Rarely do you leave a discussion on energy policy with a clearer understanding of what’s going on than you started with, but that’s what happened last Thursday at an excellent talk by Oxford economics Professor Dieter Helm at the Social Market Foundation think tank.
Helm defied anyone at Ofgem or DECC to explain accurately the state and nature of the current interventions in the energy market, and he wasn’t joking. To top that, he explained that even if they could they would be wrong because something will have changed by the time they’d finished.
He painted a depressingly clear and simple picture of the future of energy policy in the UK. Depressing because despite some simple potential solutions, it is clear that political realities will mean the market will continue to get worse.
We are condemned to inefficient nationalised provision in all but name.
Political interference, he spelled out, has become so entrenched that politicians simply will not back out for fear of exposing the mess. The achievement of this is that we are failing on carbon reduction, failing on new capacity, failing on competition and failing on new investment.
Much of the reason for this is that a perfect storm has unfolded. The Labour Party is playing up the “cost of living crisis” in which fuel poverty has its part. There is a growing realisation that the current renewables programme won’t work. There is the difficulty of market entry for new players. Capacity in the system is running very short, at best. The investment needed to build more capacity is way beyond the returns the wholesale pricing structure would provide.
In other words, everyone wants to spend less and get more.
Hard and fast decisions have to be made now to build up new capacity in time. That won’t happen though, as a two-plus year moratorium has come on investment decisions while the Competition and Markets Authority reviews the industry. This, despite twenty or so Ofgem reviews of the industry which have failed to restore public trust.
No doubt, the ‘big six’ energy suppliers should have fixed their roofs while the sun was shining. They could have made more effort to explain how their businesses operate when they may have had a less hostile audience. That said, some of their efforts, such as Centrica’s economic impact report, are heralded as contributions towards best practice.
They should also have made more effort to build understanding and relationships to give themselves more clout with the political and consumer worlds. Their conceit in not doing so has left them virtually friendless just when they (and so the rest of us) have become most vulnerable.
It is easy to see why beating up on the energy companies, at the expense of building a rational and sustainable solution to the problem, is a soft target for support-hungry politicians.
In doing so though, essentially to win votes, do they not risk demonstrating all too clearly why they are not worthy of them? It might be time for politicians to step aside and let informed policy-makers sort out the mess.