Rick Kelsey (2:56)

in East Africa, in a country that does not rely on gas to have some of the cheapest electricity in the world. And is this why you decided to start this business in Ethiopia? Just because of the access that gave you because of electricity?

Yuma Sasaki (3:12)

Yes, that's one of the main reasons that I chose Ethiopia.

Rick Kelsey (3:15)

This is Business Daily with Rick Kelsey on how the cost of power is so often driven by natural gas and how we might change it. The effect on your bank balance from the war in the Middle east depends on where you live. What we have learned is the ability of one block stretch of water in the Middle east to push up energy and the price of transporting food and products around around the world. Our world is facing the greatest global energy security challenge in the history. It is much bigger than what we had in the 1970s, the oil price shocks. It is also bigger than the natural gas price shock we have experienced after Russia's invasion of Ukraine. Dr. Faith Birol is the Executive Director of the International Energy Agency. The rationing of petrol, increased inflation and governments intervening in the cost of people's energy bills are all being driven by two fossil fuels, oil and gas. Natural gas, often in liquefied form, called lng, is what sets the price of many countries electricity bills. The gas makes up the last part of a country's required grid power when renewables or nuclear can't provide it. So why has the war in the Middle east made such a difference? Anne Sophie Corbeau is from the Centre for Global Energy Policy in France. Her research looks at the world's most challenging energy and climate problems.

Anne Sophie Corbeau (4:49)

Most of the energy which is transiting through the Strait of Hormuz is actually going to Asia, in particular China, India, Pakistan, Bangladesh, but also countries such as Japan, Korea and Taiwan. And in Europe, including the United Kingdom, we are only receiving a little bit of Qatar energy. However, the prices in Europe are spot prices, which means they reflect supply and demand balances. And because we are importing region, well, therefore we are in competition with the global world. The market was already tight late February before the war started, but now it's even tighter.

Rick Kelsey (5:26)

I think it's quite difficult for some people to understand in Europe when they see so many wind turbines off the coast from their homes and the amount of renewable electricity that is created in places like Spain and Portugal, how gas can still dominate the price of the power so much.

Anne Sophie Corbeau (5:48)

It's actually, I mean, an economic principle which is not very specific to the electricity market. This is basically based on the plant which is at the margin. So you have to Imagine, if you want to explain that very simply, that your demand is at a certain level and you are stacking up all the resources that you have in terms of electricity. So you are stacking up nuclear, hydro, wind, solar, et cetera. And each of them has a price. And of course, then comes our gas power plant. And when gas prices are high, well, so is the price of the electricity generated by the gas power plant. And this one, depending on the level of demand, is usually coming up and coming up last. And therefore this is driving up gas prices. But this is an economic principle which is not unique to the electricity market and which has been functioning relatively fine because nobody actually had noticed that up until, well, 2021 when gas prices started to increase. And then people realize, ah, why do we have that? But it happened before, you know.

Rick Kelsey (6:57)

Yeah, yeah, but it happened before. It happened four years ago. So why, why haven't we fixed it?

Anne Sophie Corbeau (7:03)

Because it's not very easy to actually fix that. I mean, people have been looking at different types of solutions, such as pps, such as cfd, contract for differences, but to some extent there has not been a magical solution provided by the European authorities. And also I think maybe they stopped because they thought, well, there is so much gas supply, LNG supply, which is coming to the market by 2025, 2026, that gas prices are going to come down. And then problem solved. Nobody was expecting, of course, a crisis that we are seeing now.

Rick Kelsey (7:43)

And Sophie Cabot mentioning lng, there's been loads of it available until recently. This is gas that is liquefied and transported around the world on enormous ships. It comes in big numbers from the US and Qatar. Qatar's main gas facility has been bombed heavily this year, limiting supply. The US is actually making big money from shipping more LNG around the world at higher prices. That's down to fracking. High pressure water and sand blasted into rock to release energy.

Anne Sophie Corbeau (8:15)

You have a problem with a nuclear power plant. What comes to the rescue? Natural gas. If you have low hydro, what comes to the rescue? Natural gas. So natural gas is still kind of useful and is also providing the sort of flexibility which is not always easy to provide with batteries. Batteries, they are very good when we are talking about hours and maybe day, but when you are talking about a longer period when the renewable electricity is less available, then natural gas is coming to the rescue. So we need to think about solutions which are involving both the supply side, but also maybe the demand side. So also consumers being more responsive to price signals.

