A Time-Critical Plan For UK Energy Prices And Security with Patricia Pino

I understand that it doesn't always work that way, but the incentive does exist.

It is a problem.

So I'll just quote from your paper just to hammer it home then.

So this is how the price is set, and this is from your paper, quote, "The UK wholesale electricity market clears at a single price in each half-hour settlement period, determined by the bid of the last and most expensive unit required to meet demand.

In the majority of hours, that unit is a gas-fired generator.

All generators, including those with substantially lower production costs, receive this gas set price." End quote.

And as we've just discussed, that's barely a market, right? Somebody just decided it should be priced that way and for various reasons, and n-not, none of them convincing really in the current context.

And I think here's another paragraph of yours.

I'm sorry to keep quoting you back to you, but it's a great paper, so I'll just read it.

Quote, "Fiscal transfers," and this is about why fiscal transfers won't even solve the problem as well, 'cause you wanna get to the underlying problem, the price shaping.

I changed the wording slightly on that 'cause I realized that I've proposed subsidies, and that's a fiscal transfer.

I changed it to fiscal tr-transfers alone won't solve it, and what I was pointing to with that was the price guarantee that the government did last time.

And what you write is, quote, "Fiscal transfers, consumer subsidies, price caps, and guaranteed payments face two fundamental limitations in a supply-constrained market.

First, they cannot increase the physical availability of gas." That's a pretty salient point.

[laughs] "Second, they do not alter the mechanism through which prices are set.

By sustaining demand in a constrained market, they may even reinforce the conditions under which high-cost marginal imports continue to set prices.

The £25 billion energy price guarantee is the clearest illustration.

It compensated consumers for the cost of the mechanism without addressing the mechanism itself." End quote.

So I think that's all great.

Uh, is there any more to add before we move on?

Well, yeah, I mean, a lot of people will say, "Well, if it's subsidizing energy and it's giving me a cheaper price, then who cares?" But the people this is subsidizing, I guess, is the energy sector.

I guess the government was kind of offsetting that with the windfall tax that they created.

But it still, it leaves us with the structural problem into the future, and we are facing that same problem again now precisely because the government kicked the can down the road with that policy and decided it wouldn't solve the underlying problem.

Okay, so as I see it, your measures do three things, and they all depend on each other.

They ramp up gas storage capacity, they shape prices to the fullest extent we can given the position we're in in global markets, and they also crucially reduce demand, and we need all three.