When left-winger Jeremy Corbyn swept to victory in the Labour leadership contest last year it opened the door to the possibility that Labour’s controversial pre-election price freeze policy might be followed by even bolder statements of renationalisation. Indeed, in the run-up to the election Corbyn expressed a personal wish for an energy industry under state control. In the event, nationalisation was categorically ruled out by shadow energy secretary Lisa Nandy at party conference last year.
It falls to shadow energy minister Alan Whitehead to fill Utility Week in about what Nandy’s vague statement about Labour being for the “democratisation” of energy actually means. In doing so, he quashes any idea of a re-emergence of a Central Electricity Generating Board in Labour’s vision of the future of the energy market. Far from harking back to old ideals, Whitehead says Labour has grasped the level of change underway in the energy market and realised the significance of the smart meter rollout in the transition to smart grids. He says there needs to be a whole-systems approach, possibly through a systems architect.
When asked by Utility Week in a snatched hour between chambers and a meeting one sunny afternoon in Westminster whether he supports nationalisation, Whitehead says: “The energy world has moved a very long way from that.” The energy market is undergoing a period of fundamental change, with the emergence of a two-way energy system based on renewables and smart technology challenging not just the concept of large-scale generation, but even the notion of a single grid.
In the choice between holding true to its principles and moving with the times, Labour has chosen to embrace evolution. It has chosen to add its weight to the decentralisation process already in progress through the smart meter rollout and growing penetration of renewables. Such changes are already leading to the evolution of distribution network operators into distribution system operators.
“That’s fundamentally different from nationalisation, but it’s also fundamentally different from the rather tired old system that we have at the moment, which, actually, privatisation or not, maintains a lot of the assumptions of centralisation that always were in the system to start with,” Whitehead says.
And this is not new thinking for Labour, Whitehead insists. Policies designed to support the evolution of the energy system co-existed with the price freeze, but paled in comparison to that headline-grabbing initiative.
Although designed to “reset the market” and restore consumer confidence, the price freeze, which hung over the energy industry until it was annulled by the election, was blamed for scaring off investment and new market entrants. It was even slammed as “economically insane” by a leading market analyst at the party’s own conference in 2014.
If Labour had won the election, the measure would now have been nearing its close. Was Whitehead a supporter?
“At the time, it was a good idea, but from the word go it always was the case that if you ran a price freeze just for its own purpose, then it would actually serve no purpose at all. I made those points very strongly at the time.”
The price freeze would likely have been the precursor to the introduction of a central buyer model, allowing the energy secretary to largely dictate the fuel mix of electricity generation rather than leaving it to the market to decide. The price freeze may have been abandoned, but Whitehead feels strongly that this trading model has merit.
“I maintain that view for a whole host of reasons, such as the transparency and reliability that a pool system of trading would introduce,” he says.
Transparency in energy trading is already being addressed through the introduction of the Regulation on Wholesale Energy Market Integrity and Transparency (Remit) rules, which came into effect last month. But beyond transparency, a central pool could support the ongoing deployment of renewables without “quite so many accoutrements”, Whitehead says. Accoutrements like the wildly overspent Levy Control Framework, the Renewables Obligation, and contracts for difference, all of which are starting to “undermine the process rather than enhance it”.
“It could all be much better organised in terms of an obligation within a pool system,” he says. “That would underpin quite a lot of those sort of developments in a way that doesn’t happen at the moment.”
Far from being a flight of fancy, Whitehead thinks the concept has too much going for it to be discounted. “It may well be the case that in one way or another we will be revisiting that in the not too distant future.”
A pool of generation would also effectively end vertical integration, a model of trading held by many – including Whitehead – to be one of the fundamental problems with the energy market. However, the Competition and Markets Authority (CMA) concluded in its wide-ranging investigation of the energy market that vertical integration is not the issue. It singled out disengaged consumers as the big problem.
But Whitehead maintains that vertical integration is a problem. Was he therefore surprised at the CMA’s findings? “I was slightly surprised at the extent to which the CMA looked at it and then just put it to one side,” he says. But you tend not to find something unless you’re looking for it, and Whitehead suspects the investigation was hampered by assumptions around switching right from the beginning.
That assumption is the basis for the CMA’s headline remedy of a safeguard tariff for customers languishing on expensive variable tariffs. Whitehead is critical of the proposal. A safeguard tariff has the potential to silo-off customers even further from market participation before attempting to bring them back.
His preferred remedy would have been safeguarding through transparency, with clear breakdowns of tariff costs in a manner that would allow customers to make direct comparisons. But such a remedy was discounted by the CMA.
“I was rather disappointed that the CMA didn’t look rather more carefully at that, and concluded in the end that basically you just annoy people for three years in terms of possible switching, and then if they still don’t switch, you start metaphorically shouting through the letterbox and banging on the windows, and it still probably wouldn’t work after that point.”
Another topic sure to draw opinion is the government’s smart meter rollout, due to start in a few short months. It is heralded as being the key to opening the door to accurate and cheaper bills, and ushering in futuristic smart homes serviced by a whole new market of products designed to cut energy use. But before anybody gets carried away thinking about the future, the programme is to be delivered to an uncomfortably tight deadline. The Department of Energy and Climate Change (Decc) is confident it will be met. Whitehead is not. “Not at all!” he cries, almost bemused at such a notion.
He points out that although Decc is sticking to its self-imposed deadline, the definition of what constitutes a complete rollout is more fluid. Decc is even unwilling to define what constitutes a successful rollout in terms of consumer uptake. The whole programme is likely to be undermined by its communication structure, Whitehead says. He particularly lacks confidence in the programme’s ability to solve the technical problems of providing coverage for basements, exceptionally thick walls and high-rise buildings.
It’s important that it does, and not just in the quest for accurate billing. The true significance of the rollout on the energy market of the future is not lost on the shadow energy minister.
“Smart meters and smart grids are much more connected than has ever really been publicly stated in terms of the rollout process. It really isn’t in the end about finding your energy in real time; that’s important but it’s not remotely the end of the matter.
“The configuration of the grid is still stuck in the 1960s, not to gainsay the efforts of the DNOs , but by and large it is not very modern at all.”
Whitehead would feel far more confident if DNOs were in charge of the rollout rather than suppliers. “It seems to me that unless you have actually got a reasonable compatibility between the rollout of smart meters and the rollout of grid changes, then a lot of the benefit is going to be lost.”
Whitehead called smart grids a “public good investment” at the Low Carbon Networks and Innovation Conference in Liverpool last year but adds now “that doesn’t mean you should just throw money at it”. He also said at the event in November that Decc had failed to appreciate the critical role smart grids will play in the future.
Decc is currently seeking to improve its understanding of the new technical functions that will be required of the UK electricity system up to 2030 through the Future Power System Architect project. Whitehead says the idea of a systems architect is a “very attractive proposition”, not just to address some bad decisions of the past, but also to ensure that a long-term view is taken now.
Ensuring the right level of investment is made in the right areas would be one of the key areas addressed by a systems architect. The kind of “reasonably stable process” this would offer is badly needed if dwindling investor confidence in the UK is to be reversed, in direct contrast to the “chopping and changing and swirling” approach the Conservatives have taken recently to renewables subsidy, Whitehead concludes.
“We really have shot ourselves in the foot in that particular area, and we have got to get that confidence back,” he says.
One area Whitehead is clear is a bad investment is Hinkley. “We are saddled with a complete turkey,” he says simply. The original, slightly yellowing, project timeline is still pinned to the wall in his office, a reminder of just how long he has been observing the changes currently afoot. But Whitehead, and indeed Labour, are not stuck in the past, they are very much looking to the future.