Rick Kelsey (9:02)

This feels like there is a battle coming to a head after so many different European countries and South Asian countries have, have pledged to become more renewable, focused and use gas less. But actually at times of war, the vital source of gas to keep our economies going is not going to go away. So there is going to be a demand for countries to return to extracting more gas, which is a battle with the environmentalists that we've been talking about for the last 20, 30 years.

Anne Sophie Corbeau (9:42)

I am sure that this is a battle which is happening in the United Kingdom. I am sure this is a battle which may come back in my home country, which has actually been even looking at whether we have shared gas resources because we were supposed to have some. I think generally speaking, I mean, you need to think about, okay, if we have our own gas, then that means that we are importing less from the rest of the world, which may to some extent shield us a little bit from the external shocks.

Rick Kelsey (10:13)

And Sophie, thank you so much for coming on the program.

Anne Sophie Corbeau (10:16)

Thank you for inviting me.

Rick Kelsey (10:18)

You're listening to Business Daily from the BBC World Service on how gas prices are affecting our bills.

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Rick Kelsey (10:54)

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Rick Kelsey (10:59)

trendy from breaking news to shareable jokes, pop culture bites to viral food spots, it's all on TikTok. Download TikTok now to explore. Germany has some of the cheapest electricity to produce thanks to wind and solar. It has the largest total capacity in Europe. But some of the most expensive electricity to buy. It doesn't seem to add up. Dr. Leon Hirth is a professor of energy policy at Herti School, a Berlin based public policy school, and founder and director of neon, an energy economics consulting firm.

Dr. Leon Hirth (11:40)

So electricity markets work just like all other commodity markets. The markets for crude oil or bananas or coffee beans, the last producer that's necessary to serve demand determines the price, the so called marginal cost for electricity. That's often natural gas plants. So it's true that we have some wind turbines running and maybe some nuclear plants. I mean not in Germany, but depending on where you are, but they are not enough to serve all electricity demand. So coal plants must come in. So mostly it's natural gas fired plants that are necessary and they're sort of the market needs to offer them a price in order to make them run.

Rick Kelsey (12:14)

Leon, you hear so much, don't you, on, on chat forums and on social media and why don't we just break the link? Why don't we just say, you know, let's decouple it, let's remove the gas price from electricity prices. Why don't we?

Dr. Leon Hirth (12:30)

Well, many people say that, but I think few people understand what they actually mean by this or can articulate this. Right? So let's imagine the cost of producing gas from a gas for producing electricity from a gas fired power station is £100 per megawatt hour, which is a realistic price level. That includes the cost of burning the gas, of buying the gas to be burned. It also includes the cost of carbon permits that you use to run the plant. So what if we would say by government law or public action, you don't pay them 100, we only pay them 50, they would not be producing. Right? They can't produce because they couldn't be paying for the gas that they need to buy to burn it. So we wouldn't lack, we would lack the electricity that we need. So, so the hundred euros or the 100 pounds in this example are necessary to make the power stations that we need actually produce.

Rick Kelsey (13:22)

It's, it's a strange concept though, isn't it? People would naturally think is the system not broken when if a war happens like it has in 2026, one strait of water in the Middle east can have knock on effects that shut down a chip shop in Scotland or a burger restaurant in Germany.

Dr. Leon Hirth (13:45)

That's the world economy I guess, right? I mean we are. The reason why this has so so far reaching knock on effect is because we' using for many, many years, 50 years and more, we've been using fossil fuels from that region on very large scale, right? Our economy runs on gas and oil from the Middle east not only, but to very substantial degree. And that means if that oil and gas is not coming, we got a problem. And that's economically expressed as prices going up. The obvious way, the long term but obvious way to get out of this dilemma is to, to sort of get rid of the necessity to import these fossil fuel fuels in this, in this large degree. In other words, to produce more electricity domestically. Right? Then we're not, then we're not facing that kind of Uncertainty and threats.

Rick Kelsey (14:35)

But will it not always be the case if the very last unit of the power price is set by gas, that will always be paying too much, no matter how much renewables we put onto individual countries own electricity grids, because we'll always need that, I don't know, 1, 2, 3, 4% of gas to balance the grid.

