Are cities in Europe cold and dark due to lack of Russian gas?

Factual Questions
81

The BBC said this morning that the experimental scheme is being extended,

Up to a million households in England, Scotland and Wales will be paid to use less electricity on Monday evening as part of a scheme to avoid blackouts.

National Grid said the scheme, which has only been used in tests so far, would run between 17:00 and 18:00 GMT.

Those who have signed up will get discounts on their bills if they do things like delay using their oven or washing machine.

Not that this is for one evening only and not all energy companies are involved.

Apparently the stand-by coal-fired generators are being stood down.

82

It seems to me the next step in home automation is when the assorted appliances can cooperate to avoid kicking in simultaneously (fridge, freezer, water heater, furnace) and allocate optimum running times to ensure low peak usage.

(i.e. the fridge delays coming on for a short while so the freezer can finish its cycle, the hot water heater knows consumption cycles and avoids heating, say, overnight.

83

Some commercial users already have this. It used to be manual - “DO NOT USE THE POWER SAW IF THE COMPRESSOR IS ON”.

Many businesses are not only charged by the Kwh, but buy the load they put on the system, so it’s in their interest to keep that load below some fixed level.

There is no great advantage to the power company for an individual householder to even out their use. What they want is to smooth the general use. I remember watching a film from the 1950s which showed the operators at the generator, switching in extra power at the time a very popular TV show ended and half the country went into their kitchens and put the kettle on.

I guess it’s not as dramatic these days, but there is still a peak when people get home from work and start cooking. I assume that happens between 17:00 and 18:00. I’d have expected it to be later than that, but I can’t see their meters.

84

Probably something similar in hot climates when smart thermostats fire up the central air conditioning at the end of the day as people come home from work.

85

You may be wrong about that:

86

I partook of this scheme today and switched everything off from 5 to 6pm. At least I got it down to 11watts. I found my wifi controlled wall light switches draw a watt each and the only way to switch them off is to trip the main breaker switch.

I found it a quite a cosy and relaxing experience to switch off the electricity for an hour. I suspect many others did as well. It was fun.

On the other hand, there are many people who are on pre-payment meters who simply cannot afford to pay for their gas and electricity. They have no credit and when they run out of cash, so does the heating and lighting.

This is becoming a big social concern in the UK because it affects the poor, elderly pensioners and the disabled. They are made to pay at a higher rate because, apparently the power companies incur extra costs handling such credit poor customers. I guess they are denied the easy money to be had from interest when customer accounts are in credit.

The background to this is the privatisation of utilities that happened back in the Thatcher years. They tried to introduce a competitive market of suppliers of natural gas, electricity and water. These retail markets seem to have become dysfunctional: with too many company failures or markets dominated by avaricious companies guilty of profiteering in a cartel or localised monopoly.

These were the landmark policies of Conservative governments: light regulation and competitive markets of formerly state owned assets. They were not designed very well and seem to have been allowed to degenerate. The energy crisis has put the spotlight onto the gas and electricity suppliers. Many were insufficiently hedged against price increases and had to be bailed out by the governments and tax payers expense.

These home and hearth issues are steadily piling up the political pressure on the government.

87

Overview of the situation across the EU:

88

Very good summary. Thank you.

89

This “let the market decide” in California was exactly what led to the Enron debacle. Worse, the “free market” advocates even made it difficult, apparently, for long term contracts, thinking more variable prices would drive the market.

What happened was predictable in hindsight. The established utilities bought the line that a raft of independent businesses would build the capacity as needed, so while this whole process unfolded - no more increases in supply. The excessively volatile prices meant no stability for planning generating capacity with assured rate of return - so fewer extra suppliers building capacity. The ones that did own capacity, like Enron, figured out that there was more profit in turning off capacity at peak times, thus driving the demand-based rates through the roof. All in all, a perfect storm of dogmatic stupidity.

In case the lesson was lost on some, the Conservatives did the same to Ontario Hydro with appreciably similar results. (with the added bonus that as a private company, the executives could reward themselves in ways beyond what civil servants could achieve, and also in a manner divorced from performance)

90

In the UK the privatisation technique was to separate the infrastructure responsibilities from the generators and the suppliers who have a relationship with the customers. A lot of energy supply companies were created and they competed for customers, mainly by offering a bewildering range of tariffs. The suppliers could also buy wholesale electricity from generators. Some featured their commitment to renewables and climate protection.

