Realist, not conformist analysis of the latest financial, business and political news

Of Course We’ve A Competitive Electricity Market

Carbon emissions

That prices are rising in a marketplace doesn’t mean that said market is uncompetitive. It could mean just that the general cost of providing or producing the thing is rising. This being one of those difficult little things about economic diagnosis. From the point of view of prices and prices alone it’s impossible to tell the difference between a perfectly competitive market and a perfectly monopolistic or cartel controlled one. Both will show prices moving in lockstep.

So, this is complaining a bit too much:

Why the end of the ‘Big Six’ hasn’t made power any cheaper

Actually, no one ever does say that competition in markets will make something cheaper. Only that it will make whatever as cheap as it can be, a rather different statement.

Household energy bills have climbed at almost twice the rate of inflation despite booming competition bringing an end to the dominance of the “Big Six” providers.

Families paid an average of £571 a year for electricity and gas in 1998, compared to £1,447 in 2018, according to data from industry analysts Cornwall Insight. This equates to an annual increase of 5pc a year, while inflation over the same period was 2.8pc.

This is despite the number of companies supplying energy ballooning from eight in 2007 to 61 last year.

More competition and also rising prices, hmm. So, what’s the explanation?

To distinguish between it just being more expensive to do whatever and market power, as above we can’t just look to prices. We need to look at the profits of those doing the providing. Cartels and monopolies have excess profits, participants in a competitive market do not.

And if we do that analysis – well, what’s the other thing people keep complaining about? Small companies trying to supply cheap ‘leccie keep going bust, don’t they? A great signifier of a competitive marketplace being that there’s no room underneath current prices to supply and also make a profit. Or, equally, if the cheap suppliers keep going bust then there are no excess profits to be competed away – we’re in a competitive market place because of the absence of those excess profits.

All of which leaves us just with why ‘leccie’s getting more expensive. The answer, the only possible one, is what government is doing to make ‘leccie more expensive. Killing coal plants, forcing suppliers to pay more for renewables and all that. Must be so ‘cuz it ain’t the capitalists and profits causing it.

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4 years ago

Dodgy maths there. 1447/571 is 2.534. That’s an annual increase of 4.3% not 5%. That’s some courageous rounding there.

And even that 571 -> 1447 looks wrong. When I get home I can nerdily dig out my old bills and check what I was actually paying 22 years ago, but I’m sure it’s not 2.5 times less than today.

Quentin Vole
Quentin Vole
4 years ago
Reply to  jgh

According to my trusty HP-42:
1447/571 = 2.534
2.534^(1/20) = 1.0476 or 4.76%

4 years ago
Reply to  Quentin Vole

Ah, I took 2020-1998 to be 22 years. 🙂

I’m sure I was paying 50-ish quid a month for ‘leccy in the 1990s, and I’m paying £54pm right now (I was doing my accounts at the weekend).

4 years ago

Luckily these government actions that raise the cost of electricity are the exception rather than the rule, since most government rules and regulations SAVE money, while improving our quality of life.


4 years ago

All of which leaves us just with why ‘leccie’s getting more expensive. The answer, the only possible one, is what government is doing to make ‘leccie more expensive

Correct. Yet Mr Worstall, you support their “something must be done or we’ll all die” mantra

Capitalist/Free market is not working as consumer forced to buy what they don’t want

The correct response to demands for green energy is same as organic, vegan etc food: you want it, you buy it; not everyone must buy it

Whatever You Want, you pay your money and make your choice

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