Britain frogmarched into smart meter oblivion

Ofgem’s plans to abolish the price cap for ‘surge pricing’ could end up like a North African bazaar

Bring back the Central Electricity Generating Board (CEGB), all is forgiven. No really. This is a lament born not out of nostalgia for some imagined, flawless past that never existed, but of genuine concern for the increasingly dysfunctional, opaque and ever less secure nature of today’s UK energy markets.

And they could be about to get even more complicated and impenetrable, with proposals by the energy regulator Ofgem to further frogmarch the nation into “smart meter” oblivion by abolishing the current price cap regime in favour of “surge pricing”, where the price varies according to overall demand.

Theoretically, you would then be able to reduce your energy bills by confining your usage to off-peak times, or, reductio ad absurdum, cease paying altogether by not using any electricity at all. Whatever its faults, which were admittedly legion, you at least knew where you stood with the CEGB. As a state-owned electricity behemoth, the CEGB had just one function: to ensure that the lights stayed on or, in other words, that growing demand for electricity was always satisfied.

For the consumer, there was none of today’s faffing around with price comparison websites, none of the worry about what deal you were on and whether there might be a better one hiding behind all the others. Instead, there was one price, ultimately determined, like a tax, by government ministers with at least half an eye on the ballot box.

Even so, the system sort of worked. Outages were rare, unless caused by striking miners, and although there were some ruinously expensive wrong turns – such as the decision to bet the nation’s nuclear future on British-designed Advanced Gas-cooled Reactors – the CEGB broadly met its purpose.

Run by engineers, and not accountants, this was to provide the economy with electricity, pure and simple. Sadly, the same cannot be said about the Horlicks that are today’s energy markets.

The intention behind the break-up of the CEGB and the subsequent privatisation of its various moving parts was – besides raising money for the Exchequer – to put the consumer firmly in the driving seat.

Yet it was not to be. The industry never fully escaped political interference and is today so complicated and highly regulated that it would challenge the intellect even of Sir Walter Marshall, the noted nuclear physicist who with a tyrannical grip for years ran the CEGB, to properly understand it.

It’s fair to say that, when it comes to domestic and business energy supply, privatisation hasn’t worked as hoped, in sharp contrast to telecommunications, where it has hugely improved quality, choice and price.

Always guaranteed to make a bad situation even worse, into this quagmire steps the industry regulator, Ofgem, with proposals for “surge pricing”, a concept that rests substantially on the ability of suppliers to strong arm the rest of the nation into the snake oil world of “smart meters”.

This is an extremely bad idea, as well as being another classic example of regression masquerading as technological progress.

I’m well aware of all the economic arguments there are in favour of surge, or dynamic, pricing, which is as old as humanity itself as a way of putting a value on any given commodity.

When demand outstrips supply, you charge more, and vice versa. In a perfect market, this in turn sends a signal to producers and retailers either to increase or decrease supply. Theoretically, the market becomes more efficient, allowing economic resources to be better allocated.

But you can also end up with something that behaves much more like a North African bazaar, where it is impossible to know the price of almost anything.

One man’s demand management is another man’s price gouging, making it possible to charge excessive prices at times of high demand. Similarly, one man’s efficiency in supply is another man’s rationing of demand.

Want a cup of tea at tea-time? Hard luck, unless willing to pay through the nose for putting the kettle on. Or the traditional Sunday roast? Again fine, but pay up, so on second thoughts, better not.

There’s a good reason why price negotiation and haggling of this type gave way in the 19th century to advertised price tags; it was to prevent consumers from being ripped off by unscrupulous suppliers. You can have all the safeguards you like – and Ofgem promises plenty of them – but only the most savvy of consumers would have any idea of what’s going on as the algorithms eat deep into your pocket.

In any case, there can be no public trust in a system where the price is constantly changing, seemingly randomly, in order to match supply with demand.

And herein lies a much wider criticism; for is not surge pricing just a fancy term for restricting supply, or in other words rationing demand? This obviously becomes more important as a public policy goal with the advent of the net zero by 2050 target.

All renewables are by definition intermittent, which means there will be times when they generate suboptimally and will therefore be unable to meet demand. The necessary addition of back-up, gas-fired capacity is expensive to build and maintain; surge pricing is one way in which it might be paid for.

Those who can afford to will pay top dollar, those who can’t will simply go without. Any such concept is bound to be at odds with the idea of energy as a public utility that, for public and economic wellbeing, should always be in abundant supply.

When policymakers talk about “smart grids”, what they essentially mean is allowing suppliers to max out at times of scarcity by simply starving the hoi polloi out of the market.

The regulator obviously doesn’t see it that way. Instead, Ofgem views things through the other end of the lens. The introduction of market-wide half-hourly settlement from 2025 means customers would have more flexibility in how they use and pay for electricity, Ofgem says in a discussion paper.

This would allow customers to be rewarded for being flexible in their energy use, which in turn would enable them to benefit from cheaper renewable electricity when the wind is blowing or the sun is shining.

Maybe so, but is forever combing the weather forecasts for news of just the right amount of wind in the North Sea to ensure a surplus of electricity generation really what the consumer wants?

No, he craves certainty, fairness and value for money, not the infuriating knowledge you often get on low-cost airlines when discovering that the guy sitting next to you has paid half of what you did for the same flight.

Electricity supply shouldn’t ever be any more than a communitarian public service. Oh for the days when it was run by no-nonsense engineers, and not too-clever-by-half accountants.

‘Always guaranteed to make a bad situation even worse, into this quagmire steps the industry regulator’