The impact of liberalisation on wholesale costs is problematic in that short-term markets increasingly price electricity or gas delivered under long-term contracts. Such indexation to short-term markets (for example to month-ahead or day-ahead prices) is wrongly seen as a virtuous indicator of liberalisation, when in fact these markets establish a volatile flexibility premium as buyers and sellers seek to balance their positions when delivery day approaches and options increasingly diminish. To counterpose them with "old-fashioned" long-term contracts and allow them to set a price for baseload supplies contracted for perhaps years in advance of a delivery day is therefore misplaced - such long-term supplies are more appropriately indexed to a wider basket of commodities, including alternative fuels, in order to reflect the different risk profile they offer. This is not a trivial matter: gas indexation has ruined otherwise viable businesses in the UK and made long-term investment decisions hazardous.
To counterpose them with "old-fashioned" long-term contracts and allow them to set a price for baseload supplies contracted for perhaps years in advance of a delivery day is therefore misplaced - such long-term supplies are more appropriately indexed to a wider basket of commodities, including alternative fuels, in order to reflect the different risk profile they offer. This is not a trivial matter: gas indexation has ruined otherwise viable businesses in the UK and made long-term investment decisions hazardous.
(Note - investment banks and traders love volatility - it's a great source of profits for them. In essence, deregulation has forced utilities to outsource volatility management - with the added twist that they pay more for it than before...) In the long run, we're all dead. John Maynard Keynes
Note - investment banks and traders love volatility - it's a great source of profits for them.
Of course it is. And I got into trouble a few years ago for blowing the whistle on one particularly blatant mechanism they were using to profit from it.
Unfortunately I alleged the manipulation was "systematic" ie a few doing it most of the time, whereas what I should have said it is "systemic" - ie most doing it some of the time.
And I was buried as a result as the UK system closed ranks. I could not be seen to be right, as that "would have brought the market into disrepute".
I believe that artificially induced volatility has been a feature of the global energy markets for at least the past 10 years and moreover that two particular players - the most profitable in their sectors - have made fortunes by colluding in this.
And still do.
But then, it probably isn't even illegal..... "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
