As the political parties argue over the price of energy, time is running out to prevent a major shortage very soon, writes Alf Young
On the BBC’s Question Time this week, the most sustained audience applause greeted a call for the UK’s Big Six energy companies to be renationalised. It came from 25-year-old Paris Lees, a journalist and activist. Paris was also the programme’s first transgender panellist. Her power surge left the three political suits, sitting beside her, struggling to get across the softly, softly interventions their parties are proposing.
It’s not hard to see why people feel they’ve had enough. Or why so much of the public opprobrium that, since 2008, has been heaped on failed UK banks, is now being dumped on those who bring most of us our supplies of gas and electricity. The Office for National Statistics (ONS) has just produced an analysis that tries to quantify what’s happening.
The historical record since 1955 shows that, on average, growth in real household income has been stronger year-on-year than growth in national output. Rising prosperity was indeed the post-war norm. However, post-crash, since the third quarter of 2009, real household disposable incomes have flatlined. While the share of that income required to purchase essentials, like keeping our homes powered and warm, keeps on rising.
In 2003, household essentials swallowed up 19.9 per cent of the average family income. This year, says the ONS, they account for 27. per cent. Gas’s share has doubled. Electricity’s is up by half. By way of contrast, the slice that goes to buying fuel for our cars has barely moved. How can that be when petrol and diesel have topped 130p a litre? Probably because it’s easier to cut down on inessential car journeys than it is to stop heating and lighting our homes.
With further near double-digit tariff increases planned, the Big Six domestic energy suppliers were called before the energy select committee at Westminster this week to explain themselves. Only one sent its chief executive. When I started covering the energy sector, before privatisation, in the early 1980s, utilities, like the old South of Scotland Electricity Board (SSEB) and the Hydro Board, were all run by engineers.
What a contrast to the six men who faced MPs on Tuesday. One used to grow roses. Another, a lawyer, had previously worked in retail with big high street chains like Debenhams. A third joined his group just last year from an international hotel group. Another switched from the brewing industry. Only two are what you might call energy sector specialists, one principally in the oil industry, the other with his current employer for almost two decades.
Of course, the pre-privatisation engineers had their weaknesses. Being engineers, they were always keen to build more kit, even when the customer demand wasn’t there to justify the additional generating capacity. The SSEB started building the oil-fired Inverkip power station in 1970, just before the Arab/Israeli conflict sent the price of oil soaring. Apart from being pressed into service briefly during the miners’ strike, a decade later, Inverkip was mothballed for decades. Its landmark chimney was finally demolished this July.
Unabashed by the presence of one white elephant on its books, SSEB lobbied hard to be allowed to build a new nuclear station, at Torness, near Dunbar. I took some stick from its high command, at the time, for questioning where the increased power demand was coming from to justify that investment. Across Scotland old and some not-so-old power-hungry industries were beginning to disappear all around us. But SSEB’s engineers prevailed. Torness’s two gas-cooled reactors were commissioned in 1988.
The strategic foresight of SSEB’s top engineers may have proved less than 20:20. But, at least, Scotland could generate more than enough electricity for its own needs. And surplus output could always be exported south. Now, the other side of the privatisation of the entire UK energy industry, it’s a different story.
Scotland’s First Minister sounded surprised on Thursday, when he told Holyrood of a meeting he’d had the day before with the industry regulator Ofgem. He’d been shown some figures that were “extremely frightening”. Over the next two winters, a lack of margin in supply over demand for electricity “could result in brownouts”, even “blackouts”, Alex Salmond told MSPs. If nothing is done to address that supply margin, he went on, “prices will increase exponentially as people try desperately to get that last kilowatt of electricity”.
I’m surprised at the First Minister’s surprise. The threat of power blackouts over the next few years has been widely debated for many, many months now, as older carbon-intensive generating plant is phased out, while new base-load generating capacity is very slow to appear. The proposed new Hinkley Point C nuclear station in Somerset won’t be commissioned for at least a decade. And, of course, the SNP has decreed there will be no successor in Scotland to Torness.
Mr Salmond claims he and his party “have real, thought-out ideas for getting the energy market under some sort of control”. What are they? We know he’s commissioned an expert group, along the lines of his fiscal commission, to advise on what energy industry regulation might look like in an independent Scotland. We know his deputy has backed the Big Six suppliers in their call for green levies on customer bills to be shifted on to general taxation.
But what ideas does he have for banishing that “frightening” prospect of the lights going out at some point over the next two years? I know his government has no devolved responsibility for energy policy. However, two of the Big Six are headquartered here in Scotland. Both SSE and ScottishPower have been vertically integrated (encompassing everything from generation to domestic supply) since they were still state-owned.
Despite the Westminster coalition’s claims that Labour created the Big Six, ScottishPower made its big move into England, acquiring Manweb, in 1995, when John Major was still in Downing Street. And the old Scottish Hydro acquired Southern Electric in 1998, just after Labour first came to power. Swalec followed in 2000, then a package of generating assets south of the Border, and moved into Ireland. SSE is second only to British Gas in the number of customers its supplies.
But as the SSE executive who faced MPs this week explained, SSE typically sells all the energy it generates into the UK wholesale market and independently buys back what it needs to supply its own customers. That appears to be the typical approach. It suggests that none of the Six feels any obligation to develop new generating capacity unless the incentives to do so are sufficiently generous or the supply crunch Salmond has been talking about materialises.
The strategic need to keep the lights on appears to someone else’s problem. But who is going to take ownership of that? Persuading more people to switch suppliers doesn’t quite match that challenge. Even Ed Miliband’s promised price freeze if Labour is elected, while it’s made the political weather for weeks, doesn’t quite cut it either. We need some bold new thinking about the structural weaknesses of the present set-up. Whether reform is possible or break-up inevitable, political parties squabbling about which of them’s to blame for what won’t keep anyone warm this winter.