The apocryphal Chinese curse supposedly reserved for one’s enemies is “May you live in interesting times.” In the energy industry right now, we certainly do.
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 20 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 be 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 has 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 it would and should do. Whether the CMA investigation will prove 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 that is driving up energy bills, aided 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 20 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 avoid 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 our economy. With an energy sector funded by the public and 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. After all, energy supply is regulated in order to protect the public interest, 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 past 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.
Recent public opinion surveys show that 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 I think 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 interesting times ahead, for sure.