Last week, energy suppliers unexpectedly became the latest business sector to be hit by Labour’s nationalisation plans.
Networks have had since the 2017 general election to adjust to the idea that they were in the firing line for renationalisation if Labour returned to government.
For Simon Markall, head of public affairs and engagement at Energy UK, last week’s announcement wasn’t a total surprise though.
For a start, the idea of nationalising suppliers had been included in a motion approved by the Labour conference in September. While not necessarily binding as policy, the Green New Deal gave a very clear signal about the direction of travel being pushed by party activists.
And following the previous weekend’s announcement by Labour that it wants to nationalise broadband services, it became clear that the extent of the opposition’s public ownership ambitions had swelled.
“With broadband, it became obvious that Labour were looking at a wider package of nationalisation,” says Markall.
Add into the mix Jeremy Corbyn’s track record as a long-standing proponent of big six nationalisation, he adds, pointing to an article written by the then would-be Labour leader when he was running for the post back in 2015.
However the new policy goes beyond the party’s position at the last general election when its supply ambitions extended to setting up regional companies to provide consumers with a public-owned option.
The manifesto also ups the ante on Labour’s rhetoric on nationalisation, making an explicit link between privatisation and rising carbon emissions. “The capture of a natural resource for private profit created a vastly unequal and polluting economy dominated by powerful vested interests,” Labour’s blueprint for power says, going on to argue that publicly-owned networks would “accelerate and co-ordinate” investment to connect renewable and low-carbon energy sources to the grid.
One network source dismisses this argument as a “bit of a daft link”, pointing to Communist Party-run China as proof that capitalism doesn’t have a preserve on rising emissions.
Wealthy doesn’t mean healthy
There is no longer even an automatic link between economic growth and rising carbon emissions, says Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit (ECIU).
“Countries have started to decouple economic growth from carbon emissions, especially the UK”, he says.
Mike Huggins, a director of Frontier’s Energy Practice, says companies are constantly responding to the incentives they receive from the highly regulated and policy driven UK energy system, pointing to Ofgem’s price control regime of the networks as an example.
The manifesto rhetoric goes further though, saying that under Labour energy and water would be “rights” rather than being treated as “commodities”.
Patrick Hall, researcher at liberal Conservative thinktank Bright Blue sees this language as a “distraction.”
“The focus needs to be on outcomes of services,” he says, adding that special tariffs already exist for customers who struggle to pay their utility bills.
“There are already means to help people obtain water or energy services if they need it.”
“We need to put the public, both in terms of delivery for them and accountability to them, front and centre of the journey to net zero. But if you look at the strong track record of the industry, nationalisation is not the best way to do it,” says Ed Gill, head of public affairs at the Energy Networks Association.
The very notion of rights has “potentially troubling economic consequences” for efforts to promote a transition to a lower carbon economy, says Huggins: “If the price of energy is lower than it actually costs, it is a weakening of incentive to preserve a precious commodity. As economists, we would prefer effective price setting which is broadly cost reflective and if you have a social problem, you deal with it through social policy.”
The linkage fuels the suspicion that concern over the climate crisis is being used as a Trojan horse to revive old school ideas about public ownership.
Hall says: “Old Labour appears to be back. This entails exceptionally large amounts of government expenditure and an almost scary amount of state control. It could be interpreted as using the modern popular culture of environmentalism to deliver an old Labour agenda.”
Negating net-zero
And the biggest contradiction at the heart of Labour’s commitment to renationalisation is that it will make its ambitious decarbonisation targets harder to achieve rather than easier, many fear.
“All these (net zero) ambitions are only going to be met in partnership with private business,” says Energy UK’s Markall.
Turning to water, Hall says Labour’s manifesto doesn’t address the central sustainability issue facing the industry: how to reduce usage.
“It is peculiar that the proposals around renationalisation doesn’t really seem to address any of the concerns facing water at the moment,” he says, noting no mention in Labour’s manifesto about water recycling or raising efficiency standards through building regulations.
