No Hot Air

Good News, Bad News, makes you want to throw up news...

Good news:  Gas prices are much more transparent than UK electricity prices, which signifies how unclear electricity is.  Still they are the only ones we've got.  We recommend index pricing for a number of reasons: ease of purchase, lack of buyer remorse and lower overall costs are only three of them.  In October gas prices for one year ahead dropped from 85 to 65 pence per therm. Why could that possibly be bad news?

1.  65 pence per therm on an annualised rate is still over 60 per cent up on one year gas prices of around 40 pence from summer 07.

2.  Month ahead index for October 07 was 32.07, October 2008 was over 75.89. 

3.  For the majority of SME users who  take fixed prices, anyone who took them this year is now looking at being locked into prices that will out turn at least 40% higher each month than today's spot prices.  Energy prices that are fixed have been a self-fulfilling prophecy for doom sayers and inflation hawks or for the naive talked into taking them by mostly unregulated cowboys who know almost as little about energy as their customers. 

Things are tough all over.  But those who prefer to take things as they come month by month on energy,  are in a far better position using index prices than those who really should have bought insurance, not energy. We think that by February the year on year difference for index buyers will be zero or even negative - floating buyers will see a year on year decrease for energy costs instead of sitting on 120% increases.

Energy Efficiency

it's still useful to  remind ourselves of the benefits of simply using less energy as opposed to obsessing about the price. There are two paradigms of energy efficiency worldwide, Japan and in this story California. 

Energy efficiency isn't sexy, but it's effective. "Efficiency is always the cheapest, cleanest, safest, quickest way to cut down on both global warming and pollution,"

One key reason for California's success is how differently utilities are incentivised to decouple profits from consumption.  CA utilities are regualted using a revenue cap, as opposed to the more traditional price cap.  A price cap incentivises suppliers to sell more energy to increase profits.  A revenue cap incentivises utilitlies to maximise profits by replacing energy:  their revenue is fixed, but if they reduce costs of supply, they pocket the difference.

California, in the 1970s, passed a law to prioritize energy efficiency. Since then, annual average per capita consumption in the United States has risen to 12,000 kilowatt hours from 8,000 kilowatt hours, but consumption in California has remained flat, at 7,000 kilowatt hours

Interesting aside in this story is the role of white roofs:

White roofs reduce the need for air conditioning, and scientists have recently discovered that they "actually cool the world directly," Rosenfeld said. Solar radiation bounces off a white roof back into space, while a dark roof traps heat and warms the planet. "Every 1,000 square feet of white roof instead of colored roof is equivalent to avoiding the emissions of 10 tons of CO2 annually," he said.

McMahon, at Lawrence Berkeley, said: "We've done some studies for Los Angeles showing that having white roofs and white pavement could have enormous benefits" in energy savings, smog reduction and general health improvement.

Something to consider even here in the UK, where cooling costs for buildings are a lot higher than most people think, up to a third of an SME energy budget.  Cooling is more likely to use electricity, although gas powered AC is available, and electricity is far more expensive.

Google gets Smart on Metering ?

Google and No Hot Air share some things in common, but unfortunately making money isn't one of them.   But as we see from this update on their progress in transforming energy, we agree on how exciting energy will be.  Our pockets aren't deep, but like every one else on the planet, we're in it for the long haul.  Google see how key measurement and efficiency are going to be.  Like us, they can't figure out that if anything else with a pulse, (water, oil, your granny) can be measured, what is the big deal with utility meters? 

engineers at Google are hoping to unveil soon tools that could help consumers make better decisions about their energy use...Google now says it is interested in developing technologies to support some of those upgrades, as well as other tools at the intersection of energy and information technology, like “smart” electrical meters.

 

 

Dawn

Around midnight London time, on the night of a week from Tuesday,  the world may actually see a new dawn.  Note that this will be the world, not just the United States.  Narrow as we are (not!), what will this mean for our gas bill?

Perhaps, even though even The One, does not have almighty power, financial markets will settle down, and the key word here is down. This isn't about getting a return ON money, this is all about getting a return OF money.  To get money back is a victory, making money will be what it always has been:  mostly a matter of luck.

