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UK Energy Shambles: We Need to Take the Politics out of Energy

This week’s chapter in what tweeters are calling the #EnergyShambles was indeed just like an episode of The Thick of It. What happened was this: at PMQs on Wednesday Cameron said that “we will be legislating so that energy companies have to give the lowest tariff to their customers.” But the announcement took the Department of Energy and Climate Change by surprise – apparently No 10 phoned someone at the Department at the weekend and had been advised that the policy would not work. Neverthless Mr C went ahead: one energy industry source described the announcement as “Number 10 freelancing”.

Of course the announcement makes no sense. If everyone is on the cheapest tariff, then that tariff would have to rise- it would immediately become the mediocre tariff instead of the cheapest. As price comparison provider USwitch said, “it had to be a slip of the tongue as it could be the death of competition.” If everyone is on the same tariff, you have no market – you might as well nationalise the whole system so politicans can do exactly what they want with it.  

On Thursday, new energy minister John Hayes had to defend the announcement in Parliament, and earned laughter with the verve that he brought to the role. The new rules would help consumers “get the best deal” he said, while he failed to confirm that it would be the lowest price. Was DECC aware that the PM was planning this announcement, he was asked? “The Prime Minister comes to this House weekly to be scrutinised by this House. Does he give me notice of every answer, does he get notice of every question? The answer is no. But if he asks me whether the Department was considering these matters… the answer is a definitive yes.” In other words, No. There was laughter as he claimed that the PMs comments had been crystal clear, and he went on in a classic piece of political doublethink to say that: “The fundamental objective of the strategy I outlined is to bring clarity. Clarity is the prerequisite of certainty, certainty is the prerequisite of confidence and confidence is the prerequisite of investment…”

Meanwhile across town DECC Secretary of State Ed Davey was making a speech to the CBI on energy policy, and completely failed to mention Mr Cameron’s pledge. He did however get the chance to comment on politics, saying in response to a question, “Believe me when I say that no one would be happier to see the politics taken out of energy policy. What could make life easier for the Energy and Climate Change Secretary than political consensus?”

The terrible irony is, of course, that clarity is exactly the opposite of what the current government is providing to the energy industry. “Government-induced policy risk is the single biggest deterrent to investment” as Nick Stern wrote in the Financial Times on Monday, and as we have also been hearing from the CBI, from big energy hardware and nuclear companies including Alstom and Mitsubishi, and from big company members of the Aldersgate Group recently.

On Tuesday Downing Street said that the “quad” – Cameron, Osborne, Clegg and Danny Alexander – were meeting with Ed Davey in an attempt to broker peace between Osborne’s anti-clean energy Treasury and DECC – but one senior source warned that it would be an “unholy war”, according to Fiona Harvey in the Guardian. “The PM wants to bring the Treasury and DECc on to the same page,” another source told the Guardian, “the Treasury has to sign up to the renewable energy agenda, while DECC has to reassure on costs.”

A likely deal would “give the chancellor more leeway on limiting subsidies via the Levy Control Framework… in return, Davey would get a new carbon target – to virtually eliminate emissions from electricity generation by 2030.” If true, that is good news on the carbon target, though in practice the levy restriction may make it impossible to meet, and will drive up costs by increasing uncertainty!

“Perhaps it’s best David Cameron remains a hands-off PM”, said political commentator James Kirkup in the Telegraph. And the truth might be that we need a hands-off government. Just as the Monetary Policy Committee of the Bank of England was liberated to set interest rates, the only way to create policy consistency in energy might be to take it away from the politicians.

Ultimately that is probably where we will end up, though we would first need a complete reform of the energy markets – the so-called “Electricity Market Reform” package in the current bill is not really a reform, but instead is yet more tweaking, adding to the dozens of accretive policy measures which have been piled on over the past few years. In fact energy policy in the UK resembles a Heath Robinson machine strapped on top of a woolly mammoth, with complex devices made of twigs and string in order to poke the mammoth in the vain attempt to get it to move.

The current electricity market is designed for dirty energy, and instead of tweaking it we need to replace it, with one designed for clean energy. Mind you, we might need to give the dirty stuff a few subsidies to get it through in the interim, but so be it.

Robert Webb's picture

Thank Robert for the Post!

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Robert Webb's picture
Robert Webb on October 21, 2012

Hi Willem

thanks for your comment. My last line about subsidies for fossil fuel was mainly a throwaway chuckle - although it is the case that 

Politicians are having a hard time owning up to the uncertainty about energy prices, and what influence they really have.

The vast majority (80%) of energy price rises in the UK over the past ten years have been due to the increasing price of wholesale gas, not the subsidy for wind as you imply.

The choice going forward is between a fossil fuel system and a clean energy system (and in the UK the latter will have a hefty chunk of wind). 

You seem to favour non-wind as you say the costs are high - but you provide no comparisons, and it is the total cost of the energy system which matters. One part of this is the subsidies to fossil fuels, totalling $500bn direct and $1000bn including indirect, compared to about $50bn which goes to renewable energy.

Finally, you say "Despite claims by wind energy promoters about wind energy LCOE parity with grid prices being just a few years in the future (to keep the subsidies flowing), the reality is otherwise." But for onshore wind parity does exist in an increasing number of locations, as Bloomberg New Energy Finance have pointed out.

Jesse Parent's picture
Jesse Parent on October 22, 2012

Great title. 

Really. 

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