Wood burning

[EnemyoftheStoat]

I'm not sure if the term first became familiar after the Mortgage default crisis in America of the early 2000s, resulting from such banking practices leaving unwitting mortgage holders sold a pup deep in negative equity, or if it applies to investing in so-called Hedge Funds. My investment portfolio manager tells me he does not go in for these in my case, given that I am governed within Moderate Risk terms!

Hedging is actually an established way for investment companies to protect against falls in the value of the portfolio, but the shall we say "inventive" uses of hedging tools by alternative investment funds (commonly known as "hedge funds") in more recent years are where it has got sticky.

A portfolio manager might balance investments in one industry with investments in another with a negative correlation, so if one falls, the other is very likely to rise, so the loss is offset. That's ok if you're taking a cautious approach (say you're retired or close to retirement and steady income is more important than speculating on gains). Another way to do this would be to insure your investment by means of "derivatives", and these are much used in the industry in various forms, futures and options being two of the relatively simple forms. "Hedge funds" allow themselves much greater latitude to use derivatives and can only generally be marketed to those who have money to burn.

Back to our (conventional) portfolio manager: he/she could use options to hedge (i.e. protect) the portfolio by buying an option to sell the investments at a set price if their value were to fall; the cost of the option (its "premium" - it's like an insurance premium) is small in relation to the insured value. Like your insurance premium, it's not used if it's not needed, and it's an acceptable expense for the protection it gives. Like the company that sells you insurance, the "writer" of the option has to come up with the contracted value of the investment even if it's now worth squat, but that's not your problem. The problem is that the loss on the wrong side of an option can be much, much greater than the amount invested.

Forwards and futures (essentially the same thing) are another derivative and have long been widely used in the commodities markets to lock in prices so you know now what you're going to have to pay (or what you will get for it) in several weeks, months or even years. Whatever the commodity - gas, oil, petrol, aviation fuel, wheat, orange juice, coffee, tea, copper, tin are just a few more common examples - there's probably a futures market for it somewhere. So here you're also "hedging" your future or forward commercial risk but again it's a case of protecting against price rises (if you're buying) or falls (if you're selling); it's not about speculative investment.

Normally regulated funds (such as Serial's) are strictly limited in the extent to which they can invest in derivatives for their own sake, but "hedge funds", which are unregulated and subject to much more stringent rules re. their marketing, will happily invest more of the fund value in derivatives, not just the simpler ones described here, but also some real brain-stranglers. Those are for another, very rainy, day.

[french frank]

Hedging is actually an established way for investment companies to protect against falls in the value of the portfolio, but the shall we say "inventive" uses of hedging tools by alternative investment funds (commonly known as "hedge funds") in more recent years are where it has got sticky.

Thank you for all that, Stoat. I was a little alarmed at the reaction to Good Energy's use of the word 'hedge' which I simply understand as keeping an eye on possible problems and seeking to compensate in advance before these become a reality. Last minute domestic "hedging" = stockpiling/panic buying.

Meanwhile, à propos my own woodburner, I do also have central heating, but failing getting a heat pump installed (not something you can "just order") I have been looking at electric boilers to replace my gas boiler, as gas boilers contribute to pollution and global warming. My supplier's electricity is sourced 100% by renewables whereas the gas (which they also supply) is only "carbon neutral" based on offsetting projects.

[oddoneout]

Thank you for all that, Stoat. I was a little alarmed at the reaction to Good Energy's use of the word 'hedge' which I simply understand as keeping an eye on possible problems and seeking to compensate in advance before these become a reality. Last minute domestic "hedging" = stockpiling/panic buying.

Meanwhile, à propos my own woodburner, I do also have central heating, but failing getting a heat pump installed (not something you can "just order") I have been looking at electric boilers to replace my gas boiler, as gas boilers contribute to pollution and global warming. My supplier's electricity is sourced 100% by renewables whereas the gas (which they also supply) is only "carbon neutral" based on offsetting projects.

