Take this down please…

We've noted before how the UK press, confronted with a complex subject like energy generally goes for the easy story, usually some mixture of Ofgem competition fantasies or xenophobic Russians are coming but not selling us gas oversimplifications.

But it took this piece to define the problem:  The press as stenographer, not reporter.

We don't necessarily agree with all of this, but we've highlighted the parts that rang true with us.  Most UK journalism on energy isn't reporting, it's taking dictation. What's particularly galling to us, who don't ask businesses to shell out for advice, is that those who have a vested interest in promoting the fiction of competition such as Ofgem and TPI's are held up as experts.  Experts with their palms out.

The press misrepresented the economic debate over cap and trade. It failed to recognize the emerging consensus … that cap and trade would have a marginal effect on economic growth and gave doomsday forecasts coequal status with nonpartisan ones…. The press allowed opponents of climate action to replicate the false debate over climate science in the realm of climate economics.
The press failed to perform the basic service of making climate policy and its economic impact understandable to the reader and allowed opponents of climate action to set the terms of the cost debate. The argument centered on the short-term costs of taking action–i.e., higher electricity and gasoline prices–and sometimes assumed that doing nothing about climate change carried no cost.
Editors failed to devote sufficient resources to the climate story. In general, global warming is still being shoved into the “environment” pigeonhole, along with the spotted owls and delta smelt, when it is clearly to society’s detriment to think about the subject that way. It is time for editors to treat climate policy as a permanent, important beat: tracking a mobilization for the moral equivalent of war.

Not such a big deal after all.

How much do actual costs of generation compare depending on the fuel input? This piece seems to contradict the initial premise:

Curbing carbon dioxide emissions — a central part of tackling climate change — will almost certainly raise electricity prices, experts say,

But we say that for too long people have obsessed not about the quantity used but the price paid

The less energy used, the less important price is going to be. For one example, by 2015 the incandescent age is going to be dead and the 30% or so of power used for illumination will be surplus to requirements. So where the remaining power comes from won't be such a big deal:

A modern coal plant of conventional design, without technology to capture carbon dioxide before it reaches the air, produces at about 7.8 cents a kilowatt-hour; a high-efficiency natural gas plant, 10.6 cents; and a new nuclear reactor, 10.8 cents. A wind plant in a favorable location would cost 9.9 cents per kilowatt hour. But if a utility relied on a great many wind machines, it would need to back them up with conventional generators in places where demand tends to peak on hot summer days with no breeze. That pushes the price up to just over 12 cents, making it more than 50 percent more expensive than a kilowatt-hour for coal.

Here in the Europe, offshore wind doesn't have the windless days found in the US where wind farms are in the Plains.  A strong and steady wind flow from the Rockies is not always reliable, but non-windy days off-shore Europe are few and far between. If they occur at all it happens in the summer.

Do the math: Price goes up by 20% (still 30% less than 2008 energy highs). Quantity goes down by 30%.  The net result will be pared costs, admittedly not caused by renewables, but lower costs all the same.

The higher costs of renewables is up there with a "gas shortage" and the "benefits" of competition as one of the three greatest fallacies of buying energy.

Learning how to think

Further discussion about the "value" of expertise and it's role in the Financial Fiasco.  As we have pointed out ad nauseam, expertise isn't what it used to be. Expertise in buying energy has just as good a track record as in finance and yet people want to hear a narrative, and will be happy to pay for a story - even the wrong one. Nick Kristof in the NYT

One explanation is that so-called experts turn out to be, in many situations, a stunningly poor source of expertise. There’s evidence that what matters in making a sound forecast or decision isn’t so much knowledge or experience as good judgment — or, to be more precise, the way a person’s mind works.

Sounds like he's been reading his Daniel Kahneman, although not acknowledging it. But back to this.  Anyone who uses an energy "expert", pay attenton (and hold on to your wallet)

The expert on experts is Philip Tetlock…at the University of California…His 2005 book, “Expert Political Judgment,” is based on two decades of tracking some 82,000 predictions by 284 experts. The experts’ forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about.

The result? The predictions of experts were, on average, only a tiny bit better than random guesses — the equivalent of a chimpanzee throwing darts at a board.

Indeed, the only consistent predictor was fame — and it was an inverse relationship. The more famous experts did worse than unknown ones. That had to do with a fault in the media. Talent bookers for television shows and reporters tended to call up experts who provided strong, coherent points of view, who saw things in blacks and whites. People who shouted — like, yes Jim Cramer.

Or Energy Consultants. Who often don't shout, but use a strong story that often involves predicting all kinds of economic or environmental energy mayhem. Because elements of the story sound plausible, non-experts open ears first, wallets later. Who wants to hear a story that everything will work out just fine? Who would be mad enough to buy a paper that said lights will stay on, gas will flow, Russians won't invade etc etc. Mayhem is much more interesting. And just as likely to be wrong. 

