The referral of the sector to the Competition and Markets Authority (CMA) is just the latest interesting scene in a long running drama. It’s a drama that really began twenty years ago with privatisation: an experiment that has failed to deliver (like all privatisations, arguably) and is clearly not up to the very significant challenges ahead.
Bill payers are burdened and fed up with what they see as unfairly rising energy bills in an era of austerity, as well as the terrible customer service that seems to just be a part of the package. A lot of this has been amplified through the lens of the media. And this leads inexorably to the fairly new political interest in the issue, with an impending election adding to that dynamic… Little wonder that OFGEM have referred the industry to the CMA; the only surprise there was that it took the regulator six months to consider it, before doing what we all knew they would and should do. Whether the CMA investigation will prove to be productive remains to be seen, in two years time unfortunately.
We have a dysfunctional market, that’s beyond argument for me, but there are more issues at play here than just the need for greater retail competition. In fact, the focus from some politicians on competition as the absolute answer to rising energy bills is a red herring. It’s our dependency on fossil fuels which is driving energy bill prices up, aided along the way by the stealth taxes that have been applied to energy bills by successive governments (but by no government more than this one).
We need a way of keeping bills affordable for everyone, of ending our fossil fuel dependency and addressing climate change, as well as overhauling the whole concept of generation and supply of energy in Britain. These are big issues that need a long-term view, and long term solutions. In my opinion, a privatised energy industry is unable to meet these challenges – wedded as it is to short-termism and shareholder interests.
After twenty years, the impacts of privatisation have come home to roost: we have ageing infrastructure and a looming energy gap; our energy market is in largely foreign hands; the profits from the energy bills of our country are being paid to largely foreign shareholders, a great deal of which avoids even UK tax through transfer pricing and other offshore techniques, and there’s precious little left for the investment we need. This is a fundamental problem.
So how do we solve it? I see two options. The first is the most radical: renationalise the industry, bring it back into public ownership and make it operate in the interests of our country, our people and economy. With an energy sector funded by the public run for the public we could return to proper long term decision making and investment of energy bill money into the infrastructure that is so vital. It’s a big ask, I realise that.
The second option is what you might call proper regulation, as opposed to the version of regulation we’ve had to date, wherein the Big Six, and more recently some of the smaller guys, run rings round an under-resourced regulator. Energy supply is regulated in order to protect the public interest after all, so let’s have regulations that actually serve the public interest and a regulator that has teeth, and knows how to use them. Let’s reset the rules of competition so that there actually is a more level playing field; one that acknowledges the massive incumbent advantages of the Big Six and nullifies them; regulation that pays more than lip service to the word ‘competition’ and acknowledges that we need to fund infrastructure from within the industry; and that means from energy bills, with the proceeds of energy companies – an obligation to invest, no less.
At Ecotricity, we’ve shown that a significant level of investment in new energy is possible. We’ve invested more per capita than any other energy company in Britain for the last ten years. Our model is simple: we don’t have shareholders to worry about, so the money we make we reinvest in building new sources of renewable energy. We now generate around a third of the electricity we supply to our customers from our own sources of renewable energy. And the cost of wind energy simply does not go up. That gives us a greater degree of insulation from fluctuations in the wholesale energy market than perhaps any energy company in Britain. That’s the kind of energy independence we need in Britain. An independence from fossil fuels and the global markets that set their price, and from shareholders and their interests, which are irreconcilable with the interests of our country.
Investment in renewables, to the extent they come to dominate the grid, is the best and probably the only way to keep energy bills down in the long term. The era of fossil fuels is at the beginning of the end, coupled with our need to urgently address climate change – massive investment in Renewable energy is the logical conclusion.
And this chimes with public sentiment, too: as recent public opinion surveys show, Britons want more green energy and real action to tackle climate change; they want affordable energy bills; real service and honesty from the energy industry. Not too much to ask I think.
Unfortunately, our current government sees it differently, at least in respect of the first two issues, renewables and climate change. This greenest government ever has not lived up to the promise, and the latest Cabinet reshuffle has installed a new energy minister and a new environment secretary both of whom are opposed to green energy. I for one am glad an election is coming.
We are, after all, the Saudi Arabia of Wind and we need to make use of this and our other renewable resources to meet the unique challenges we face. In the first quarter of this year, one fifth of all electricity used in Britain was generated from renewable sources: that’s an indicator of how far we’ve come and how big the opportunity is.
There are so many opportunities across the sector, with significant technological advance, in renewables, in energy efficiency, in electric cars (which is a revolution in the making in itself) and in the smart grid which we need to stitch it all together. But we need an energy industry that’s in tune with the bigger picture, that’s fit for purpose, driven by evidence-based policy, long term strategy and immune from political cycles. After all, there’s no point in having a smart grid if you’ve got a dumb market, is there?
There are interesting times ahead for sure.
Also appears in Utility Week