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Topic Title: Consultation begins on Big Business Opting out of paying for 'Contracts for Difference'
Topic Summary: Electricity market reform: 'Contracts for Difference' costs exemption eligibility
Created On: 05 July 2013 01:12 AM
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 05 July 2013 01:12 AM
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jarathoon

Posts: 1041
Joined: 05 September 2004

This will potentially mean that all the main the heavy lifting on paying for CfD subsidies will be born by consumers and SME's. Where did this come from?


"Electricity market reform: 'Contracts for Difference' costs exemption eligibility" Consultation

https://www.gov.uk/government/consultations/electricity-market-reform-contracts-for-difference-costs-exemption-eligibility



"As part of the introduction of the Energy Bill, government is seeking to exempt energy intensive industries from the costs of Contracts for Difference (CfDs). CfDs are part of Electricity Market Reform (EMR). CfDs aim to support investment in low carbon electricity generation.

BIS and DECC are working together to define the scope of the exemption, including who will be eligible and the mechanism to deliver it. This consultation looks at eligibility for the exemption.

We propose, subject to state aid approval, to exempt energy intensive industries (EIIs) from the costs of Contracts for Difference (CfD) where they pose significant risk to UK competitiveness. We are seeking to compensate EII that are most at risk, to compensate them for indirect costs of energy and climate change policies, whilst minimising additional costs to other consumers.

We aim to bring the exemption into force, at the same time as the Electricity Market Reform (EMR) is implemented."




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James Arathoon
 05 July 2013 10:38 AM
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OMS

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Sounds reasonable to me - if you consider the ultimate objective is to reduce carbon emissions then forcing energy intensive industries elswhere through cost and uncompetitevness and importing the products back to the UK with the attendant carbon burden is probably not the sensible thing to do is it ?

Regards

OMS

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Failure is always an option
 05 July 2013 11:35 AM
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jarathoon

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Let ignore the complexity argument here for a second, the fact that this is a secondary subsidy to offset the effects of paying for the primary subsidy. Lets ignore the fact that a whole new bureaucratic system will have to be invented, staffed and paid for to administer this.

My thoughts...

In one particular example of an energy intensive activity: server farms, DECC would be effectively asking a large number of people who do not use the internet, perhaps retired and others on fixed incomes, to secondary subsidise the people who do use the internet. Some people may think this is unfair.

Once the government find that certain groups (like people on fixed incomes) can no longer afford to pay the primary and secondary subsidies combined, it will either have to add them to the secondary subsidy or create a new tertiary subsidy to help them specifically.

Now there is a smaller group having to pay the primary, secondary and perhaps tertiary subsidies.

This is a potentially unstable system which leads to a smaller and smaller group of people paying for the entire system of subsidies. You might say these consumers and SME's can afford it so it doesn't matter.

However at some point some of these energy users (the largest first) will find it is cheaper to generate most of their electricty off-grid. Then ever smaller numbers of people and businesses will then have to support the complex system of subsidies and their costs will rise very quickly in consequence.

As soon as this starts happening the whole system will need to be cross subsidised by cash from the general taxation system otherwise it will collapse as ever larger numbers of consumers and businesses are either priced off the grid or added to the subsidy system.

What at first might appear to be a reasonable suggestion to some could quite possibly lead instability and collapse.

James Arathoon

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James Arathoon
 05 July 2013 11:56 AM
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Avatar for OMS.
OMS

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Originally posted by: jarathoon

Let ignore the complexity argument here for a second, the fact that this is a secondary subsidy to offset the effects of paying for the primary subsidy. Lets ignore the fact that a whole new bureaucratic system will have to be invented, staffed and paid for to administer this.

You can't ignore the complexity - it's a complex issue


My thoughts...



In one particular example of an energy intensive activity: server farms, DECC would be effectively asking a large number of people who do not use the internet, perhaps retired and others on fixed incomes, to secondary subsidise the people who do use the internet. Some people may think this is unfair.

I wouldn't class server farms as energy intensive - try thing cement or concrete manufacture, steel industry, chemical or petrochem plants.

