Energy price battle leads to calls for radical overhaul of market

The political battle over energy prices shows no sign of abating and is leading to calls for a radical overhaul of the energy market.

UK Labour leader Ed Miliband has proposed fresh controls over energy prices, rejecting claims by the big six energy companies, led by British Gas, that his freeze on bills has prompted a competition inquiry that will cut investment and lead to blackouts. These claims were quickly undermined when SSE announced a price freeze until 2016! CEO Phillips-Davies told the BBC. “The most important thing for our customers over the next couple of years is freezing prices.” 

Labour said the timing of the Ofgem inquiry would broadly dovetail with its own price freeze, and provide an incoming Labour government with advice on breaking up the big six energy firms, end vertical integration of the industry and also strengthen the future powers of the regulators.The Ofgem review found only 43% of customers trusted energy companies to be open and transparent while their retail earnings had rocketed from £233m in 2009 to £1.1bn by 2012.

Others have been even more robust in response to British Gas. Ian Bell in the Sunday Herald said:

The world being a wicked, dangerous place, what’s a poor energy giant to do? If you fancy a 41% share of the domestic market, like British Gas, you do the sensible thing and purchase much of your supply from Centrica, which just happens to be your parent company. The upshot last year was that British Gas did indeed find its profits being squeezed by rising prices. Simultaneously, however, Centrica enjoyed a 64% increase in profits from “international gas supply” to the likes of, well, British Gas. It was, as it remains, a wonderful arrangement. Unless you happen to be a customer.”

On corporate blackmail he said:

“If your memory allows, cast your mind back to the days when only trade unions could be accused of blackmail. When they threatened to put the lights out there was hell to pay. Over time the corporate world and its political backers demanded, and got, a raft of legislation designed to circumscribe the right to strike. So who now tells the Big Six, or the rail companies, the banks or the English water companies that their exploitation of public need is contrary to the common good?”

Bell also reminds us that a recent YouGov poll showed strong support for renationalisation.

Another idea comes from Colin Gibson former Power Director at National Grid. Writing in The Scotsman he argued for a standing electricity commission to examine requirements for all new types of plant at least seven years ahead. He said:

“a plant-planning margin of 28 per cent would be required in order to accommodate increasing uncertainty with time. For a system including intermittent generation, such as wind, a much higher figure would be required, with wind generation requiring more than 90 per cent back-up generation capacity from open cycle gas turbines.”

Action on prices is even more urgent in Scotland. The average spend in Scottish homes is £112 a month, compared with £105 in Wales and £103 in England. The latest ONS report – Household Energy Spending in the UK 2002-2012 – states: “UK households spent an average of £106 a month on household energy in 2012. This was a 55 per cent rise on the 2002 monthly spend, after accounting for inflation. This is despite a decline in average energy usage.”

Labour is determined to make the next general election about the cost of living and energy prices will be a big part of that. Another Ofgem review doesn’t really add up to much of a response. The irony is that the public are up for more radical solutions.

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