholesale electricity prices for November and December, they are even higher.
What's galling is that wholesale gas was supposedly priced off the oil price on the way up - but now that the oil price has more than halved, the gas price seems to have de-coupled (to use the awful jargon).
There's a bit of a smell around all of this. Few would probably argue that the gas market is either rational or efficient.
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/10/why_power_prices_arent_falling.html
