The price of his electricity soared astronomically in Europe Over the past two years: by four times Over the past year and ten times over the past two years. The European Union claimed that this price hike is due to the rise in gas prices on the international market and Russia does not supply enough gas. This raises the crucial question: Why, for example, is the price of electricity in Germany soaring four times when Natural gas contributes only seven Who produces electricity? Why the United Kingdom which Produces Half of the natural gas you consumeDo you also see a sharp rise in electricity prices? All this talk about Russia hides the fact that electricity generators are making astronomical unexpected profits. Poorer consumers, already pushed into the wall by the pandemic, face a dilemma. Since electricity bills can take up 20-30% of a household’s budget during the winter, should they buy food or keep their homes heated?
This sharp rise in electricity prices is the other side of the story of the so-called market reforms in the electricity sector over the past 30 years. Electricity cost is related to The most expensive network supply In daily and hourly auctions. At the moment, this is natural gas, which is why electricity prices have risen sharply even if it is not the primary source of electricity supply to the grid. This is market fundamentalism, what neoclassical economists call marginal utility theory. For those interested in its history, this was Augusto Pinochet’s electricity sector reform in Chile. Milton FriedmanWith help from the Chicago Boys, he was the mentor of Pinochet’s repair. The price of electricity had to be based on its “marginal price” in order for it to become part of Pinochet’s constitution in Chile. Chilean reforms led to the privatization of the electricity sector, which was the goal of the reforms.
It was the Chilean model that Margaret Thatcher copied in the UK. The UK dismantled the Central Electricity Generation Board (CEGB), which ran the entire electricity infrastructure from generation and transmission to wholesale distribution. He. She The UK has shifted away from domestic coal for thermal power plants, thus Breaking the powerful coal miners’ union. These were also Enron’s California market “reforms” that led to the network’s collapse in the summer of 2000 and 2001.
We may think that these issues have nothing to do with us in India. After all, we generate electricity largely from domestic coal, rivers (hydroelectricity), and now from renewable energy sources. So why care about what’s happening in Europe and natural gas prices?
This is why we need to think again. The “reforms” that the EU government has been pushing for two decades is the privatization of the electricity sector on the model of the UK and the EU. Electricity Law 2003 also It opened the doors to crony capitalistsQ: Private power actors who borrowed heavily from public sector banks to set up a large number of factories. With supply exceeding demand, it is the banks and institutions that have made the loans which incurred heavy losses and written them off as non-performing loans.
Another aspect of attracting private players was shifting the burden of purchasing their high-cost power to state-owned distribution companies. This shows huge losses for state distribution companies. As state governments have to confront the people, they are forced to buy energy – even expensive energy – and supply it to local farmers and consumers. To ensure some price stability, they buy the bulk of their electricity demand using long-term contracts and only a small amount from daily and daily auctions.
Then the new amendment to the Electricity Law, which has now been referred to the Parliamentary Standing Committee on Energy, proposed something unique that no country had tried: Separate ownership of electricity from wires on which it flows. While state governments will maintain the entire distribution infrastructure, the electricity flowing through it will be owned by the merchants who buy and sell the electricity in the “market.” While the state government will still be accountable to the people, they will be responsible but will not have the ability to control the price or provide electricity to their people. From the small amount of energy now traded in the spot markets, the entire supply to the states will be from the spot electricity markets.
How will electricity prices be determined in these markets? It will depend on the marginal price of electricity determined by auctions – the same pricing model that has caused the current crisis in the EU and UK.
The goal of the EU reforms was not a more efficient electricity sector but privatization of electricity utilities. Prior to these reforms, every major country, such as France or Germany, had an integrated network with prominent government agencies in the generation, transmission, and distribution of electricity. These state-owned players set the rules for the network. Since the European Union wanted to privatize the electricity sector, it followed the so-called reform of disconnecting generation from the grid. While transmission and distribution were accepted as natural monopolies and remained with the state, generators were privatized and made to compete with each other across the entire EU network.
But how do we make generators compete when electricity generation and supply are balanced every time, and therefore must work cooperatively? Earlier, the network balances load and demand. It increased the most efficient sources when supplies were scarce and dumped the least efficient sources when supply exceeded demand. European Union regulators have replaced this model of factory scheduling with artificial market-based scheduling in the name of so-called reforms. The market is organized so that you can bid in advance to sell an amount of energy for a certain period of time.
For simplicity’s sake, let’s say there are 24 periods of time per 1 hour in a day and you, as a generator, can set your price to sell an amount of electricity for a given period. The most expensive Which satisfies the full demand in that time period becomes the price For all bidders who bid up to this price. Even the lowest bidder gets the price of the last successful bidder in that time period!
And what happens if the prices of different generation methods are significantly different and need an expensive generation to meet the aggregate demand? The energy produced from the wind or the sun is then charged – the incremental costs are almost zero – at the exact cost such as the expensive LNG required to meet full demand, for example.
The European Union has relied heavily on natural gas as the fuel of choice to reduce greenhouse gas emissions, increase renewable energy sources – solar and wind energy – and phase out lignite and coal. It imposed a series of sanctions, and publicly presented and stalled plans for further sanctions against Russia 150 billion euros in Russian reserves in European Union banks. It also announced plans to reduce oil and gas supplies from Russia. It is not surprising that Russia has sharply reduced its gas supplies to the European Union. If the West thinks it’s possible arming its financial powerWhy do you think Russia will not respond by cutting off gas supplies to the European Union?
Russian supplies of natural gas to Western Europe are declining, and the price of liquefied natural gas has risen sharply on the international market. Even worse, there is simply not enough LNG on the market to replace the gas that Russia supplies to the EU via pipelines.
With the price of gas rising 4-6 times in the past few months, the cost of electricity has also risen sharply. But because only a fraction of the electricity is powered by gas, all the other plants—wind, solar, nuclear, hydro, even dirty coal-fired plants—are killing. Only now the EU and UK are discussing ways to tackle the burden of high electricity prices on consumers and windfall profits for generators.
But it is not only consumers in the European Union and the United Kingdom that are severely affected. They are also European and British industries. The stainless steel, fertilizer, glass makers, aluminum, cement and engineering industries are all sensitive to input costs. All of these are at risk of being shut down in the European Union and the United Kingdom.
Former Greek Finance Minister Yanis Varoufakis writes in It’s time to blow up the electricity market“The EU’s energy sector is a good example of what market fundamentalism has done to power grids around the world…It’s time to calm simulated markets.”
So why is the Modi government rushing into this abyss? Didn’t he learn from last year’s experience when, After the coal shortage, the prices in the spot electricity market went to Rs. 20 per unit before the public outcry was capped at Rs. 12? Why are we pushing again for bankrupt market fundamentalism policies under the guise of electricity reforms? Who will benefit from these market reforms? Certainly, neither consumers nor states.