UK gas and power prices will continue for a short while with their meandering journey avoiding the obvious:  something is going to happen and they won't like it.  Competition Commission? Probably, but before that they may have to fight off an unlikely attacker in the form of Ofgem finally waking up, or simply thrashing about in it's death throes?

The UK Energy industry is good in parts, but rotten to the core in the customer facing part of what actually DO people pay, what part have they  in price discovery (none) and how there is what we call a secret but they call "commercial in confidence",cabal of energy consultants, switching sites and lazy suppliers ripping end-users off.  All the while Ofgem confuses choice with actual competition. But that is ending.  Old models in everything are dead.  Ofgem succeeded in pulling the wool over energy buyers eyes for years because it was enabled by a Labour government, inexperienced in commercial matters, who worshiped at the altar of McKinsey and the rest of the  management consultants.  Effectively,  government was privatised, and we all did pretty well out of it for years, even when reality intruded on dogma as has happened in energy earlier than in banking or housing.  There are many parts of government, the press and political parties who let thirty years of anti-government ideology prevent them from taking any kind of effective action.  But everything is changing.  Everything. Can you hear it Ofgem?

Here's something for them to read from one of Gordon Brown's greatest admirers,  Paul Krugman Nobel Laureate in Economics 2008.

Reaganesque rhetoric about the magic of the marketplace and the evils of government intervention sounds ridiculous

Choice breeds confusion in a no touch regulation marketplace, not competition.  Why are there at least 12 separate tariffs for each supplier?  Is there any connection between the lack of a simple metric, a wide range of choices and the fact that actual energy switching in business is lower than even the derisory standards of domestic supply.  Of course there is.

It gets better....

Sorry to kick a 82 year old man when he's down but we can't resist this further aside re Alan Greenspan's testimony today:

Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.

“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well

Better late than never department

At least Alan Greenspan, (remember him?) the flavour of the last 18 years in letting markets rip finally 'fesses up:

admitted on Thursday that he “made a mistake” in trusting that free markets could regulate themselves without government oversight

He said this in Congressional testimony, where next month's winning Democrats'  Henry Waxman added:

Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite," he added, saying that the mantra became "government regulation is wrong"

What does this have to do with energy?  Everything:

What was missing was a regulator who understood markets, rather than worshiped them.

Would Ofgem ever admit that about UK energy markets?  At least Greenspan provided some benefit to the world, or at least to the potlatch industries like yachts  and fancy restaurants this century, whereas Ofgem's main role has been as a self-congratulation agency. But Ofgem won't be in business too long, as the powers that be at Ofgem, those who replaced light touch with no touch at all regulation,  are definitely on the way out.  They may think nothing has changed since 1989.  It has.  But there are plenty of other people in government who think the decks need to be cleared.

Electricity 4 Business = 0 Business

Bad news for SME business electricity buyers: Electricity 4 Business has touched the third rail

Don't panic, the lights won't go out, customers are supplied by British Gas, who are aptly named as the supplier of last resort.  Allegedly they continue on current rates until end of contract, by which point BG will be sure to make them an offer they can't refuse.  The administrators say:

The decision by the directors of E4B to place the company into administration comes as a result of volatility in the energy market.

Now of course that could mean a lot of things.  If they had been forced to buy in today's market it would actually have helped them, and it may yet help customers. Watch this space.

Green Economy, Green Recovery

Very timely report from California on how energy efficiency creates jobs, even when it destroys value for energy companies.  Some definite lessons for us here in the UK, where light touch regulation from the likes of Ofgem ends up  being no touch and we the taxpayers acting like a soft touch.  Spending is the way out of this free market mess, lets spend on the future, not outmoded models of the past.  Government direct or indirect spending doesn't take money away from tax payers, it actually gives it back.

a major new study of the success of California's green economy tells the true story: a green recovery will restore the middle class, lift people out of poverty, and protect the planet. The study by economist David Roland-Holst finds that "California's energy-efficiency policies created nearly 1.5 million jobs from 1977 to 2007, while eliminating fewer than 25,000." Today, California's per-capita electricity demand is 40 percent below the national average

