Theresa May needs an energy policy adviser. I hasten to add that this is not a job application – but someone is needed to pull together the necessary reforms and to help the UK prime minister avoid self-destructive mistakes such as an attempt to take charge of fixing energy prices.
The predominant view in Whitehall – from the Treasury to the business department which is now responsible for energy – is that current policies are mistaken and require radical reform. Those policies take no account of the structural fall in energy prices; the failure of new nuclear to live up to its promise; the changing pattern of demand; and, most important of all, the transformation in the global energy market being brought about by a range of new technologies.
Each of those factors requires some adjustment in policy but taken together they justify a complete reset. Reform, however, is very difficult. There are numerous vested interests and an army of lobbyists. Given the preoccupation with Brexit, and a host of other problems on the government’s agenda, it is perhaps not surprising that changing energy policy is seen as too difficult. There is a noticeable absence of any rousing endorsement of the current policies but equally there is no sign of any serious change.
The House of Lords economics committee produced a sensible and practical set of proposals two months ago but the government has not yet responded. It may well agree with the thrust of the report but cannot say so because there is no will to implement the changes proposed.
In these circumstances, the obvious response to grumbling about the way things are is to find someone else to blame. Mrs May seems to have been led into the familiar territory of blaming the energy companies – in this case the retailers of gas and electricity for charging “high” prices – and has threatened to impose some so far ill-defined form of price control.
This is a dangerous path. Numerous reports, most recently from the Competition and Markets Authority, have concluded that although there is unnecessary complexity around pricing tariffs, there is no evidence of collusion or profiteering. From the outside the market looks competitive and would be even more so if consumers took the opportunities they have to switch suppliers.
I have seen no evidence to suggest that this conclusion is wrong. If there is price fixing it should be exposed and prosecuted. But looking at the accounts of the retailers, if anyone really is making windfall profits they are hiding them very well indeed. […]
The fact that the lowest-cost sources are constrained by government decisions means prices are higher than they need be. Power produced by onshore wind would be by far the cheapest source of renewable supply, but wind turbines are highly unpopular in many areas. Coal would be the cheapest source of bulk supply, but is being eliminated from the energy mix because it produces high levels of emissions and because government plans to experiment with carbon capture and storage which might have reduced or eliminated those emissions have been dropped.
So what could Mrs May or any minister do to “control” energy prices? The world market sets most of these. The need for renewal and upgrading of the grids is undisputed. Only a change in policy could bring prices down and that, for political reasons, is unattainable. […]
Mrs May needs an adviser who can guide through her a complex but essential process of reform, as well as protecting her from the temptation to fall into the trap of “taking control” of something that is broken.