High electricity prices are all down to state interference

High electricity prices are all down to state interference

by Neil Craig
article from Monday 24, February, 2014

IS 98 PER CENT of every electricity bill state parasitism? If so the average household electricity bill of £1,500 could be about £40. A matter of some importance when – we are in recession and the correlation between energy use and economic strength is as close as anything in economics; while last year excess winter deaths rose to 34,000. A few caveats:

• Even if it is correct we would not get there for some years – nuclear reactors take time to build and the economic growth that such a price reduction could bring would certainly greatly increase demand, slowing the fall in prices. "It would take time" however, is not a reason for not starting now.

• It may well be that some international regulations (not just the EU this time) require a certain amount of unnecessary regulation.

On the other hand these figures have been available for some time and I have used them online a number of times against anti-nuclearists. Not once have I had a serious arithmetical objection to them.

• Arithmetic always works.

• Each individual bit works.

When something is being done, by definition it is possible to do it – for example it is simple fact that the new Hinkley Point reactor is nearly four times more expensive than the closely comparable one, also being built by European contractors, in China.

On the third hand it doesn't really matter right now whether we can cut electricity bills to 2%v of what they are. A 90% cut would be almost as nice. Or 80%. Or even half price. Even a 25% cut would be valuable. In fact all parties but UKIP, despite Miliband's cynical and murderous promise to enforce a short term price freeze, are committed to raising fuel bills. All are aiming to raise average bills to £3,000 a year by 2020. The SNP policy is that even after independence, England will subsidise Scottish windmills, otherwise our greater number of windmills would push prices well above £3,000.

Even if these figures prove to be significantly wrong – and no evidence has been produced that they are – it is certain that electricity costs can be massively reduced from what our ruling parties want and that this will save lives and produce economic success. For further historical information see these: The True Cost of Electricity & How The "Debate" Is Being Dishonestly Restricted and the estimable Register.

 

This graphic shows how the electricity price rises from 2007 is largely "policy and regulation costs" ie direct state parasitism. The other is "transport costs" ie the grid, which is basically to pay for extending the grid so that windmill electricity produced in the outer isles can be transported to London. This is a hidden "green" subsidy and an extensive one.

By comparison actually producing the stuff is barely up and by 2020 will be back down to 2007 costs. I presume this is the benefit of shale more than offsetting windmill parasitism. VAT appears not to be included.

The alleged corporate greed of the "big 6" 'monopolists' means supplier costs will go from 19% DOWN to 16%.

So clearly, even within the terms of the official "debate" the fault lies with political price raising. But the official debate ignores the political effect of preventing the cheapest power sources (nuclear, coal & shale) being used.

This is how the ruling class normally frame any "debate". The only thing discussed is a few percentage points made up of either profit or government levies, according to which villain. The graph above shows that the levies are rising fast and the profits, as a % of cost, falling.

Unmentioned is that Hinkley Point is costing four times as much (and taking seven years longer, which pushes up interest payments) than comparable Chinese ones, and nuclear is considerably cheaper than average power.

Undebated is that 90% of electricity prices (perhaps more) is government regulatory parasitism - you will never know it from BBC "news".

Even the "big six" would much rather be damned for the largely false charge of price gouging than be shown to be running expensive obsolete equipment that could not compete with engineering costs of nuclear, thus they do not call the MPs the liars they certainly are. This is common among dominant companies with fixed assets.

Lets go for a best possible cost:

Nuclear is currently 40% of the average cost of our power basket.

China is building at 0.27 our costs.

Because China is building in three years and us in ten we have seven years foregone income while paying interest – assuming the normal 10% return that is 1.10^7 = 1.95

Assume China is not entirely without state parasitism – say 10% 

VAT 20%

How much could cost be reduced if it was allowed to mass produce reactors - three fold seems a conservative estimate.

60% X 0.27 X 1/1.95 X 90% X 1/1.20% X 1/3 = 0.0208 or 2.08% of current costs.

97.92% parasitism.

Way below current standing charges = "electricity too cheap to meter". Though this does not include transportation costs. However if the amount of power we use goes up anything like proportionately, handling costs will go down, not quite proportionately.

I'm not standing by that exact figure though I would hold to each part as being either firm or a reasonable estimate. Nor does it matter much. If we can say at least 90% of electricity costs are state parasitism and can, over a number of years, be removed it doesn't immediately matter if another 80% reduction is ultimately possible. But if some supporter of windmillery feels the figures can be factually disputed I am sure they will do so.

If nobody in Scotland's political class feels able to point to any error, after it has been aired here on ThinkScotland, it would be difficult to conclude these figures are in error. I am sure the editor would be willing to publish a serious critical article (unlike, for example, the BBC, which virtually never allows a balancing of opinions on such subjects).

 

Neil Craig's blog can be found at http://neilcraigforukip.blogspot.com/

 

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User Comments

"If nobody in Scotland's political class feels able to point to any error, after it has been aired here on ThinkScotland, it would be difficult to conclude these figures are in error." I did notify the Holyrood & Westminster party leaders, Scottish Renewables etc of this article. it is obvious none of them are able to dispute the math. So undisputed then that 98% of our electricity bills are indeed governmental parasitism. Nice to have it settled.

Posted on Monday 24, February, 2014 by Neil Craig