At a vast stainless steel plant on the edge of Sheffield, Christian Brüggmann’s job is to keep things running. [emphasis, links added]
The factory, owned by Italian manufacturer Marcegaglia, is the only one of its kind left in Britain, producing primary stainless steel used in everything from pipes to cutlery.
Yet rather than focusing on production, an increasing amount of Brüggmann’s time in recent years has been spent worrying about something else: sky-high electricity prices.
“It’s been a roller-coaster ride ever since Covid,” says Brüggmann, the German operations chief at the facility.
“In one day now, you can have swings of £200 per megawatt hour in the price – it just creates so much uncertainty and makes it very hard to plan.”
The Marcegaglia plant is more exposed than most.
It uses a massive electric-arc furnace to melt down scrap metal and combine it with other alloys in a large cauldron. This mixture is then poured and cast into slabs.
Even turning the furnace on is a commitment, as it triggers a production process that must continue for three days, regardless of swings in the power price.
Yet Brüggmann’s experience is far from unique.
All across Britain today, businesses and households are complaining about the seemingly unstoppable rise of electricity prices.
In the Government’s new industrial strategy, ministers singled out the problem as one of the biggest challenges facing domestic factories.
And at the same time, regulator Ofgem has warned that higher prices are forcing more households into poverty.
Ed Miliband, the Energy Secretary, blames the rise on our dependence on [natural] gas for generating electricity. His critics claim it is the Government’s gung-ho pursuit of net zero that is responsible. …snip…
Take a look at the numbers, and it isn’t hard to see why millions of people…are struggling.
Following Russia’s attack on Ukraine, energy prices surged to eye-watering levels as all of Europe scrambled for gas supplies for heating and electricity.
But even with the worst of that crisis now behind us, prices remain much higher than they were beforehand.
Last week, Ofgem published shocking new figures showing that household debts have breached the £4bn [$5.5B] level for the first time, up from £1.3bn [$1.79B] in 2020.
The explanation for this is simple.
Between 2019 and 2024, wages and the state pension increased by 32pc and 31pc respectively, while power prices surged 58pc for medium-sized households, according to official figures.
For a typical household that consumes around 3,100 kilowatt-hours (kWh) of electricity per year, this has led to an annual power bill of about £930 [$1,180], up from £589 [$810] in 2019, including taxes. (A washing machine typically consumes about 1kWh of power per cycle.)
Yet even the cost of abstinence has grown.
In the past five years, the average standing charge for a household that consumes no electricity has also jumped from about £7 [$9.62] to just under £15 [$20.61] per month, according to regulator Ofgem.
“The standing charges are horrendous,” says Mrs Correll, in Lincolnshire. “And with all the taxes as well, it’s even worse. Without them I’d be a damn sight better off.”
And it isn’t just households that have had to swallow bigger costs.
Businesses are arguably even worse off, with British factories paying the highest electricity prices of any developed country, according to the International Energy Agency.
Their costs more than doubled between 2019 and 2023, the most recent year for which data is available.
British industrial users paid 25.85 pence [$0.35] per kilowatt hour when taxes were included, up from 11.55 pence [$0.16] just four years earlier.
Crucially, this was 45pc higher than in France and Germany and four times what American companies paid.
In Marcegaglia’s case, paying for power directly accounts for roughly 25-30pc of the Sheffield plant’s outgoings, says David Scaife, the company’s chief financial officer in the UK. …snip…
And high power prices are threatening not just Britain’s traditional industries but also those of the future.
Under plans to reach net zero by 2050, the consumption of electricity will only become more crucial as production processes are electrified to cut carbon emissions.
Yet even those at the top in Westminster struggle to fully explain just how Britain became saddled with such crippling electricity costs.
When Labour’s Sarah Jones, the industry minister, was quizzed about the cause on BBC Radio 4’s PM programme last week, she said the full reasons “would take all day to explain”.
France, she said, was cheaper, because it had “huge amounts of nuclear power” while Germany “has been better historically in terms of industrial energy prices because they’ve put extra costs on to consumer bills”.
That answer hinted at the failures of past governments to build new nuclear power stations. But it also failed to mention that nearly a quarter of Germany’s power is generated by the cheapest fuel of all: coal.