Paying for things you don't use or get is what results from a democratic society - there are no street lights where I live - but I don't get a council tax reduction



Once the government find that certain groups (like people on fixed incomes) can no longer afford to pay the primary and secondary subsidies combined, it will either have to add them to the secondary subsidy or create a new tertiary subsidy to help them specifically.

Yep - so what's new


Now there is a smaller group having to pay the primary, secondary and perhaps tertiary subsidies.

Indeed - take a look at the working population and those on benefits - have you not noticed a diminishing pool of people payng for an expanding pool of people - a variety of reasons, but demographics and ageing are key areas.

This is a potentially unstable system which leads to a smaller and smaller group of people paying for the entire system of subsidies. You might say these consumers and SME's can afford it so it doesn't matter.

See above, it's how our economic system works


However at some point some of these energy users (the largest first) will find it is cheaper to generate most of their electricty off-grid. Then ever smaller numbers of people and businesses will then have to support the complex system of subsidies and their costs will rise very quickly in consequence.

Almost certainly so - but someone somewhere will be able to show a net reduction in carbon intensity of the grid so it'll be back slapping and congratulations all round.


As soon as this starts happening the whole system will need to be cross subsidised by cash from the general taxation system otherwise it will collapse as ever larger numbers of consumers and businesses are either priced off the grid or added to the subsidy system.

For sure - who paid for the grid in the fisrt place - consumers or taxpayers


What at first might appear to be a reasonable suggestion to some could quite possibly lead instability and collapse.

I doubt it James, I really do - fixing a few rates for emerging generation technologies and offering a few subsidies to intensive users isn't going to lead to the collapse of western civilisation, any more that the FITS and RHI schemes will.

How many consumers qualify as "energy intensive" and what is thier predicted consumption as a % of total UK consumption.



James Arathoon


Regards

OMS

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Failure is always an option
 05 July 2013 01:33 PM
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jarathoon

Posts: 1041
Joined: 05 September 2004

I meant the subsidy system itself will collapse. Whether or not western civilisation is in the process of collapse is a completely different matter; a failing economic system controlling our electricity supplies definitely won't help thats for sure.

(the uk is more likely to collapse from the continued banking crisis and a huge debt hangover: potentially backrupting compensation payouts for some banks on swap miss-selling to SME's (between 20 and 40 thousand busineses effected), libor fixing fines etc, and inevitable bond collapse (collateral held by the banks) as inflation and interest rates rise after years of printing easy new money begin to take effect)

Back to the energy Bill and subsidies...

Server farms are one of the most energy intensive industries around; electricity is needed to run them and to cool them.

From small subsidy acorns, big counterproductive subsidy oaks grow... The Times are suggesting the initial effect of this subsidy for energy intensive industries will be small, too small to worry about (to small to meter perhaps).

Its probably just me who thinks the "Contracts for Difference" subsidy regime seems to be developing into a giant welfare scheme for big energy suppliers and users.

James Arathoon

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James Arathoon
 05 July 2013 02:33 PM
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jarathoon

Posts: 1041
Joined: 05 September 2004

"For sure - who paid for the grid in the first place - consumers or taxpayers"

The original electricity grid was a patchwork of private sector equity and loan financed infrastructure projects.

Nationalisation and tax payer involvement came later.

The question is: Would it have been possible to build a national state funded electricity grid efficiently from scratch, without any initial private sector phase where competing systems and technologies were developed?

Where would you get the knowledgebase and trained and experienced personnel from...It is easy to think that the state can do anything it wants, but this is normally only succeeds when it cannibalises and absorbs prior existing private sector people and knowledge, to build a new arrangement. e.g. NHS, CEGB (National Grid) etc. etc.

James Arathoon


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James Arathoon
 05 July 2013 03:36 PM
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Ipayyoursalary

Posts: 265
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Its probably just me who thinks the "Contracts for Difference" subsidy regime seems to be developing into a giant welfare scheme for big energy suppliers and users.

Spot on James. And no amount of shoulder shrugging and 'whataboutery' from OMS changes that fact. Our only hope is that UK shale gas will provide a 'get out of jail free' card for UK consumers and businesses struggling with skyrocketing energy bills and blackouts caused by the incompetent eco-loons at DECC.
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