Back to Nick K:

Mr. Tetlock called experts such as these the “hedgehogs,” after a famous distinction by the late Sir Isaiah Berlin (my favorite philosopher) between hedgehogs and foxes. Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don’t give great sound-bites, they are far more likely to get things right.

No Hot Air is accused of not being in the program, because we think different and have an inbuilt aversion to (paying for) conventional expertise. We're contrarian for sure. But crazy?  Like a fox.

We like to keep an open mind, as well as an open mouth. All we ask of readers is an open mind, not an open wallet.



No clouds at all actually. We're now in a gas glut, and a full understanding of the LNG trade instead of xenophobic nonsense about being at the mercy of foreigners is what your readers deserve. 70% of gas imports last year came from Norway, hardly a threat to  Britain since Viking times.  Russian gas has flowed to Europe since the 70s, throughout the worst of the Cold War.  What possible threat to the UK is Russia? Will they threaten not to go to Harrods anymore? As for LNG, the market was built up on the expectation of increased US demand, but that hasn't happened because of the gas glut (see the NYTImes March 21 "Natural Gas, Suddenly Abundant, Is Cheaper"). Two of the four tankers that unloaded in the UK in March were from Trinidad and Australia, hardly places at our throats (outside of cricket).  And long term: Centrica said recently that efficiency savings could mean 30% less imports.  Efficiency would be far cheaper, much quicker and create many more jobs than biliions spent on nukes, although I agree, we should have some more nuclear.  And finally, why is the US suddenly producing much more gas, which is the underlying cause of the gas glut?  Shale gas is why, and Exxon Mobil recently said that shale gas would supply half of the UK's needs by 2020.  And where will that "hard to access" gas come from?  Oil companies have to be discreet but so far it looks like Sweden, Eastern France, Austria and Surrey and Hampshire.  Visit www.nohotair.co.uk for more!

No free lunch

Although we can have some sympathy about domestic users possibly providing suppliers with an interest free loan via their DD payments,  we can’t be as forgiving about business energy users.

Far more SME users than one would think are shooting themselves in the foot by seeking “security” over energy prices and receiving only the certainty of being taken advantage of. Most of those customers are coincidentally  the same who have really been taken to town by “ consultants”. Those who want security need to go to www.churchill.com not an energy supplier. Oh yes!

Fixed monthly payments work out as four months of paying about right, four months of giving the supplier an interest free loan and four months of paying an extortionate interest rate. Certainly a credit at this time of year isn’t a danger sign. It’s a stop sign that needs to be fixed immediately.  Domestic suppliers are mostly accommodating if a credit is queried. If any SME supplier refuses to lower the rate if the account shows a credit at the end of winter, leave them at the earliest opportunity.

But it’s important to ask what are consumers trying to avoid here.  A fixed monthly payment means paying 8.33% every single month,while a standard heating only profile means using about 14% in January and 2% in July. Pay 6% more or pay 6% less. Hardly something to close the company over.

Customers should only pay for energy as consumed.The idea of a fixed price is ridiculous. Nothing in business should be fixed and paying a steady price infers a business unable to grow or to adapt to changing conditions. Does anyone pay a fixed monthly price for staplers or computer monitors? Fixed prices also confuse the impact of high prices with the possibility of their occurrence. All markets have occasional spikes, but energy especially tends to self- correct in short time scales. Wholesale markets are volatile, but a floating price over time corrects and is far better value than any attempt to “outperform” the market. Bernie Madoff promised to outperform, and people lined up to join him.

Fixing a long-term price at the wrong time (i.e. just about any time)  sometimes means being an accomplice as well as victim. 

Go fly a kite

Wind is the second largest source of renewable power, and one of the best environmental options for UK users.  Wind seems to make the anti eco brigade flip out entirely, probably because it is actually very successful, making first Denmark and now Portugal leaders in a big new industry.

Here in the UK, the RSPB finally has heard the penny drop.  Stop objecting to most wind power sites, or don't have any birds left due to global warming.  Despite pro nuker rubbish about intermittent wind,  build it offshore and there is plenty of it, the birds can fly around it and no one can see it.

But much, much more wind is above our heads.  Start up Makani Power  says

Makani Power is seeking to harness high-altitude wind energy to produce energy at an unsubsidized real cost significantly below that of the least expensive coal-fired power plants, the current benchmark of the lowest cost source of power.

Capturing a small fraction of the global high-altitude wind energy flux could be sufficient to supply the current energy needs of the globe. Makani is developing high-altitude wind energy extraction technologies aimed at the most powerful wind resources.