However, another reason Jones was unable to unpack the cause is the sheer complexity of our energy bills.
They include not just the cost of power but also a multitude of taxes, green levies, and other charges that have been introduced over time. …snip…
At the moment, the biggest single factor affecting electricity prices is gas.
Following the discovery of huge gas reserves in the North Sea, the 1990s “dash for gas” saw a string of gas-fired power plants built across Britain, and they have since become the backbone of our power grid.
Before that, burning coal power plants were our biggest source of electricity.
But in recent decades, successive governments have sought to phase them out with heavier taxes due to their higher carbon emissions.
The rise of renewables is now pushing gas down the pecking order of the power system as well. But because of a market system called “marginal pricing”, gas continues to influence prices heavily.
Grid operators must constantly keep the supply and demand of electricity in balance at all times by continuously fine-tuning both.
To decide which power plants to use daily, grid officials will work their way up a list of generators.
They start with the cheapest and carry on until demand is met, eventually sourcing energy from the most expensive supplier.
At the end of this process, the price paid for power is set not by the cheapest but by the most expensive.
This means that even if wind, solar, batteries, and other clean power sources provide the bulk of power, but gas-fired plants are used to deliver the final fraction, every generator still receives whatever the gas plant was paid.
“It could be that there’s only one of these plants that’s needed somewhere, and yet the whole country will pay the peak gas price, which is just insane,” says Liebreich.
The driving idea behind this is efficiency, as power plant owners are incentivized to offer lower prices so they stay on the list of generators for longer.
But it means consumers are being forced to pay for the rollout of supposedly cheaper renewables, while still paying the price of gas. …snip…
The renewables rollout is also leaving us more exposed to gas in other ways, too.
We have not yet upgraded the power network to carry all the electricity being generated by wind farms in Scotland, so when the grid becomes too congested, we are instead switching turbines off.
At the same time, grid operators will then fire up a gas plant elsewhere to make sure demand is met.
This leads to huge so-called “curtailment” compensation payments to wind farms, all of which are paid via household bills.
Green contradiction
Subsidies are another key driver of power prices.
Successive governments have loaded energy bills with a multitude of levies, from those designed to support the rollout of clean power to those meant to help poorer households with their bills.
All are expensive, says the Renewable Energy Foundation, which puts the total annual cost of energy subsidies at around £25bn [$34.36B].
The origins go back to 1990 when Margaret Thatcher’s government created the non-fossil fuel obligation, a levy on coal and gas generators.
It aimed to support privatisation of the nation’s nuclear stations, which produced power so expensive that they couldn’t attract buyers.
The money funded guaranteed prices for their power, but the key innovation was that levy costs were passed directly to consumers – a mechanism integral to the levies driving bills up today.
Of all of these, the biggest levy is the renewables obligation.
This levy awarded certificates to wind, solar, and other renewable generators for each megawatt hour (MWh) of power generated, on top of what they received for power.
At the same time, electricity suppliers were obliged to buy the certificates to compensate for their carbon emissions.
The result was a renewables gold rush, with wind farms springing up across the UK.
The scheme has since been closed to new entrants, but owing to the length of contracts awarded, it continues to account for £6.8bn [$9.35B] of levies on bills. The cumulative costs since 2002 come to a whopping £67bn [$92B].
In 2008, Ed Miliband, in his previous stint as energy secretary, also helped to create the feed-in tariff (FiTs) to boost small-scale renewables such as solar and low-carbon electricity generation.
This pays property owners who put solar panels on their roof for every unit of power generated, even if they use the power themselves. …snip…
Altogether, say analysts at Cornwall Insight, such policy costs add a total of £198 [$272B] to the average consumer bill per year.
And those costs exclude the fastest-growing subsidy of all, contracts for difference (CfDs), under which low-carbon generators are guaranteed a fixed price for their power.
This means developers can build wind farms, solar farms, or nuclear power stations safely in the knowledge that even if power markets plunge, they will be guaranteed a profit.
Last year, CfD subsidies added about £2.5bn [$3.44B] to Britain’s bills – but you won’t see that information set out on your power charges because they are hidden within the figures for wholesale prices.
Read full post at The Telegraph
