Energy prices and policy are geared to the needs of the Big Six. Consumers can’t sit idly by on this matter, writes Brian Wilson
Beneath the argument over energy prices lies a neglected reality. There are a small number of services which are so essential that no government can risk leaving them to the mercy of the free market.
The supply of gas and electricity – these being the prerequisites for heat, light and sustenance – is among them. Thus the question is not whether government can intervene in order to safeguard their availability. The matters of political judgment lie in “how” and “when”.
Once that is understood, much of the reaction to Ed Miliband’s speech last week borders on the ridiculous. If it is doctrinaire socialism to say that government has a responsibility not only to keep the nation’s lights on but to ensure that families can afford to do the same, then bring it on.
Of course, it is no such thing. Indeed, the whole structure of privatisation is supposed to contain the checks and balances that Miliband highlighted. The scandal is not that these are outrageous affronts to the free market so much as the fact that supposed safeguards have fallen into disuse. Consumers have become the defenceless victims of this negligence.
Take the question of power generation companies and retail suppliers being kept as separate entities. Except in Scotland, to which I will return, this was precisely the theory of privatisation in 1990. However, it was quickly abandoned for reasons that are worth remembering when the Big Six threaten us with power cuts.
At the time of privatisation, the UK electricity market was in a healthy state of over-supply which had made sense within a state-owned system with the sole raison d’etre of maintaining security of supply at affordable cost. What this meant, however, was that electricity was cheap and the private generators soon found it insufficiently lucrative.
Their response, by the mid-90s, was to start buying up retail companies – which was supposed to be against the rules of privatisation. In the face of the usual threats, these were quickly set aside and vertical integration became the norm. Cross-subsidy between generation and highly profitable retailing kept the shareholders happy while excess generation capacity was driven out of the system without being replaced.
That is why the Big Six can now threaten us with power cuts and an investment strike if their right to increase prices to consumers, as they see fit, is impeded. That is an unacceptable threat for any society to be faced with, and Miliband’s declaration has acted as a wake-up call which will continue to reverberate far beyond the Labour Party conference.
In a few weeks, the Big Six – unless they now decide that discretion is the better part of valour – are expected to announce another double-digit increase. They will not, of course, do it in unison. Rather, the six announcements will be staggered over a few weeks. They have had years to practise the choreography but it all leads to the same place. Another million or so people will be pushed into fuel poverty.
The position in Scotland is historically different but certainly no better. At the time of privatisation, a special dispensation was argued for by the Scottish Office. Because both ScottishPower and the old Hydro Board were well-regarded, trusted companies, it sweetened the privatisation pill to allow vertical integration from the outset. However, the result has been to give them even stronger monopolies within the markets they inherited.
And there has been another capricious consequence. At that time, nobody was talking about expanding the grid to bring renewables online. When this came along, ScottishPower and SSE found themselves in a dual role that money could not have bought – major generators and infrastructure companies within Scotland, with only “Chinese walls” to separate these roles. That creates a conflict of interest which is long overdue for review.
But where is the renewables industry heading in the midst of all the angst about prices? It always has to be borne in mind that 90 per cent of the investment in Scottish renewables is borne by consumers in England. That is why, a decade ago, we put in place the British Electricity Trading and Transmission Arrangements which created both the infrastructure and single market to facilitate exports.
That still makes sense under present conditions. Whether it would withstand the division of that market into separate states is another question and one of the key uncertainties affecting investment decisions. The more controversial the issue of energy prices becomes, the more subsidies to renewables will be called into question. Creating two separate states would certainly not help with the answers.
I have always supported development of renewables while arguing for a balanced energy policy, in Scotland and the UK as a whole. In Scotland, we are now looking dangerously imbalanced. Cockenzie is closed. Peterhead is operating well below capacity. Hunterston is living on borrowed time. Longannet’s future is uncertain. Ironically, if it wasn’t for nuclear – so despised by the Scottish Government – we would already be a major importer of electricity, as we are certain to be.
Meanwhile, all the glowing press releases in Christendom will not conceal the fact that the target of generating 100 per cent equivalent of Scotland’s electricity from renewables by 2020 looks increasingly fanciful. The recent report by Audit Scotland shed some welcome light on the gap between rhetoric and reality. The whole concept depends on vast, unproven assumptions about what offshore wind will deliver and at present there is no certainty that it will deliver anything very much in Scottish waters.
Meanwhile, the promised jobs from renewables are lagging far behind the 40,000 which the Scottish Government promised.
It is joined at the hip with the energy companies, and in particular Iberdrola, which owns ScottishPower, in a pact of mutual convenience. ScottishPower has erected 1000 onshore turbines and SSE has around 700 without a single, solitary one of these being built in Scotland. That is an absolute disgrace but don’t expect Alex Salmond to mention it when next he visits the Basque country.
Equally, there has been an unaccustomed silence from St Andrew’s House on the subject of energy prices. Does the Scottish Government support the vertical integration of the two Scottish monoliths? Does he agree with Mr Miliband about capping prices?
I think we should be told.
In fact, isn’t it time that one of Holyrood’s myriad committees took a long, close look at where Scotland’s energy policy is heading? It might be towards a precipice.