The electricity is also a form of offsetting, in that what you use in your house is whatever the National Grid is delivering, which will be a mix of gas, nuclear, renewable and miscellaneous . Your supplier will feed into the grid an equivalent amount of renewables to match your consumption.
An acquaintance has a belt and braces set-up - PV panels with battery storage so a lot of the time her usage is totally "green" which helps to mitigate the oil CH - no gas connection in the village. Whether she will go down the route of electric heating I don't know. My son has gone down this route(PV plus battery) as well, although with a family and an equipment heavy home office there is more demand of the grid supply.

[french frank]

The electricity is also a form of offsetting, in that what you use in your house is whatever the National Grid is delivering, which will be a mix of gas, nuclear, renewable and miscellaneous . Your supplier will feed into the grid an equivalent amount of renewables to match your consumption.

I'm not sure that counts as "offsetting" within the common meaning. My supplier feeds into the grid the same amount of power in kWh as I pay for, either self-generated or bought directly from generating companies/organisations/individuals, so they aren't offsetting (as they are with the gas supplies). My own house isn't even correctly oriented to have solar panels, or my balance could be "in credit" . I think …

[oddoneout]

I'm not sure that counts as "offsetting" within the common meaning. My supplier feeds into the grid the same amount of power in kWh as I pay for, either self-generated or bought directly from generating companies/organisations/individuals, so they aren't offsetting (as they are with the gas supplies). My own house isn't even correctly oriented to have solar panels, or my balance could be "in credit" . I think …

That's why I said "a form of". It's a bugbear of mine that too many folk still think that by signing up to a "green"tariff they are then using "green" electricity, and the companies involved too often seem happy to allow that misunderstanding of the way the National Grid works to continue - not surprisingly since it works in their favour. Bad enough on an individual level but when, as happened last year, a local council and the local rag both think, and publicise, that locally generated electricity "powers local homes" that is not at all helpful.

[Dave2002]

Meanwhile, à propos my own woodburner, I do also have central heating, but failing getting a heat pump installed (not something you can "just order") I have been looking at electric boilers to replace my gas boiler, as gas boilers contribute to pollution and global warming. My supplier's electricity is sourced 100% by renewables whereas the gas (which they also supply) is only "carbon neutral" based on offsetting projects.

Unfortunately I think that you may find that using electricity for heating is not a simple solution - but with caveats. Electric boilers may just shift the pollution and CO2 problems you see to somewhere else - further back along the supply chain.

If the gas is available - for example as a by product of a "necessary" industrial process - then one might make a case for it. Not ideal, but natural gas contains a lot of methane which is a much greater threat to global warming than CO2 if allowed to escape, and that is converted to CO2 if burnt.

The notion of Zero carbon is another political dodge. What is often done is a reduction in the CO2 or CO2 equivalent gases in one part of the total, but that doesn't imply a "true" zero emissions approach.

If the electricity you use to heat your home is in some ways "green" then that would be OK - but with distribution losses, and infrastructure set up for distribution - then things get much less clear cut. Infrastructure is often ignored - so for example is rail travel really so much worse than air travel? The answer is probably yes for short distance travel, but the energy and greenhouse gas emissions involved in making a rail network might be very considerable - and be much larger than the emissions from just a few aircraft and the construction of a few airports. Using air routes for low density traffic might be a better option than building a rail system to serve the same routes.

Regarding electricity - in order for you to enjoy "clean and green" heating in your home the generating infrastructure required is likely to be very much larger than it is at present. If all cars are switched to EV, then I think the grid would not also be able to supply your heating. It could take a hundred or more years to set up the infrastructure to do that - unless perhaps nuclear power stations are built. Many people are against nuclear - though it is still an option in the UK.

Regarding suppliers claiming 100% renewable sources - I think that is doubtful, given the trading which goes on between suppliers. It's an illusion. However, there are moves towards better use of resources. Phasing out coal in favour of gas turbines has been a good move (gas turbines are more efficient than steam turbines) - and of course gas turbines themselves should be phased out as better renewable or sustainable sources are found.

Heat pumps are a good idea - if one is able to implement them - but they still use electricity. They "simply" raise the overall efficiency of electric heating so that perhaps 1 kW of input may give the equivalent of a 4 kW heater.

Offsetting is not a terrible concept, but often done badly - and sometimes can work out worse than not bothering. It's all very complicated.

[french frank]

Regarding suppliers claiming 100% renewable sources - I think that is doubtful, given the trading which goes on between suppliers.