Dr. Leon Hirth (15:00)

So there's one truly important thing to know about electricity markets is that these markets don't work on an annual basis. So it's not that the price is determined once per year and then holds for everyone for the entire year. It's done on a very granular way very frequently. So in the UK it's every 30 minutes, in Europe it's every 15 minutes. So across the EU, every 15 minutes a new price is determined. And of course there's many times when we don't need gas plants. Right? For example, you're talking about this here. We're recording this at noon and we have plenty of solar here in Germany and I guess the same same in the uk. So at this very moment we don't need a single gas plant running and hence the price is maybe way lower than the price required to make a gas plant run.

Rick Kelsey (15:44)

Leon Hirth there in Germany, for many countries, LNG is here to stay, not as a competitor to renewables, but as the backbone of a stable energy system. Some countries, though, do not have gas as that backbone to their system. Ethiopia is known to act as the Power bank of East Africa. It exports its surplus hydropower to earn much needed foreign currency. It's not completely immune from the war in the Middle east, but it has some of the cheapest electricity in the world for those who are connected to the grid. And it's not reliant on natural gas. This is an electric motorbike shop in the capital, Addis Ababa. One of the workers is changing an electric motorbike battery. It only takes a few seconds. The old ones recharge cheaply on a rack behind him. Yuma Sasaki is founder and CEO of Dodai EV Bikes.

Yuma Sasaki (16:45)

You need to move around. So electricity, how affordable compared to gasoline? Like the scale of 20 to 50 times, not percent times. So it's significantly cheaper.

Rick Kelsey (16:58)

Yuma has 100 local Ethiopian employees and has been going for three years. He's originally from Japan and chose Ethiopia for a reason.

Yuma Sasaki (17:07)

Like most of people, you even don't have a sense of electricity bill because it's so cheap that landlord even doesn't care. That's how cheap it is.

Rick Kelsey (17:18)

And is this why you decided to start this business in Ethiopia just because of the access that gave you because of electricity?

Yuma Sasaki (17:25)

Yes, that's one of the main reasons that I chose Ethiopia.

Rick Kelsey (17:30)

And this is down to hydropower Yuma, isn't it? And what's going on in Ethiopia? They've just built the biggest dam in Africa that's recently gone live. It's Africa's second most populated nation. It has an enormous access to hydropower. And that power gets delivered outside of Ethiopia as well.

Yuma Sasaki (17:52)

Yeah, that's absolutely correct. And at the macro level, Ethiopia, we have the surplus. So we're selling to neighboring countries such as Djibouti, Kenya and in South Sudan, of course there's some distribution issue. So sometimes power outage happens from time to time. But in general, yes, it has surplus and that's why electricity is so cheap.

Rick Kelsey (18:19)

And you as an entrepreneur, our countries who generate so much of their own electricity across Africa, are these places that have hydropower, are they best for business? Are they the places that you're looking

Yuma Sasaki (18:34)

to expand it in terms of e mobility? That's one of like three to five most important points. But that's not the only reason that's necessary for you to choose the market. Right. Business friendliness, the talents, the market size, a couple of things as well. But yeah, also the one thing is very important is the difference the delta between electricity price versus gasoline. Right. If gasoline is significantly cheaper, there's no point for people economically reason to move to electricity here Ethiopia, good or bad, it's inland and it's so expensive, the gasoline because you have to bring, import and then bring from the coastal to Ethiopia. That's why it makes sense for people to move to electricity.

Rick Kelsey (19:27)

Yuma Sasaki in Ethiopia, this is unlikely to be the last war to create a surge in power prices. Many countries are now trying to reduce their reliance on gas to set the price for so much of the day. And there will be more pressure on governments to have gas locally when needed to reduce spikes in in prices. Thanks for listening to Business Daily on gas prices and power with me, Rick Kelsey.

Liberty Mutual Advertiser (20:01)

Liberty Mutual customizes your car and home insurance. And now we're customizing this rush hour ad to keep you calm, which could help your driving. And science says therapy is great for a healthy mindset. So enjoy this 14 second session on us. I think you've done everything right and absolutely nothing wrong. In fact, anything that hasn't gone your way could probably be blamed on your father not being emotionally available because his father wasn't emotionally available and so on. And now that you're calm and healing. You're probably driving better, too.

Rick Kelsey (20:28)

Liberty. Liberty. Liberty. Liberty.