And Labour’s thinking ignores the increased investment in water that took place in the wake of privatisation, Hall says: “If you look at what happened post privatisation, we saw a massive increase in investment in water, and improvements in water quality and environmental outcomes.
“This is an untargeted policy solution that doesn’t appear to address any of the problems facing the UK at the moment.”
ENA’s Gill agrees. “We have a good system: the profit motive has been really good for sustaining long-term investment. State ownership, and the political risk that is naturally associated with it, would jeopardise what we’ve seen to date and create uncertainty at a time we can least afford it.
“We will need private investment and all the benefits it brings. Incentives and the profit motive are a surefire way of not only getting sustainable long term stable investment but providing the right signals to companies to deliver the outcomes we all need at best value.”
Labour suggests that surpluses made by the renationalised utilities will either be used to reduce bills or reinvested.
Advocates of public ownership often argue that costs of acquiring companies will be recouped from profits made by the nationalised entities.
However, the focus on keeping bills down suggests that there is unlikely to be much fat from that particular quarter.
In addition, the manifesto suggests that the nationalised companies would have a role in implementing policies like tackling fuel poverty and helping households to reduce their energy demands rather than simply becoming public-owned versions of the existing enterprises.
Much of the focus in terms of costs has been on the expenses involved with the currently privatised companies. But the bigger long-term cost headaches may be these operational ones, says Huggins: “With all those extra responsibilities, it looks like there will be an annual call on the Exchequer, he says.
Labour’s earlier estimate that its nationalisation plans would cost £14.8 billion caused many a raised eyebrow. The statement in its latest manifesto that the souped up public ownership plans would be “fiscally neutral” and therefore cost the public purse nothing, looks even more of a stretch.
Perhaps the good news in this context is that Labour has tempered its ambitions in terms of achieving the transition to net-zero emissions.
While its party conference voted for a motion to set a 2030 decarbonisation goal, the manifesto dials this back to saying that a “substantial majority” of emissions should have been reduced by this date.
This is a probably a prudent move, particularly as it draws on research recently carried out for the party, says the ECIU’s Marshall. “It’s good that rather than going blithely going for 2030.
“This gives them a lot more credibility rather than picking a random date. When the established basis is to go with Committee on Climate Change advice, you need some advice to back that up.”
Renewable vows
Labour’s ambitions are nevertheless certainly bold in terms of wind and solar power with the former due to supply 70 per cent of total electricity needs by the end of this decade.
But noting that the UK is already doing quite well on offshore wind power roll out, they are achievable, says Marshall: “The huge increases in offshore for wind are doable.
“It will be spread all around the British Isles. If it’s windy in the Channel, it might not be windy in the North Sea.”
Ditto solar power, says Chris Hewett, chief executive of the STA (Solar Trade Association).
He says that the past record of the solar industry suggests that the planned pace of Labour’s roll out planned is feasible, pointing that peak deployment of the technology was in 2015 when 4GW was max
“These targets don’t require 4GW, it’s all doable. Over a ten-year period, you could ramp up to that.”
But the key aspects of how Labour will get to net zero are still unclear, says Markall.
“Labour talked about regional energy agencies but we’ve not seen a plan about who is co-ordinating the efforts to meet net zero, which is needed,” he says, adding that it is crucial to develop a clear pathway to cutting emissions.
“We want to work out how may GWs we need over the next 10 to 20 to 30 years and say what is needed by what date.”
What that plan doesn’t need is the destabilising impact of a lengthy tussle of nationalisation, even if this prospect looks unlikely in the context of current polls which show Labour continuing to lag behind the Conservatives.
Just one sign of these potential complexities is the decision by National Grid and SSE to relocate their legal domiciles to overseas countries in a bid to safeguard their investors in the event of a potential nationalisation.
“Nationalisation is just a bit of a distraction,” says Markall, adding that energy companies are already doing much to deliver energy efficiency programmes and innovation.
“We don’t need it.”