Thanks for the reply and clarity of debunking the subterfuge that is going on here. There are politicians popping up and questioning the impact of NZ but annoys me that they don't tap into experts like yourself more to hit Milibrain with awkward questions. He wint have the answers but he would have to provide a written response. Instead they want to political point score which achieves nothing.
That shows wholesale prices being 45% of the price cap vice 43% last qtr. This allowance does include an adjustment for CfD costs but not sure that would account for the almost doubled cost from your analysis?. Although be interesting to know what the costs is ex the CfDs? Also I know suppliers effectively have to fund ROCs and FiTs? but how does that have a bearing on the wholesale cost as is this not the cost at the generators bars? Be nice to see there breakdown table represented to show the true cost drivers.
Then we have other entries like Network costs which include the ever increasing cost of balancing the network or in reality the cost of too much wind on the system. Reality is balancing is still a small part of the costs but constraints are nigh on 70% now. The problem is this still only 10's of pounds and its being swamped by the wholesale cost so doesn't get a look. In terms of traded commodities the price of gas is now down 25% over last two weeks but OFGEM suppress the actual data they use saying its commercially sensitive but on the basis price now remains at current level then that should lead to a complete reversal of this months uplift and of course Milibrain will claim its down to his NZ2030 action plan and so the lie will go on in the press.
An initial response. Your point about the Ofgem figures explains why I provided unusually detailed information on the data sources that I used. My figures come from easily checked public sources. All I have done is to carry out a standard inflation adjustment and put the numbers together.
The difference between my figures for generation costs and the Ofgem numbers is not primarily due to CfDs, even though that is what Ofgem claims. Because of the structure of the price cap Ofgem assumes that suppliers buy baseload power in the forward market so they look at futures prices not spot market or day-ahead market prices. Thus, their power cost figures incorporate two separate components: the market cost of power plus the cost of hedging. What I have done, in effect, is to separate these two components and I treat the cost of hedging as a cost to energy suppliers which is the correct treatment from an economic perspective.
Hedging costs have increased because the variability of prices has increased. If you read my paper on price variability (previous post) I explain that Ofgem could easily have adopt a different way of capping prices which is widely used in Europe. This ties prices to the previous month's average market price, which eliminates hedging costs. The government and Ofgem have resisted doing this because it would mean being transparent about levies and network costs.
This is all a tremendous mess because, for more than a decade, governments have wanted to mask the true costs of their policies.
Let me add a further point. Ofgem describe their wholesale cost allowance as "... using information on wholesale prices, backwardation costs and CfD costs. It also include the Capacity Market Cost Component ...". CfD and Capacity Market costs are not large - about £3-4 billion in total but hedging or backwardation costs are potentially large.
There is another complication. We don't have any good data on the load profile for households since they are just a share of total system demand and that in turn is messed up by the role of embedded generation. However, if you weight market prices by a load profile you would get a higher weighted average price due to the correlation between household demand and market prices. My figures don't weight prices by load. To that extent they underestimate the cost of buying power to meet household demand. When I have checked the difference in the past it is only £1-2 per MWh and there is no reason to believe that it has changed systematically over time. So I have used simple averages because they are easy to understand and check.
I don't know. I have another post on energy costs - looking forward rather than backward - that will be released soon. It is tied to an article that will be published on Unherd. In addition I did a lengthy podcast for GB News which touched on the same material. Don't believe the title as that is typical sub-editor's exaggeration.
Thanks for the reply and clarity of debunking the subterfuge that is going on here. There are politicians popping up and questioning the impact of NZ but annoys me that they don't tap into experts like yourself more to hit Milibrain with awkward questions. He wint have the answers but he would have to provide a written response. Instead they want to political point score which achieves nothing.
Gordon I don' t doubt your analysis but as a journalist they would end up or be directed to the OFGEM site for energy price cap and if they can be bothered to read it ( https://www.ofgem.gov.uk/sites/default/files/2025-02/Summary-of-changes-to-energy-price-cap-1-April-to-30-June-2025_1.pdf) the useful (or subterfuge) analysis of this qtrs breakdown. I appreciate this is for domestic consumers only.
That shows wholesale prices being 45% of the price cap vice 43% last qtr. This allowance does include an adjustment for CfD costs but not sure that would account for the almost doubled cost from your analysis?. Although be interesting to know what the costs is ex the CfDs? Also I know suppliers effectively have to fund ROCs and FiTs? but how does that have a bearing on the wholesale cost as is this not the cost at the generators bars? Be nice to see there breakdown table represented to show the true cost drivers.
Then we have other entries like Network costs which include the ever increasing cost of balancing the network or in reality the cost of too much wind on the system. Reality is balancing is still a small part of the costs but constraints are nigh on 70% now. The problem is this still only 10's of pounds and its being swamped by the wholesale cost so doesn't get a look. In terms of traded commodities the price of gas is now down 25% over last two weeks but OFGEM suppress the actual data they use saying its commercially sensitive but on the basis price now remains at current level then that should lead to a complete reversal of this months uplift and of course Milibrain will claim its down to his NZ2030 action plan and so the lie will go on in the press.
An initial response. Your point about the Ofgem figures explains why I provided unusually detailed information on the data sources that I used. My figures come from easily checked public sources. All I have done is to carry out a standard inflation adjustment and put the numbers together.
The difference between my figures for generation costs and the Ofgem numbers is not primarily due to CfDs, even though that is what Ofgem claims. Because of the structure of the price cap Ofgem assumes that suppliers buy baseload power in the forward market so they look at futures prices not spot market or day-ahead market prices. Thus, their power cost figures incorporate two separate components: the market cost of power plus the cost of hedging. What I have done, in effect, is to separate these two components and I treat the cost of hedging as a cost to energy suppliers which is the correct treatment from an economic perspective.
Hedging costs have increased because the variability of prices has increased. If you read my paper on price variability (previous post) I explain that Ofgem could easily have adopt a different way of capping prices which is widely used in Europe. This ties prices to the previous month's average market price, which eliminates hedging costs. The government and Ofgem have resisted doing this because it would mean being transparent about levies and network costs.
This is all a tremendous mess because, for more than a decade, governments have wanted to mask the true costs of their policies.
Let me add a further point. Ofgem describe their wholesale cost allowance as "... using information on wholesale prices, backwardation costs and CfD costs. It also include the Capacity Market Cost Component ...". CfD and Capacity Market costs are not large - about £3-4 billion in total but hedging or backwardation costs are potentially large.
There is another complication. We don't have any good data on the load profile for households since they are just a share of total system demand and that in turn is messed up by the role of embedded generation. However, if you weight market prices by a load profile you would get a higher weighted average price due to the correlation between household demand and market prices. My figures don't weight prices by load. To that extent they underestimate the cost of buying power to meet household demand. When I have checked the difference in the past it is only £1-2 per MWh and there is no reason to believe that it has changed systematically over time. So I have used simple averages because they are easy to understand and check.
You were quoted by Jacob Rees-Mogg on his GB News show. Is this the research paper he was referring to?
I don't know. I have another post on energy costs - looking forward rather than backward - that will be released soon. It is tied to an article that will be published on Unherd. In addition I did a lengthy podcast for GB News which touched on the same material. Don't believe the title as that is typical sub-editor's exaggeration.