When consumers shift one dollar of demand from electricity to groceries, for example, one dollar is removed from a relatively simple, capital intensive supply chain dominated by electric power generation and carbon fuel delivery. When the dollar goes to groceries, it animates much more job intensive expenditure chains including retailers, wholesalers, food processors, transport, and farming. Moreover, a larger proportion of these supply chains (and particularly services that are the dominant part of expenditure) resides within the state, capturing more job creation from Californians for California. Moreover, the state reduced its energy import dependence, while directing a greater percent of its consumption to in-state economic activities.

Each unit of gas and electricity consumers use is paid for with funds that could be better spent elsewhere:  maybe buying your products perhaps? Similarly, for your business, each unit of gas and electricity represents your value:  but instead of stockholders it goes to suppliers, or even worse, consultants.

The new new world order

Well, we've been telling you that the credit crunch plus energy pricing could push things over a cliff and of course we were... half right.  What we ignored was the fact that when finance, along with energy pricing, depended on quantum physicists constructing financial instruments based on the derivative of God knows what,  things would get even worse. 

But now what?  Here in the UK few people still realise how much things have changed.  Listen to most radio and read most newspapers you'd think Thatcher was still around.  Tut tutting about deficit spending!  How 1980's is that?

Changing Thatcherism isn't a 180 degree turn.  Despite what she said, there are alternatives. And one of them is society despite her thoughts otherwise.  Which means that now Wall Street has no clothes and government bails  out banks, it's time to spend money on something more useful than billion pound bonuses.  It is OUR money after all.

Keeping fingers crossed, everything changes across the water two weeks from tomorrow.   And one thing at the top of the list for deficit spending is going to be energy - saving it and carbon while creating huge new domestic industries.  It's pretty much of a no-brainer.  First thing to do is cut the habits of the last twenty years and stop fretting about inflation, when the issue is deflation, stop worrying about tax rises when the problem is unemployment and stop thinking about things in left and right.  The right has had it's turn, but lately it looks like 21st century state socialism. Hey it works for the Chinese.

Green-collar jobs are not fictional or far-off. The Center for American Progress and PERI just put out a "Green Recovery" report. It showed that a $100 billion federal investment would create two million new, green-collar jobs -- in just TWO years. That's just helping America deploy our existing, off-the-shelf technologies and proven solutions. No technological breakthroughs needed. And some of that pays for itself, in energy savings.

So when you think about the green economy, don't think about Buck Rogers. Think about Joe Sixpack -- putting on a green hard hat and going off to fix America. Think about Rosie the Riveter -- manufacturing solar arrays and wind turbines.

Crawling from the wreckage

The price of oil has been one of the few silver linings recently.  Or is it?  What's really wrong with the price of oil?

According to skeptics like George Soros and Michael Masters, a hedge-fund operator, the only thing wrong with the oil market is the market itself. Speculators, they say, drove the price away from its “fundamental” value; worse, a new breed of institutional investor has been buying oil futures, hoarding the supply.

Or:
Warren Buffett, the investor whom Wall Street has been dialing for rescue capital. “It’s supply and demand,” Buffett told me. “The ability to produce 10 percent or 12 percent more than the world needed was there, and we got lulled into thinking — we just kept assuming — it would always be there. But there isn’t any tap to turn on now.

Do we really want cheap cheap oil again? We saw $100 plus and lived to tell the tale.  More importantly we saw that the alternatives work at $100, or lower.  Efficiency, wind, solar, geothermal, not only provide competitive energy today, they will supply energy at no/lo cost sooner than most people ever thought possible.

So maybe it's time to increase taxes on oil now:

 dust off an idea that Gerald Ford once proposed: a tax on oil. Ideally, it would kick in only if the price fell back to, say, $70 a barrel. The beauty of this tax is that, very likely, no one would have to pay it. The tax would merely serve as a floor — a new lower bound.