Perhaps Makani are dreamers, but what if they are right?  Some big names in Silicon Valley think they are.

Nerd not required

A rarity for a UK newspaper,  the Business Editor of The Times prints the  truth:

Britain's big six energy companies like to cite the UK's high level of customer switching as proof that we have a vibrant and competitive market.

It's true that more consumers move gas and electricity suppliers here than just about anywhere else – about 17 per cent of households every year.

But one simple fact appears to demolish the argument that this amounts to a competitive marketplace.

According to Ofgem figures, about 40 per cent of switchers end up paying more for their gas and electricity than they did before.

We're in the bizarre position of defending Ofgem here:  The true figure is only (!) that a third of switchers "inadvertently" switched to a higher rate.

The usual UK newspaper article about energy  parrots the usual Ofgem/Consultant Cartel line that switching is the way to make sure you pay less. The only certain benefit of switching is that Ofgem keep a roof over their heads and each customer who uses a switching site gives up about £40 to the supplier as commission.

The Times goes on to say:

While Britain's energy industry may have many of the hallmarks of “competition” so ardently sought when it was deregulated in the early 1990s – choice of suppliers, a range of different products and so on – at a very basic level, it is still failing.

Consumers, it seems, are so confused by the plethora of providers and products on offer, not to mention the often aggressive and confusing marketing tactics of suppliers, that the market is failing to give them access to the one thing they all really want – lower prices.

Perhaps this is not surprising. Competition, in this case, appears to rest on the principle that every one of the UK's 26.7million households has a nerd prepared to study the smallprint of different supply contracts and compare terms and conditions.

All a business needs is an investment of about £100 in a smart meter, and a supplier who will bill them on pass through transportation costs, fixed margin and a transparent daily price index billed monthly.  Sometimes it goes up, sometimes it goes down.  It almost always has been way down on fixed prices, which give end users all the risk and Third Party Introducers up to 7% commission.  TPIs won't tell you about the index because they don't want you to know it is available.  Why pay for a default option?

Leaving the end user free to save 100% on the energy they stop using through investing procurement costs in efficiency measures.

Natural Gas, Suddenly Abundant, Is Cheaper

The key words here,apart from cheaper, is suddenly abundant.

The concept of an energy glut has caught most people by surprise, although not anyone who read our posts last August, when UK gas was £1 a therm.Of those who didn't, many SME users often got talked into three year deals by suppliers such as British Gas or npower or their TPI. This was based on an inaccurate representation of risk: a concentration on the consequences of energy shortages, not the likelihood. An energy shortage has been axiomatic to some people and the businesses they have founded on a scarce energy model. But reality, in the form of the marketplace has a habit of intruding sooner or later.

Three different groups have a vested interest in searching so hard for gas shortages that they inevitably  found them:

  • Peak Oilers. The Peak Oil crowd are still around, and they at least have some utility, in that oil can still possibly be said to have passed it's peak of production. The interesting thing about Peak Oil analysis is that it invariably included the nuclear lobby as solution to all our problems. We must admit here that unlike the next group, we don't have an issue with nuclear (it is 80% of French and Japanese generation), but wonder on the cost and have concerns about waste. What worries us is how expensive it is. We think that each nuclear plant's investment would more likely be better spent on efficiency savings first. That would solve the problem sooner and cheaper while providing many more jobs.  In the unlikely event that doesn't work, we have no problem with nuclear fission, while hoping for fusion. Peak Oilers don't really care if you go short or long, they want you to go nuke.
  • The next group with an interest in talking up shortage are environmentalists. Again, some of our best friends are environmentalists and we think that on cost levels alone, green should be encouraged.  But pretending that all carbon fuels are wrong, or running out, or both, is wrong headed.
  • TPIs have the biggest financial vested interest in promoting a shortage view of UK energy. Firstly, any idea of "foreigners" having the UK at their mercy is xenophobic nonsense. Secondly, in a multi-polar world, the UK is not going to be short of gas. Thirdly,  if there is no energy shortage, long term prices provide sub optimal outcomes. Anyone who goes for them runs a very, very big risk: They'll pay more.

The issue really is what the price of gas will be, not whether it's around or not. But if there is much more gas available than conceived even five years ago, prices will inevitably go down. Back to the NY Times story on abundant gas:

The decline in crude oil prices gets all the headlines, but the first globalized natural gas glut in history is driving an even more drastic collapse in the cost of gas that cooks food, heats homes and runs factories in the United States and many other countries.

