When I saw the title of today's post I put down my coffee. Thanks for the warning. As titles go, I think this is your best. I had a coworker who was fond of saying, "It should be intuitively obvious to the most casual observer....." Little did I know that I was hearing the monitoring bobbleheads described perfectly, almost 40 years before they set up shop. Have a great weekend.
If capacity hoarding is so profitable, why aren’t others entering the market? Seems like this is the way capitalism is supposed to work: large profits attract competition which increases supply which lowers prices.
Because it is not global, it’s within Europe. The trading can only occur where there are interconnectors, UK - France, UK - Norway, and where there is overcapacity of dispatchable generated electricity… such as France’s nuclear fleet.
You are right, this was easily foreseen. Consider, Shell Oil Company, and the famous Pecten logo, evolved from a small antiques trader importing sea shells to London. He learned the trade routes, and soon discovered he could use his knowledge to trade kerosene instead. Vitol and Trafigura have similar back stories, Vitol started out trading barges of fuel oil along the Rhine starting with very little money. Trafigura also had a humble start, when six partners started trading metals and oil. Now these two companies are considered "supermajors" in the commodities business. If you make the rules like the UK has, don't be surprised if they figure out how to play by the rules to their benefit. Or in other words, "play stupid games, win stupid prizes."
I love this one Irina ... very tongue in cheek - I can see how a full blown rant was very well contained for our amusement - but on the flip side You can see the direction we are moving and it is not pleasant and it will be painful to our wallets. Thanks for laying it out for us and pointing out the pitfalls of interconnects, didn't see that one. You have to love a good crisis to make money and our grids are always in crisis these days!
Oh good, Ofgem has discovered arbitrage practised the World over since God was in short trousers - buy where a good is cheap, sell where it is expensive, buy where it is in plentiful supply to sell where it is scarce, buy at a time when it is cheap to sell when it will be dear.
It is a significant feature in fossile fuels market, cereals market, soft fruit markets…. Come to think about it just about every market. Hindsight? Blindness.
In the UK, Dinorwig Power Station (also known as Electric Mountain) is located in North Wales, inside Elidir Fawr mountain (No, it’s not Lord of the Rings) in Snowdonia National Park. It uses arbitrage. It buys cheap, night time off-peak electricity to pump water up the mountain into storage, then runs it through its turbines when demand peaks, to sell it for top price. And Ofgem hasn’t noticed this?
“… energy traders participating in UK interconnector auctions had submitted bids with extremely high prices while reserving “a very large share of available capacity” “for the delivery period in question”…
So this must be electricity from dispatchable, spinning generators, fossil fuel, hydro, nuclear… not “ruinables” then? Who could foresee that?
Latest from Bonkers Britain - or Mordor - the Government (such as it is) having made such a mess of the economy is strong-arming supermarkets (in Scotland they plan to legislate) to price-cap certain foods (without reducing the price they pay to producers) - nothing guarantees shortages like price-caps.
And. The Government is dropping sanctions against Russia to buy petroleum products because… er, oil has got expensive, supplies of diesel and aviation spirit are in short supply. So. We shall now be sending money to Russia to fight Ukraine, whilst sending money to Ukraine to fight Russia. Who could have foreseen that?
Meanwhile - nothing’s so crazy it can’t get crazier, the Government plans to make it illegal to drill for and extract our own oil, and will not renew existing licences.
Would it be a good idea for the people at ofgem to be forced to watch that film "Trading Places" with Eddie Murphy, Dan Ackroyd and Jamie Lee Curtis? I mean, Orange Juice, Electricity, it's all much the same isn't it? The film is worth a watch anyway.
This brings back so many memories. When California first deregulated, they let the wholesale price vary with the market, but froze the retail rates. Really
Enron got involved with a clever plan. They even named it "Get Shorty". They bought up all the capacity on both power and gas lines feeding the state, and shut off power and gas flow to California until prices in the hour ahead markets hit four figures.
They bankrupted one utility, the other one was on the brink, and the state took over. You can imagine what the Enron traders did to them. The state lost $20 billion before they could get it fixed. They sold 20 year bonds to cover the losses and added the bond payments to everyone's rates for 20 years.
Sounds like Europe should have paid attention. Those traders don't miss many opportunities.
The insane thing, is that after hogtying California, they then (or their agents) persuaded other states like Texas that "electricity markets" are a great idea and the states fell for it, or pocketed the bribes. Not clear which.
Why are the interconnect capacities auctioned at all. Shouldn't they be managed by the regulator and assigned to whoever is actually currently supplying power? I should probably go read Angwin's book again...
“Why didn’t I see this earlier?”
I often try to ask myself, "What did I know at the time that would have warned me? How can I adjust my thinking so I notice/connect these things in the future? Will it actually be a generally useful change in thinking, or does it only apply to a very special circumstance?"
Can't think about everything all the time without worrying oneself to death. All too often I make a good stab at that (worry to death) anyway.
I had to look up “tenesmus”, good word!
Me too. It’s going to be word-of-the-week next week. All the children will be delighted to teach their parents something new.
Do I need to ask if you have an "English word of the day" calendar with this particular usage of tenesmus? And so fittingly placed! Well played.
All this is giving me a case of energy cost indigestion.
When I saw the title of today's post I put down my coffee. Thanks for the warning. As titles go, I think this is your best. I had a coworker who was fond of saying, "It should be intuitively obvious to the most casual observer....." Little did I know that I was hearing the monitoring bobbleheads described perfectly, almost 40 years before they set up shop. Have a great weekend.
If capacity hoarding is so profitable, why aren’t others entering the market? Seems like this is the way capitalism is supposed to work: large profits attract competition which increases supply which lowers prices.
