Accordign now to (ref article)  there has been a dramatic change of attitude and discourse in the UK government and main financial sectors regarding the lasts years of economic policy. It is  with surprise that I read how they complain about having exactly what was desired: market-driven results which lead to increase in Energy prices. After 20 years of the UK lecturing continental Europe that it was silly to have an "energy policy" because "the market provides", one can hardly not feel the schadenfreude when the obvious results of such lecturing gets the expected results.

The rush to produce gas in the past decades and a parallel rush to build gas-fired power plants at the same time without thinking in the lack of european reserves , and, additionally, the break-up of the industry and its sale in pieces to the stodgy utilities which were widely thought to have overpaid for the assets necessarily lead to higher market prices.

Markets do not deliver lower prices, they deliver truer prices. And the true price of energy now, if you have not planned infrastructure and supply in the previous decades, is going up. But I guess it is easier to blame the Europeans.

It is just a frist trial... someon takes it from her..

A pleasure


I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

There is one question I want to ask you, and that is: Is there an economics equivalent to the thermodynamic law of entropy whereby the "disorder" of a system is constant?

Thus if a large (continental) part of the Euro gas market is strictly regulated and governed by stable long term contracts, then the volatility of the unregulated part of the market (UK) increases dramatically to accommodate imbalances in supply and demand that would otherwise be absorbed over a much larger volumes in the system as a whole.  

At times of supply surplus the Brits would be laughing at the "sclerotic" continental system which is paying "over the odds" for gas that is available cheaper on the spot market, at times of shortage the reverse would b the case.

But what we are really seeing is the dynamics of two subsystems in a larger system, one which has been "frozen" into relative stability, and the other which exhibits extreme volatility which might otherwise be dampened over a much larger market.

Of course the overall system or gas market isn't an entirely closed system and changes over time - but at any one time regulation in one part produces relative stability at the expense of volatility in any part that remains unregulated.

Over a period of time, regulation and planning, if done well can anticipate future trends and bottlenecks or surpluses in supply and plan accordingly, and greatly improve the "efficiency" of that part of the system by buying short when prices are high and long when prices are low.  

If done on a large scale compared to the size of the market it can influence prices to its advantage by anticipating trends, and it's sheer scale gives it an enormous advantage over a smaller player which simply doesn't have the market intelligence, bargaining power, and financial muscle to influence the market.

I didn't do economics 101, so this is looking for freebee education!

Index of Frank's Diaries

Markets do not deliver lower prices, they deliver truer prices.

Well, truer only in a market-believing mindset. Paying all producers the same as the production price of the most expensive marginal producer might be 'true' for them, but a regulated power provision where the price is closer to the weighted average production price (i.e. in effect the cheaper producers subsidize the marginal producer from their profit), even with room for an investment chest and no need for feeding investors with dividends and interests, might be truer from my point of view.

_{*Lunatic*, n.
One whose delusions are out of fashion.}

From your article Darling seeks UK energy price talks, it seems the government of Britain is finally realising that maybe the market doesn't provide for all. That Alistair Darling is having second thoughts about the government's lack of energy policy is especially ironic in the context of Britain long preaching the same at the EU level.

Not that these frantic actions to stave off price hikes will change much, and the arguments raised are rather daft.

It's funny to now hear talk of prices as a function of production prices. Prices on a free market are determined by supply and demand. In effect, the price will be close to the production price of the most expensive producer whose supply is needed to meet demand -- and the rest will cash in. When supply is getting tight -- as in a post North Sea boom Britain --, and demand is unchecked -- as in a country with an electricity market switched to gas-fired power plants --, that means rising prices.

Centrica also blames the rest of the EU for rising demand, and you make it appear as if this is a result of less free markets. But please, don't take the reader for a fool! A wider free gas market won't result in reduced demand, quite the opposite, and the one siginficant result won't be lower prices for Britain but higher ones everywhere else.

236 words with link.

_{*Lunatic*, n.
One whose delusions are out of fashion.}

SHOCK, HORROR: CONTINENTALS DRIVE UP BRITISH GAS PRICES!

Having freeloaded on BRITISH gas for decades the GERMANS and FRENCH now want to charge us EXTRA for giving us OUR SHARE of RUSSIAN gas.  Our Minister, Alistair Darling, is fighting to prevent FOREIGN utility companies from exploiting BRITISH CONSUMERS by making EXORBITANT PROFITS, driving up our inflation, and damaging our competitiveness abroad.

Of course there will always be the prophets of doom, naysayers and other continentals indulging in SHADENFREUDE that we gave them our gas so cheaply.  That's the thanks you get when you try to help those French people.  For years we have propped up their SCLEROTIC economies with BRITISH invention, innovation, flexibility, and know how.  They in turn kept their markets closed to our INVESTMENT with all those EUROCRATIC regulations.

Mr. Brown should waste no time to give M. Sarkozy a piece of his mind and tell him we want our gas back!

Index of Frank's Diaries

Can't suggest an alternative myself; as I don't read the FT I don't know the house style.

keep to the Fen Causeway

It is quite ironic, after twenty years of deregulation and claims that "the markets will provide", to see senior politicians panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels.

In any case, after 20 years of the UK lecturing continental Europe that it was silly to have an "energy policy" because "the market provides", it is quite ironic that anyone in the UK would complain about having exactly what was desired: ie a market-driven industry,

The first lines of these two paragraphs are the same. I think you should merge them:

In any case, after twenty years of the UK lecturing continental Europe about deregulation and claiming that it was silly to have an "energy policy" because "the market provides",  how anyone in the UK government could complain about having exactly what was desired: ie a market-driven industry? It is quite ironic to see senior politicians panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels.

Your central point seems to be the irony of British ministers complaining that their "market" solution is doing precisely what it is mean to do, i.e. raising prices as demand exceeds supply - and now advocating the sort of market distorting measures they have been lambasting the "Europeans" for for the past 20 years.

I don't think you will get away with saying much more - certainly not the economics lesson in pricing, although it may be worth saying all of this is the natural consequence of the privatisation of utilities and the rapid and wasteful depletion of reserves.

It's a pity, but LTEs don't tend not to be the place for detailed argument - unless you are a famous economist or can claim to speaking on behalf of a well known and influential body.

Index of Frank's Diaries

I was quite nonplussed to see the Chancellor of the Exchequer wanting "reassurance that energy companies are not using the short-term wholesale price fluctuations as an excuse to push up prices, when most have long-term energy contracts" ("Darling seeks UK energy price talks", 7 January).

Market prices are set at the level that balances supply and demand, irrespective of the actual costs of supply.  Suggesting that energy companies could sell at their average cost of supply rather than at marginal market prices indicates one of two things: either the much-lauded UK energy market is actually not functioning properly, because of bad design or poor regulation, or the Chancellor is ignorant of the basic rules of economics. It is inconceivable that he may be thinking that the public is ignorant of such rules and that he can get away with such blatant politicking.

After twenty years of lectures on the irrelevance of "energy policy" compared to market solutions, it's surprising to hear British complaints about the market-driven industry the UK has done so much to bring about. More sadly predictable, however, is that senior politicians should panic as prices go up, and go for the easiest non-market solution around: blaming foreign energy groups and Brussels.