Five faults of the market approach to energy

The New Economics Foundation (NEF) have produced an excellent analysis of the failings of our so called energy market.

They identify five different faults of the neoliberal approach to energy, which illustrate the problems and alternatives we face.

Fault 1: Risks and costs of competition

We were told that the only way to ensure consumer satisfaction is to maximise competition between different energy providers. But this ignores the risks and costs that come with competition, including exploitation of supply chains and price obfuscation tactics. It also exaggerates the benefits – energy prices are high and consumer satisfaction is at rock bottom. We should abandon competition and seek cooperative ways to achieve quality energy services.

Fault 2: Failure to invest and innovate

Our privatised energy sector is failing to put money into either vital new infrastructure or research and development for new energy technologies. The theory predicted that private companies would be efficient and innovative, but didn’t foresee that those companies might prefer to inflate executive pay packages and investors’ asset values. We should reimagine the role of strategic public investment in energy that has been so successful in the past.

Fault 3: Inaction on climate change

We care about our environment, and we know that our energy system is gradually contributing to its decay. But the main way we engage with these issues is by passively paying the green levies that form a part of our monthly energy bills. This system creates a disjoint between the citizens who pay for an energy transition and the benefits that it brings. We should take inspiration from examples of direct involvement of citizens in empowering energy democracies.

Fault 4: Instability of centralised energy

Power in the UK is generated in a small number of very large plants. This unfairly advantages fossil fuel energy sources and discriminates against renewables. It also makes us far more vulnerable to shocks. With all of our eggs in a small number of baskets climate impacts are more likely to be disruptive and there are unavoidable risks to imported fossil fuel supplies. Decentralising our system would make it cleaner and more stable.

Fault 5: Social injustice treated not cured

At the moment we allow our energy system to produce tragic consequences – fuel poverty and winter deaths – and merely attempt to mitigate the impacts after the event. We rely on energy company obligations and piecemeal government payments to limit the damage to society. The statistics show we’re not doing a great job. By focusing on prevention rather than treatment we could design out social injustices in our energy system and secure the right of each citizen to sufficient energy.

As a consequence of these faults gas and electricity prices in the UK have risen faster than the Euro area as this chart shows.

 

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