Politicians thinking aloud achieve nothing. In a complex market dominated by the 'Big 6', we need a co-operative approach.
'There is nothing we can do with today’s UK energy market to stop consumers from being hit by even more unfair price increases.' Photograph: Andrew Milligan/Empics
Britain's energy market is broken. The most recent hike in prices is just the latest sign. There are more to come, and the unedifying thinking aloud from the political establishment is not going to fix it. We need full-scale energy market reform.
There is nothing we can do with today's UK energy market to stop consumers from being hit by even more unfair price increases. Just as worryingly, it is impossible to guarantee that the UK's current market and our energy policies will make it possible to meet the demand for affordable energy, which is mushrooming as our economy grows, our population rises. It does not work like that.
The market is complicated. Prices for gas and electricity are affected by myriad subsidies and levies. Because the market for energy is global, our government is not responsible for them all; they are also levied by other countries involved in supplying our energy. Wholesale prices are also pushed up when anything happens to squeeze global supply. There is very little to stop oil- and gas-supplying countries "turning the tap off" if they are tempted to use energy resources as a weapon of diplomacy, for example. But the latest price hikes have not been driven by any of these factors. Wholesale gas prices have hardly risen in the last few years, while consumer prices have kept going up.
Ed Miliband is right to highlight that our energy market is not working in the interests of consumers. Rightly, people are increasingly angry about it. The political responses we have seen simply don't cut it. Miliband's price-fixing policy scam would simply induce a price rise before the next general election and discourage much-needed investment in our ageing, carbon-dependent energy infrastructure. A windfall tax would simply be passed on to consumers, thereby guaranteeing further price hikes. We must – as the prime minister has proposed – look at green levies, but they account for less than 10% of our energy bills, so this alone is not going to address the challenge.
In fact, it is not clear that a true market in energy exists. Fears about an energy oligopoly – a market dominated by a few huge companies – are being replaced by ones of a monopoly as price rises are announced almost simultaneously by the "Big 6" companies. The annual audit of competition the prime minister has proposed is a start, but nowhere near enough. Our hard-pressed consumers, both at home and in business, need a proper, authoritative and independent investigation by the Competition Commission to restore confidence in the energy market.
Looking further ahead, the government's response needs proper thought. We need to act not react. An effective strategy needs to be delivered over years, not months, and nothing must be off the table. Three areas need attention.
Britain needs to take a much longer-term view of how it uses energy. Over the last four decades California's economy has grown eight times without its energy usage increasing. We can do the same here. Our focus needs to be on energy efficiency, not on subsidising intermittent, renewable energy generation. In our increasingly populated and energy-demanding world, wholesale energy prices will not go down any time soon. We must be honest about that and introduce policies which will mitigate the impact of that reality on our lifestyles and our children's future.
In this context, we need to revisit the decarbonisation targets set under the previous government. Not because I believe we should abrogate our climate change responsibilities, but because they are destroying important parts of our economy. If this continues unchecked, there will be one less powerful, democratic nation around to effect beneficial change to the environment. A low-carbon Britain with no jobs and no money will not help save the planet. Real progress on decarbonisation must not undermine our global economic position.
Finally, we need to tackle the current structure of the energy market. The inefficient monolith that was the Central Electricity Generating Board was rightly broken up and privatised in the 1980s, but what replaced it is far from perfect. Six large, foreign (often) state-owned companies took its place, each of which has an uncannily similar structure: a generation company, a trading company (not located in the UK) and a retail company which are all "vertically integrated". This means that they control the whole supply chain and has made it impossible to have real competition. The majority of profits are made out of energy generation and trading (another reason a windfall tax on profits will not work).
We need to consider alternatives. In New York state, for example, a not-for-profit co-operative successfully delivers clean energy to consumers. Energy is a necessity for life, and gas and electricity can only be delivered along existing pipes and wires. Creating competition in a market for just two commodities in a fixed delivery network won't bring prices down much further, even if it succeeds in making the energy generation sector work better. Quite simply, a new, co-operative approach to energy delivery makes common sense.
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