Natural gas is becoming a world commodity like oil. It is still loosely connected to world oil benchmark prices and its price, usually set by longer-term contracts everywhere except for the United States and Britain, can diverge widely from one continent to another. Until the last few years, liquefied natural gas was a high-priced necessity for countries that did not produce their own gas supplies or have access to piped reserves; but it now has become a cheap economic driver for countries like Japan with few energy resources.

Of course in Britain, according to Ofgem, gas companies buy gas years in advance, which explains domestics pay so  much for it.

But as more terminals have been built, the amount of gas that is shipped from one continent to another in giant tankers has climbed. And now the emergence of the global market in gas is about to take a giant leap.

The global capacity for liquefied natural gas exports of 200 million tons a year will increase by 25 percent with the completion of six new plants in Qatar, Russia, Indonesia and Yemen, totaling $48 billion in investments, and the upgrading of a seventh plant in Malaysia. National energy companies in those countries, assisted by ExxonMobil, Total, BP and Shell, rushed construction of those projects in recent years to satisfy the mushrooming appetite for energy around the world. More large plants are due on line in 2010 and 2011.

So on LNG alone, the best is yet to come. And this is without the NYT mentioning the game changing impact of shale gas, the main driver pushing the increase in US gas production which  now depresses prices even in areas where shale gas is not yet produced. But why should the US still be importing gas?  Basically because they have massive storage capacity, combined with the flexible option of shutting in oil and gas production if prices get too low.

The UK may have low gas storage compared to France and Germany, but a) Japan and Korea have far less and b) with production in the North Sea storage is not as urgent a need. France and Germany produce, little or almost no, gas. That is why they need more storage. With UK production on it's doorstep, the value of storage is reduced. It's like a dairy farmer buying all the milk at Tesco. And if we have natural gas discoveries continuing offshore in the North Sea or West of Shetland or off Ireland (Corrib) combined with increased LNG from every corner of the globe, which then meets shale gas production from southern England, and all over Europe: then we have plenty of gas for decades to come. Which means: short, not long.

And another reason we’re not running out of gas is….

Coalbed Methane. UK coal production is no more, but after close to 200 years of history, at least we all  know where it is. Drill down and a further source of what used to be described as, along with shale gas, as "unconventional" gas can be found.

It isn't as simple as it sounds, but one gas well at the right spot can create 50MW or so of power from gas that's essentially free with zero transportation costs.  The trick is to find the right spot, but that's the gas business.

Alkane Energy, which generates electricity from the methane that seeps from old coal mines, is aiming to build annual capacity from 20MW to 50MW in the next few years.

Eden Energy Provides South Wales (U.K.) Coal Bed Methane Exploration Update

And there has been a big takeover battle for months between BG over Pure Energy in Australia who are commercialising Coal Bed Methane on a far bigger scale, into Liquified Natural Gas for export. The CBM to LNG play is unique thanks to Queensland Government requirements for a portion of coal to be used for gasification on environmental grounds.  This doensn't seem to be be a case where interference from environmental regulation is unwelcome. It's unlikely that the Australian experience could be duplicated in the UK, we simply don't have enough accessible coal left to make it worthwhile.  But there is still centuries of coal supply throughout the world. Move even 5% from coal to gas and it's yet another downward driver on prices with the added benefit of a (slight) carbon saving.

What will be the tipping point where "unconventional" gas becomes as conventional as any other source?  It seems to us that drilling thousands of meters below the Arctic, or transporting gas from Uzbekistan, or importing gas to the Isle of Grain from Australia is at least as equally unconventional.

Lighten up

It's just sad.  What else can you say when the EU's effort to put bury incandescent lighting is reviled by the UK Press  as some sort of Brussels threat to our British way of life, while it takes the NY Times to point out that using energy saving bulbs actually means the same as removing the entire energy use of Belgium.

The switch to energy-efficient lamps for homes, offices, streets and factories, officials said, would generate energy savings equivalent to the annual electricity consumption of Belgium – or the yearly output of 20 power stations of 500 megawatt

What kind of selfish whingers don't get this?  Even those who think that Gordon Brown is Satan incarnate can't truly imagine that energy saving light bulbs are some kind of commie conspiracy. Or maybe they do.

Luckily not all the UK press think this way.  The Economist for example

INCANDESCENT” might well describe the rage of those who prefer traditional light bulbs to their low-energy alternatives. This week, the European Commission formally adopted new regulations that will phase such bulbs out in Europe by 2012. America will do so by 2014. Some countries, such as Australia, Brazil and Switzerland, have got rid of them already. When a voluntary agreement came into force in Britain, at the start of the year, people rushed out to buy the last 100-watt light bulbs. Next to go are lower-wattage bulbs.

Light-emitting diodes will transform the business of illumination, especially with new production breakthroughs

Which is all very true.  And what we said on January 30.