Because it is not global, it’s within Europe. The trading can only occur where there are interconnectors, UK - France, UK - Norway, and where there is overcapacity of dispatchable generated electricity… such as France’s nuclear fleet.
You are right, this was easily foreseen. Consider, Shell Oil Company, and the famous Pecten logo, evolved from a small antiques trader importing sea shells to London. He learned the trade routes, and soon discovered he could use his knowledge to trade kerosene instead. Vitol and Trafigura have similar back stories, Vitol started out trading barges of fuel oil along the Rhine starting with very little money. Trafigura also had a humble start, when six partners started trading metals and oil. Now these two companies are considered "supermajors" in the commodities business. If you make the rules like the UK has, don't be surprised if they figure out how to play by the rules to their benefit. Or in other words, "play stupid games, win stupid prizes."
I love this one Irina ... very tongue in cheek - I can see how a full blown rant was very well contained for our amusement - but on the flip side You can see the direction we are moving and it is not pleasant and it will be painful to our wallets. Thanks for laying it out for us and pointing out the pitfalls of interconnects, didn't see that one. You have to love a good crisis to make money and our grids are always in crisis these days!
One wonders if Irina's is anywhere but her cheek.
guess not when she is in the garden!!
Oh good, Ofgem has discovered arbitrage practised the World over since God was in short trousers - buy where a good is cheap, sell where it is expensive, buy where it is in plentiful supply to sell where it is scarce, buy at a time when it is cheap to sell when it will be dear.
It is a significant feature in fossile fuels market, cereals market, soft fruit markets…. Come to think about it just about every market. Hindsight? Blindness.
In the UK, Dinorwig Power Station (also known as Electric Mountain) is located in North Wales, inside Elidir Fawr mountain (No, it’s not Lord of the Rings) in Snowdonia National Park. It uses arbitrage. It buys cheap, night time off-peak electricity to pump water up the mountain into storage, then runs it through its turbines when demand peaks, to sell it for top price. And Ofgem hasn’t noticed this?
“… energy traders participating in UK interconnector auctions had submitted bids with extremely high prices while reserving “a very large share of available capacity” “for the delivery period in question”…
So this must be electricity from dispatchable, spinning generators, fossil fuel, hydro, nuclear… not “ruinables” then? Who could foresee that?
Latest from Bonkers Britain - or Mordor - the Government (such as it is) having made such a mess of the economy is strong-arming supermarkets (in Scotland they plan to legislate) to price-cap certain foods (without reducing the price they pay to producers) - nothing guarantees shortages like price-caps.
And. The Government is dropping sanctions against Russia to buy petroleum products because… er, oil has got expensive, supplies of diesel and aviation spirit are in short supply. So. We shall now be sending money to Russia to fight Ukraine, whilst sending money to Ukraine to fight Russia. Who could have foreseen that?
Meanwhile - nothing’s so crazy it can’t get crazier, the Government plans to make it illegal to drill for and extract our own oil, and will not renew existing licences.
Thank you Irina! This naughty bit of enterprise reminded me of an episode of Dad's Army:
Sergeant Wilson: "The Germans have invaded France".
Captain Mainwaring: "But what about the Maginot Line?".
Wilson: "Well it seems they just drove around it".
Mainwaring: "That's a typical shabby Nazi trick!".
Tenesmus, eh? Very cool!
Now use "coprolite" - I have in the past when mentioning the diapered potato Joe Biden, but no doubt you will find a more appropriate use...
Would it be a good idea for the people at ofgem to be forced to watch that film "Trading Places" with Eddie Murphy, Dan Ackroyd and Jamie Lee Curtis? I mean, Orange Juice, Electricity, it's all much the same isn't it? The film is worth a watch anyway.
Hehehe "wrong behaviour" - very CCP language.
This brings back so many memories. When California first deregulated, they let the wholesale price vary with the market, but froze the retail rates. Really
Enron got involved with a clever plan. They even named it "Get Shorty". They bought up all the capacity on both power and gas lines feeding the state, and shut off power and gas flow to California until prices in the hour ahead markets hit four figures.
They bankrupted one utility, the other one was on the brink, and the state took over. You can imagine what the Enron traders did to them. The state lost $20 billion before they could get it fixed. They sold 20 year bonds to cover the losses and added the bond payments to everyone's rates for 20 years.
Sounds like Europe should have paid attention. Those traders don't miss many opportunities.
Oops…$2 billion.
The insane thing, is that after hogtying California, they then (or their agents) persuaded other states like Texas that "electricity markets" are a great idea and the states fell for it, or pocketed the bribes. Not clear which.
The environmentalists have given an out to those who weigh down their success with guilt.
Love "a default human setting called, yes, planning ahead and anticipating potential outcomes of actions."
Governments have an endless supply of taxpayer cash to back up their insane policies, and Ogfem just proves that trend.
Reminds of Sergeant Schultz in Hogans Heroes, "I see nothing"?
Why are the interconnect capacities auctioned at all. Shouldn't they be managed by the regulator and assigned to whoever is actually currently supplying power? I should probably go read Angwin's book again...
“Why didn’t I see this earlier?”
I often try to ask myself, "What did I know at the time that would have warned me? How can I adjust my thinking so I notice/connect these things in the future? Will it actually be a generally useful change in thinking, or does it only apply to a very special circumstance?"
Can't think about everything all the time without worrying oneself to death. All too often I make a good stab at that (worry to death) anyway.
Would it be Unseemly to suggest, as a penalty, the Electric Chair for the C-suite?
Done publicly, pour encourageur les autres.
With battery-sourced - er - Juice, mais naturellement. One must preserve Optics.....