Because electricity prices cannot be left to false “free markets”.

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Over the past two years, the price of electricity has increased astronomically in Europe: four times over the previous year and 10 times over the past two years.

The European Union (EU) has said that this price increase is due to the increase in the price of gas on the international market and the fact that Russia does not supply enough gas.

This raises a critical question: Why, for example, would the price of electricity in Germany rise fourfold when natural gas contributes about one-seventh of its electricity production?

Why does the UK, which generates 40% of its electricity from renewables and nuclear plants and produces half of the natural gas it consumes, also see a steep rise in the price of electricity?

All these speeches blaming Russia for the recent rise in gas prices mask the reality that the electricity producers are actually making astronomical profits. Poorer consumers, already cornered by the pandemic, are faced with a cruel dilemma: with electricity bills that could represent 20-30% of their family budget during the winter, they have to buy food or keep their their homes warm?

This sharp rise in electricity prices is the other side of the coin of the so-called “market reforms” in the electricity sector that have taken place over the past 30 years.

The cost of electricity is pegged to the most expensive supply to the grid in daily and hourly auctions. It is currently natural gas, which is why electricity prices are rising sharply even though gas is not the main Source of electricity supply to the network.

This is market fundamentalism, or what neoclassical economists call it marginal utility theory. This is part of the electricity sector reforms introduced by Augusto Pinochet in Chile during his military dictatorship from 1973 to 1990. The guru of these Pinochet reforms was Milton Friedman, assisted by his Chicago Boys.

The principle that the price of electricity should be based on its “marginal price” even became part of Pinochet’s 1980 Chilean constitution. Chilean reforms led to the privatization of the country’s electricity sector, which was the goal of launching these reforms.

It was the Chilean model that was copied by Margaret Thatcher in the UK and then by the EU. The UK dismantled the Central Electricity Generating Board (CEGB) which managed the entire electricity infrastructure: generation, transmission and wholesale distribution.

This move also helped the UK to ditch domestic coal for its thermal power plants, breaking up the powerful coal miners’ union. These were also Enron’s “market reforms” in California, which led to the collapse of the power grid in the summer of 2000-2001.

The European Union has focused heavily on natural gas as its preferred fuel to reduce greenhouse gas emissions; it also increased renewable energy sources – solar and wind – and phased out lignite and coal.

The EU has imposed a series of sanctions on Russia, made public its plans to impose further sanctions on the country, and seized around € 300 billion of Russian reserves held in EU banks. The EU has also said it will reduce Russia’s oil and gas supplies.

Unsurprisingly, Russia has drastically reduced its gas supplies to the EU. If the West thought it could arm its financial power, why did it think Russia would not retaliate by doing the same with its gas supplies to the EU?

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Due to the decline in Russian natural gas supplies to Western Europe, the price of LNG has increased significantly on the international market. Worse still, there is not enough LNG available on the market to replace the gas that Russia supplied the EU through its pipelines.

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With the price of gas rising four to six times in recent months, the price of electricity has also risen sharply. But since only a fraction of the electricity is powered by gas, all other energy sources – wind, solar, nuclear, hydro, and even dirty coal-fired power plants – are making a splash.

Only now are the EU and the UK discussing how to address the burden of high electricity prices for consumers and the unexpected profits made by electricity producers during this period.

It is not just EU and UK consumers who are affected. They are also the European and British industries. Stainless steel, fertilizers, glass production, aluminum, cement and the mechanical industry are all sectors sensitive to the cost of inputs. As a result, all of these industries are in danger of closing down in the EU and the UK.

Former Greek Finance Minister Yanis Varoufakis, in his article “Time to blow up the electricity markets“, He writes:”The electricity sector in the European Union is a good example of what market fundamentalism has done to power grids around the world… Time to close simulated electricity markets“. The rest of the world would do well not to follow the EU’s example.

Why then is the central government of Indian Prime Minister Narendra Modi rushing into this abyss? He hasn’t learned from last year’s experience when, following a coal shortage, spot market prices for electricity soared to 20 rupees ($ 0.25) per unit, before public outcry limited them to 12 rupees ($ 0.15)?

So why push again for these failed market fundamentalist policies under the guise of electricity reforms? Who will benefit from these market reforms?

Certainly neither the consumers nor the governments of the Indian states, who bear the greater burden of subsidizing electricity prices for their consumers.

* from Independent Media Institute

September 18, 2022 – © Reproduction possible BEHIND EXPRESS CONSENT of the EDITORIAL of COUNTERPLANE

Last edit: September 17, 2022, 11:21 am

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The article is in Italian

Tags: electricity prices left false free markets

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