In this way a competitive market for this utility was created, much to the satisfaction of the free market idealists. What could possibly go wrong?

What went wrong was that many of them were insufficiently leveraged to cope with a sharp increase on electricity prices generated by natural gas, which is a significant part of the energy generation mix. Putin’s war pushed a lot of these energy companies into insolvency. Larger companies were encouraged to take on the customers of those in trouble so no-one got cut off. But, this could only be done if there were financial guarantees in place backed, ultimately by the government and tax payers.

There have been forty or so gone bust in the past few years and it represents a fast consolidation towards a handful of large suppliers. Some of the larger casualties have required the tax payer to pay large sums. Most notably to take over Bulb energy which had a million customers. They required several billion of tax payers money to make the accounts viable for take over. Much of that caused by politicians responsible prevaricating and requiring the company to bus gas on the spot rates at the very top of the very peak of the market when wholesale prices went crazy.

So this has been one effect of Putin’s escapade: it has tipped the retail energy market in the UK into a crisis leading to a rapid and expensive consolidation into the hands of a few large suppliers at considerable cost to the UK tax payer.

Other similar sized economies have publicly owned utilities. It was far easier to for government to directly control the prices paid by consumers. In the UK, with all these small energy companies, the prices went crazy. This is especially true for businesses. If you were not leveraged over a couple of years at least, the energy bill increases could put you out of business.

There is similar trouble brewing with regard to the water privatisation, which created some highly profitable regional monopolies who seem very reluctant to fix leaks in water pipes and are responsible for a lot of river pollution.

The UK rail network is also barely functional under its privatisation model.

These schemes were simply not very well thought out and poorly managed, presenting the government with one scandal after another as the markets become unviable for the competitors, they turn into cosy cartels or monopolies. The public just want a regular gas and electricity supplier at fair prices. Instead they get an ideological confection contrived by MBAs and management consultants.

This kind of nonsense was typical of UK politics in the 1980s and 1990s and we live with the structural weaknesses today. Putin has just pushed the energy companies over the edge. Energy bills are now near the top of the political agenda. The UK government has provided some support for those on low incomes. But that is for a limited time. April will be a cruel month when many will face the true level of their bills. Mine looks like being three times what it was a year ago. At the same time the big energy companies that supply the gas have been making huge profits.

Conservative governments bound by ideology really have no answer to this. Whether a Labour government has the answers…well we will see.

91

[Moderating]
A reminder again that this is FQ. What is happening in Europe is on-topic. What policies are to blame (or credit) for what’s happening in Europe is not.

92

The energy crisis has revealed structural weaknesses in each national economy in the way it obtains and delivers energy to consumers.

How these vulnerabilities arose in each country is a story in itself and mired in political history.

Despite the weakness regarding the UK retail market, there are also strengths. The UK invested in LPG handling port facilities and pipelines to the European gas network. Natural Gas from the US, Qatar and other suppliers lands in the UK and is piped to the rest of Europe. The Baltic states and Poland also invested in LPG terminals.

This has allowed the flow of Natural Gas imports to the European economies to change direction. The flow from Russia in the east has almost stopped and has been successfully replaced by imports by sea. Albeit at a much higher cost. There has also been a significant reduction in demand, encouraged by government campaigns.

There is nothing like an energy crisis to bring about a lot of political point scoring. Governments that cannot keep the lights on and the homes warm in winter do not last long in power. Fortunately the European economies are wealthy enough to buy or borrow their way out of trouble….at least in the short term. The economic consequences will come later.

What surprised me was that the natural gas pipelines continued to flow and payments were made to Russia throughout much of last year. This allowed the gas storage facilities to fill and provide a buffer for the winter.

93

Apologies for the very minor nitpick, but it’s LNG (liquefied natural gas), not LPG. The names are similar but they are very different products in terms of handling, with LNG being stored and transported at cryogenic temperatures.