Ed Hezlet
@watt_direction
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Writes about energy policy in the UK @BritishProgress. Former equity analyst. Views my own.
London
Joined October 2024
On 30 Sep 2024, the UK closed its last coal plant. This was the day we should have ended carbon price support – an extra tax to get coal off the grid. In the Budget, @RachelReevesMP has the chance to cut bills for millions + boost electrification, by ending CPS Here’s how:
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Things can get better: - Cut electricity prices and encourage electrification - Volumes grow again, LOWERING unit prices
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This mornings energy trends data suggests the 🇬🇧 isn't breaking out of this cycle yet
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The UK electricity system has fixed costs that need to be paid for - transmission, distribution, and legacy policies like ROC's - and we are splitting these over a falling volume base @climate_ben is doing amazing work to explain how this all interacts https://t.co/RpxGGRR4VR
UK electricity levies are spread over a declining demand base. Grid costs and generation subsidies are rising, and are currently being apportioned over an increasingly thin amount of demand. This increases their cost per unit of energy. The chart below shows the Eligible Demand
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Industries with falling volumes are tricky - Volumes decline 📉 but some costs are fixed - So unit prices rise 📈 to keep the economics stable - BUT the price rises causes more volume decline 🔁 The chart below is for UK letter volumes - but it also applies to electricity
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UK electricity levies are spread over a declining demand base. Grid costs and generation subsidies are rising, and are currently being apportioned over an increasingly thin amount of demand. This increases their cost per unit of energy. The chart below shows the Eligible Demand
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🚨 Britain’s suburbs are far less dense than those of Barcelona, Geneva, Paris, Bucharest, Naples, Milan, or Brussels. Why does this matter — and how can we fix it? 🧵
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you've heard about @turinginst (~£30m/yr), but do you know the issues with the @BritishBBank (£25b), the closest thing we have to a sovereign wealth fund? or how VC incentives costing £1b a year don't help scale or sovereignty? to fix this chart, we need to fix *them*:
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From @ToneLangengen's excellent "Cheaper Power 2030, Net Zero 2050" report for @InstituteGC that tours the entire energy system challenge; practically a one-stop-shop for problems and solutions.
1. We can fix Britain’s electricity grid by restoring the price mechanism Prices only work if there are consequences. Government contracts broke this rule but better ones can fix it by putting risk back on generators and off customers, allocating costs to those that create them.
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This once again underlines the stupidity of the term 'energy demand', which means 'energy demanded' (at today's price vectors) not 'the demand curve for energy' as it sounds like it might.
Great to see the UK electricity cost debate move on from just blaming marginal costs: CEO of EDF UK points to the role of declining consumption driving up electricity costs in the UK 🇬🇧 Spreading more fixed costs over declining volumes is not the way forward....
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Reduce the costs of electricity and electrification technology will start to work for consumers Cheaper Power 2030 is the right approach - decarbonisation in a pro-growth and pro-consumer way
NEW paper from @InstituteGC today. We argue Britain’s energy mission must shift - from Clean Power 2030 to Cheaper Power 2030. To cut bills, unlock growth, and secure lasting public support for net zero👇
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Thanks to my co-author @patrickcook81 for all of his work on this! Read our paper to find out more -
britishprogress.org
Britain’s second carbon tax has served its purpose. Cutting it would save consumers money at minimal cost to the Government.
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Before 30th September 2024, removing CPS might have encouraged coal back into the generation mix. That can’t happen anymore - we think it is time to retire CPS and reduce electricity prices, giving a boost to: 🏡🔌Heat pumps 🚗⚡Electric vehicles
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We estimate that CPS increased prices for electricity consumers by £3.50 for every £1 in tax revenue it raised for the Treasury in 2024.
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This means that CPS drives up the cost of electricity from lots of different generators, not just gas. The light green box is government revenue – but total costs for consumers are raised MUCH MORE, as renewable + nuclear providers get the extra price uplift.
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Taxing gas generation sounds good in theory - but the day ahead electricity market is based on marginal prices - the market clearing price is set by the most expensive generator. In the UK, most of the time this is gas.
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Carbon costs are now around 33% of the short run marginal costs for a combined cycle gas plant - and CPS is around 8%.
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The CPS rate at £18 per tonne of CO2e adds around £6.60 per MWh to the marginal costs of a 50% efficient gas turbine.
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Many countries make electricity generators pay carbon costs - but the UK does it twice! 1️⃣UK Emissions Trading Scheme - c. £57/tonne 2️⃣Carbon Price Support (CPS) - c. £18/tonne
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Our electricity bills are already a messy mix of different policy costs - but there are hidden taxes within the wholesale chunk that could be reduced. Thanks @climate_ben for the cost breakdown!
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