Just on that point. There is no 'trading between suppliers'. My suppliers either generate it themselves (by owning solar and wind farms) or buying directly from mainly small scale UK generators (1900 of them): wind, solar, hydro or biogeneration.

[Dave2002]

Just on that point. There is no 'trading between suppliers'. My suppliers either generate it themselves (by owning solar and wind farms) or buying directly from mainly small scale UK generators (1900 of them): wind, solar, hydro or biogeneration.

I think there is - effectively - as there are connections within the grid. For example some of the electricity used in the UK is actually exported via a link (which recently failed) from France, where a high proportion of electricity is generated from nuclear sources. Unless you are connected to a private grid you cannot avoid this. The links between countries are used to "swap" electricity at times when demand is low in one compared to another, and there is some form of high level trading. Other links are to Scandinavian countries.

[ardcarp]

I haven't carefully read all the recent posts, but it's surely a mistake to think that the myriad small electricity and gas suppliers actually make the stuff and put it down your pipes and wires? The buying and selling of gas and electricity among this lot is surely a paperwork exercise?
(Sorry if that's been said before.)

[gradus]

Unfortunately I think that you may find that using electricity for heating is not a simple solution - but with caveats. Electric boilers may just shift the pollution and CO2 problems you see to somewhere else - further back along the supply chain.

If the gas is available - for example as a by product of a "necessary" industrial process - then one might make a case for it. Not ideal, but natural gas contains a lot of methane which is a much greater threat to global warming than CO2 if allowed to escape, and that is converted to CO2 if burnt.

The notion of Zero carbon is another political dodge. What is often done is a reduction in the CO2 or CO2 equivalent gases in one part of the total, but that doesn't imply a "true" zero emissions approach.

If the electricity you use to heat your home is in some ways "green" then that would be OK - but with distribution losses, and infrastructure set up for distribution - then things get much less clear cut. Infrastructure is often ignored - so for example is rail travel really so much worse than air travel? The answer is probably yes for short distance travel, but the energy and greenhouse gas emissions involved in making a rail network might be very considerable - and be much larger than the emissions from just a few aircraft and the construction of a few airports. Using air routes for low density traffic might be a better option than building a rail system to serve the same routes.

Regarding electricity - in order for you to enjoy "clean and green" heating in your home the generating infrastructure required is likely to be very much larger than it is at present. If all cars are switched to EV, then I think the grid would not also be able to supply your heating. It could take a hundred or more years to set up the infrastructure to do that - unless perhaps nuclear power stations are built. Many people are against nuclear - though it is still an option in the UK.

Regarding suppliers claiming 100% renewable sources - I think that is doubtful, given the trading which goes on between suppliers. It's an illusion. However, there are moves towards better use of resources. Phasing out coal in favour of gas turbines has been a good move (gas turbines are more efficient than steam turbines) - and of course gas turbines themselves should be phased out as better renewable or sustainable sources are found.

Heat pumps are a good idea - if one is able to implement them - but they still use electricity. They "simply" raise the overall efficiency of electric heating so that perhaps 1 kW of input may give the equivalent of a 4 kW heater.

Offsetting is not a terrible concept, but often done badly - and sometimes can work out worse than not bothering. It's all very complicated.

Is it feasible to generate enough power from home installations of PV panels, wind turbine etc to generate the power needed to run air/ground source systems? If not the partial answer might lie in more neighbourhood/community based energy projects that reduce the load on the national grid.

[french frank]

I haven't carefully read all the recent posts, but it's surely a mistake to think that the myriad small electricity and gas suppliers actually make the stuff and put it down your pipes and wires? The buying and selling of gas and electricity among this lot is surely a paperwork exercise?
(Sorry if that's been said before.)

I think there is - effectively - as there are connections within the grid. For example some of the electricity used in the UK is actually exported via a link (which recently failed) from France, where a high proportion of electricity is generated from nuclear sources. Unless you are connected to a private grid you cannot avoid this. The links between countries are used to "swap" electricity at times when demand is low in one compared to another, and there is some form of high level trading. Other links are to Scandinavian countries.

