Ed Miliband made a headline grabbing speech this week – the bit that grabbed my attention, and that of much of the media, was the promise to freeze energy prices for 20 months and ‘reset the energy market’.
It’s hard to argue with the premise that there’s something wrong with the energy market – the mostly foreign owned privatised Oligopoly that has a 97% market share and perhaps an inversely proportional share of public trust.
I believe that there’s a fundamental mismatch between the needs of society and those of private companies. A clash between the need to re-invest and the need to pay dividends. I think privatisation is therefore at the root of the problem. It worked well enough while the new private energy companies could operate (quite profitably) the assets built by public money, but stumbles when those assets need renewal.
In energy (not uniquely) we need to take a long-term view; 20 to 30 even 50 years out. Private businesses, even public private businesses (PLCs) just aren’t geared for that kind of commitment.
Would we have the National energy grid that we have now, or the core generation fleet, if it were left to private enterprise to build it? I think we definitely would not.
It is the same for other sectors, which deliver fundamental needs and need to do so on a universal basis – it requires a long term view and a degree of altruism simply absent from (most) private business, but especially the large ones.
In the energy sector we have another problem – the one of foreign ownership. While it might sound good in principle, free market/globalisation principle, to open up British Businesses to foreign ownership – in practice it has real drawbacks, especially when it’s businesses engaged in providing such fundamental needs as energy.
Two thirds of our Big Six energy suppliers are foreign owned. Their investment priorities are set from elsewhere – they cannot be Britain centric. Their parent companies will direct their capital to the markets with the best rates of return – for that read highest retail prices.
It’s worse still with the other part of the energy industry that goes largely unseen – those companies that operate the wires – the grid. These are some 85% foreign owned and they are making typically 30% profit margins for running the wires that were built with public money. And that profit, that margin from our energy bills flows out of Britain – instead of into new energy infrastructure. It’s an issue we highlighted in this post.
My view is that Ed should consider the nuclear option – no not that one – the Renationalisation one.
That’s a big ask – but a nationalised industry would be best placed to make the long term investment we need, could borrow at super low rates available to the government and would be able to control prices far more directly itself.
There is an alternative and it looks like the one under consideration – actual proper regulation of the Energy industry – something that’s been absent since privatisation in my opinion.
After all, we energy suppliers are licenced to be so by the government – the government does get to set the rules.
Those rules should make investment in new infrastructure a licence condition, and they should tightly regulate profit margins – and thereby prices. It’s something that appears to work in the water sector – another privatised industry, but this time an actual monopoly.
What we need is to harness the energy bills of Britain, and use them to build the energy infrastructure that we need, and the next generations will need. Something a government is uniquely placed to make happen.
The model that Ecotricity pursues we call ‘bills into mills’ – it sees us spend about ten times more per customer, each year (on average for the last nine years) building new sources of green energy – than any of the Big Six.
If this were done on a National scale we Britons could raise the investment needed from our own energy bills, and by building our own sources of renewable energy, detach ourselves from the inexorable rise in costs of fossil fuels. Proper regulation could achieve this.
We currently have a system that harnesses the energy bills of Britain, largely for the benefit of overseas organisations, who will invest in what Britain needs, to an extent, but for a ‘return’ – and only if the government does not upset them – as Ed Miliband has this week. Witness the threats of blackouts and an end to investment that swiftly followed his speech. Ironically it’s like a threat to go on strike by the energy companies – quite a turnaround from the 70’s.
I think he’s right to take this sector on, but I’d urge a root and branch approach – even nationalisation. And it will no doubt be a battle.
On energy prices though we need to be honest with ourselves, fossil fuels will only become more expensive over time and while we rely on them our energy bills will only go up – Big Six or not. The only real way to lower our energy bills is to become energy independent – to make our own energy from Britain’s abundant renewable sources.
EDIT: There have since been a number of articles published by others with a similar theme:
Owen Jones in the Independent “Rising energy costs: the bullies at the Big Six must be stood up to”
John Harris in the Guardian “Hinkley Point nuclear power station: a new type of nationalisation”
Kevin McCullough in the Times (paywalled) “Nationalise energy assets owned by foreigners”