The Left’s reckless drive to nationalise our energy companies will not solve any problems
Nationalisation, we are often told, is very popular. Poll the British public on public ownership of energy, water, telecoms and even food production and you get large majorities in favour. What if you were to reword the question though? Rather than asking whether “the public” ought to “own energy companies”, try asking whether taxpayers ought to bail out the energy suppliers. Do you think that would be a popular policy? No?
This is, in fact, what much of the Left want to do, without explaining how this will fix any of our problems (it won’t). Supposedly, with all the excess profits these rapacious energy suppliers are raking in, we can feed the hungry and cure the sick with plenty leftover. Yet last year, when the supplier Bulb was nationalised (ahem, put into “special administration”), those gigantic profits somehow failed to materialise. Here’s a clue as to why: the company had gone bust.
The debate might become clearer if we used the right terms. Energy producers are making large profits. That includes oil and gas companies, wind and solar operators, biomass boilers, and nuclear plants. Yes, we can tax these profits, but getting them to increase supply should be a higher priority.
On the domestic side, the energy suppliers should more properly be called utility companies – these are the shambolic companies that send you a nasty bill each month and then don’t pick up the phone when you call. In cases like Centrica, shareholders own both the production and utility in one group. Despite its production income, Centrica’s group profits are still too low to knock much off bills even if they were confiscated in full. There are good reasons to detest these companies, but their non-existent “excess profit” is not one of them.
Far from booming, the utility firms are now in danger of becoming the energy equivalent of a bad bank. They are saddled with millions of customers who will struggle to pay their bills this winter, many of whom they are obligated to service or cannot cut off for months if they don’t pay. The Government should protect the neediest customers and perhaps many businesses too, but why should it take over responsibility for all of them, via a price freeze or nationalisation? I have yet to hear a single cogent argument for why British state ownership of utilities will magically cause more energy to be produced globally, so that prices can actually come down.
The real debate we need to have is what the proper role of government is and whether it has been fulfilling it. Energy prices clearly show the answer to the second question is “no”. The first part is more complicated.
Since climate change came onto the radar, government has become increasingly involved in planning the energy market, with spectacularly poor results. This has meant throwing large subsidies at renewables and increasing costs for domestic industry while shutting down reliable energy supply. Both the climate and the economy have been badly served by this approach, which has simply pushed industry and energy production abroad.
It began with Labour’s plan to shut down coal plants. This was not a bad idea per se, but required us to replace them with alternative, equally reliable sources of energy. The UK had a strong, nascent nuclear industry and could have begun a state nuclear plant building programme along the lines of South Korea’s, which has been both cost-effective and reliable. Nuclear is the one industry that genuinely needs direct state support because of the timescale and risks it involves.
But under the Tory-liberal Democrat coalition, we abandoned nuclear. Then, along with other Western governments, we began to pursue a policy of discouraging investment even in benign and necessary fossil fuels like gas. There was no plan to replace these reliable and financially viable sources of energy. Instead, the government threw money at renewables. They have a role in the energy system, but they are not sufficient on their own. Their expansion and falling production costs were a great technological success, but the government failed to mitigate the problem of unreliability they introduced into our energy system. The wind and sun are fickle and we cannot yet store the power they generate at scale. They require expensive backup gas plants to be put onto the grid. It is the wind and solar farms, currently raking in great windfalls, that ought to pay this cost. This would have concentrated their minds on reducing it.
To justify its policy of throwing money at some technologies and not others, government went into the business of forecasting prices. Its forecasts have been wrong every time. Now, consumers are stuck paying the sky-high energy prices that renewable projects were guaranteed while they fail to pick up their costs.
When all of this failed to reduce prices for households, the government decreed that the problem was insufficient intervention and introduced the “price cap”, which quickly decimated the utility suppliers, one small area where competition was working as well as it could. Half of them soon went bust. Meanwhile, we saw Europe’s import needs grow and grow even as its spare capacity shrank, with today’s predictable results.
The current failing market, far from being a laissez-faire, profiteering “free for all”, is a product of grossly irresponsible and poorly planned state meddling. This meddling has failed at every turn to prioritise the state’s most important role: ensuring energy security. In climate terms, it has failed to reduce emissions efficiently, instead exporting half of them to China, where industry is free from the costs we impose on ourselves.
What governments ought to have done, rather than subsidising or snuffing out select technologies, is set an appropriate price for carbon, introduce a carbon tariff and make sure there was sufficient incentive to build a safe margin of spare supply. The market could then have done its job. Instead, the current so-called “market” is now the bogeyman.
Listen to the most vocal fans of nationalisation, like the Labour Leftist Sam Tarry, and you’ll hear a lot of talk about “extreme profits” justifying the need for a “furlough-style bailout”. You won’t hear him specify exactly which extremely profitable business he wants to nationalise and how this will reduce the cost of energy. Government is just meant to pay for everything by taxing the profits of Shell and BP.
Our problem is not a lack of nationalised energy companies, but a lack of energy. For presiding over this catastrophe, the Tories deserve to be out of power for a generation. Instead, it’s the country that’s running out of power while the Tories prepare for their fourth leader. She won’t have long to fix the mess before she too runs out of road.
Fuel bills are soaring not because of market failure, but because of government failure