There isn't any suggestion that some how 'green electricity' is separated from the rest in the grid, and that green customers just get 'green electricity'. The point is that is that the supplier feeds into the grid the same amount (kWh) of renewably generated electricity as its own customers buy. And yes, the small generators are feeding into the grid their own hydro, solar and wind generated electricity. Where the 'trading' takes place is between larger companies who 'buy' surplus certificates from other large companies who have bought a greater amount of renewable energy than they have guaranteed to do.[It used to be about a certificated 4½% of their output. I would hope it was more now.]

[oddoneout]

I think there is - effectively - as there are connections within the grid. For example some of the electricity used in the UK is actually exported via a link (which recently failed) from France, where a high proportion of electricity is generated from nuclear sources. Unless you are connected to a private grid you cannot avoid this. The links between countries are used to "swap" electricity at times when demand is low in one compared to another, and there is some form of high level trading.
Other links are to Scandinavian countries.

Imported!
I came across this fact (previously unknown to me) a couple of years ago when I was challenging a suppliers advert that claimed to be locally produced (it also shoehorned in the renewable bit but stopped short of organic, just letting the bucolic picture of gambolling creatures in a pastoral background imply it...) and was told they could make that claim because all the power they supplied to the grid was generated in the UK and not imported from abroad. Doesn't mean their customers won't be using nasty foreign muck of course but that's not their concern when touting for those customers.

[french frank]

Imported!

Probably not surprising that EDF has the largest percentage of nuclear energy (72% last year) - scroll down for chart. British Gas was best for renewables (56%) but all the others have significant reliance on natural gas - except EDF!

[oddoneout]

There isn't any suggestion that some how 'green electricity' is separated from the rest in the grid, and that green customers just get 'green electricity'. The point is that is that the supplier feeds into the grid the same amount (kWh) of renewably generated electricity as its own customers buy. And yes, the small generators are feeding into the grid their own hydro, solar and wind generated electricity. Where the 'trading' takes place is between larger companies who 'buy' surplus certificates from other large companies who have bought a greater amount of renewable energy than they have guaranteed to do.[It used to be about a certificated 4½% of their output. I would hope it was more now.]

Neither was there (and mostly still isn't) any very clear explanation of the way the National Grid works such that far too many people took the "we supply 100% renewable/green electricity" at face value and assumed that what they were using was green. It was seen as the equivalent of choice at the petrol pump where different sorts come out of different pumps.Otherwise intelligent seeming folk would say that because they were on a green tariff their electricity consumption was guilt free and it didn't matter to the environment how much they used.
Understanding has increased but the facts are still as far as I can make out carefully tucked away, either as very small print at the bottom of reams of info that the companies know most won't plough through or as the likes of pdfs that you have to know how to find on their website - what section to look in and what titles to look for. Not so long ago when exploring alternative tariffs I sent repeated requests to one company asking at what point a new customer would be told that the electricity they were using and paying for was not 100% green as the advertising and sign up info all but said. I got no answer and the one person I managed to speak to sounded suspiciously as if she believed the "100% green to the home" myth and terminated the exchange rather quickly.
From what I can make out of the ASA stance on the matter it seems to boil down to an assumption that most people know how the National Grid and electricity supply companies operate in this country and so will not misinterpret the claims of "we supply 100% renewables" if they appear without explanation of what that means.
The risk is that when people feel they have been deceived by greenwashing that makes them suspicious of everything and inclined to disengage from the whole enviro/climate change/eco issue altogether.

[french frank]

Neither was there (and mostly still isn't) any very clear explanation of the way the National Grid works such that far too many people took the "we supply 100% renewable/green electricity" at face value and assumed that what they were using was green.

Is it so difficult to explain that the generating companies (hydro, solar, wind) feed into the grid 100% renewable/green electricity. And we - your 'retail' supplier - pay them for, or buy, that electricity; you, in turn - the customer - pay us. Just because a fresh mountain stream feeds directly into a chlorinated swimming pool doesn't mean that any of the swimming pool water is fit to drink

I think the kind of customer who is prepared to pay a premium for 'guaranteed' green electricity is the kind of person who understands that. On numerous occasions I've had to explain to power companies touting for new customers that I'm not interested in the cheapest deal. Customers are also notified now and again that they can become shareholders. If they take up the offer, they're not expecting to make money out of it ("The value of your investment can go up or down"). They do it for the ideal.