An attempt to fix a "totally collapsed" energy policy in Britain is doomed to failure without measures to restructure the market at European level, according to a leading energy consultant.
Paul Hunt, a former corporate economist for the Irish gas board, said David Cameron's decision to call for a proper competition test was little more than a face-saving gesture that would only scratch the surface of a far deeper problem.
"The European Union's liberalised energy market model is failing, and Britain's privatised, liberalised model which pioneered key aspects of the EU's flawed process is on the point of total collapse since it has lost any vestige of popular support it once might have had," said Hunt, who has done work for some of the big UK power companies.
He said a restructuring of the gas and electricity industries across Europe was required at a time when the big six suppliers in the UK – four of them based on the continent – now faced financial problems after years of "making hay".
Hunt said the big six were not competing properly in Britain because of their size and market dominance, and some could threaten to pull out if they were put under more political pressure. "You can see them angling now to be seen as too big to fail, like we saw from the banks," he said.
Michael Waterson, professor of industrial economics at the University of Warwick, said more could be done to increase competition in the UK but he did not expect any big windfalls for consumers.
"The retail market is not particularly competitive but I think that the extent to which prices would fall if more competition was introduced would still be relatively limited," he said.
Waterson was also sceptical that the prime minister was making a serious intervention in the debate by suggesting a competition test. "It was only a year ago that he was saying the energy companies must have one tariff.
All that would do is make it easier for suppliers to work out what each other was doing and would lead to prices going up."
Waterson said Ed Miliband was right to call for a shakeup of the wholesale power market, which is dominated by the same big six who control more than 90% of the retail supply sector.
He said Cameron's other possible policy change – shifting green levies from fuel bills – would help but did not go far enough.
"An even more difficult political decision needs to be made: deliberately reduce inequality and even out the income distribution by raising income tax and increasing transfers to the poor, in order to make the higher energy costs more affordable for all."
Cameron's pledge to push back the estimated £112 average annual cost of environmental burdens on energy bills was welcomed by the large power companies but has unnerved windfarm operators, who fear it could be part of a wider agenda to undermine low-carbon technologies.
Nina Skorupska, chief executive of the Renewable Energy Association, said: "David Cameron must clarify which levies he is looking to roll back and how, or risk severely undermining investor confidence at a time when this country desperately needs investment in new low-carbon capacity.
Renewables are the only low-carbon options on the table to bridge the near-term capacity crunch, which will bite well before new nuclear or shale gas come on stream.
"Renewables policy makes up only 3% of average bills overall and less than a third of the government's green levies, so politicians and the media are simply wrong to say that green energy is to blame for pushing up bills. It is the ever-increasing cost of gas which has been the main cause of rising bills in recent months and years.
With more energy-efficient homes and more homegrown renewables we become less exposed to these volatile gas markets," she said.
Keith Anderson, chief corporate officer at Scottish Power, which is one of the big six, said the energy industry would comfortably pass any competition test and there was no question of his company profiteering, as the supply and power-generating arms of SP had just reported financial losses.
"If people don't believe the numbers in our accounts and think there are games being played and thus there is some form of review, then so be it. We are not afraid of competition. This is a hugely competitive sector. We are not afraid of transparency," he said.
The energy regulator, Ofgem, which has been effectively sidelined by the prime minister who wants a competition inquiry by the Office of Fair Trading, said: "The most significant reforms to drive competition in the retail market are being implemented now by Ofgem.
Reforms to the wholesale power market to strengthen liquidity and promote conditions for new entry are also in train." Parts of the business lobby welcomed Cameron's call for a new investigation.
Terry Scuoler, chief executive of EEF, the manufacturers' organisation, said: "We welcome any approach that involves more competition in the energy industry, which should lead to lower prices for hard-pressed consumers, including manufacturers.
"We've consistently pressed ministers to address the issue of competitiveness of electricity prices and the need to avoid cost increases that are out of line with our competitors. This review should be rapid and report back as soon as possible, as the rising cost of energy is acting as a block to investment and growth for many companies."
theguardian.com
Paul Hunt, a former corporate economist for the Irish gas board, said David Cameron's decision to call for a proper competition test was little more than a face-saving gesture that would only scratch the surface of a far deeper problem.
"The European Union's liberalised energy market model is failing, and Britain's privatised, liberalised model which pioneered key aspects of the EU's flawed process is on the point of total collapse since it has lost any vestige of popular support it once might have had," said Hunt, who has done work for some of the big UK power companies.
He said a restructuring of the gas and electricity industries across Europe was required at a time when the big six suppliers in the UK – four of them based on the continent – now faced financial problems after years of "making hay".
Hunt said the big six were not competing properly in Britain because of their size and market dominance, and some could threaten to pull out if they were put under more political pressure. "You can see them angling now to be seen as too big to fail, like we saw from the banks," he said.
Michael Waterson, professor of industrial economics at the University of Warwick, said more could be done to increase competition in the UK but he did not expect any big windfalls for consumers.
"The retail market is not particularly competitive but I think that the extent to which prices would fall if more competition was introduced would still be relatively limited," he said.
Waterson was also sceptical that the prime minister was making a serious intervention in the debate by suggesting a competition test. "It was only a year ago that he was saying the energy companies must have one tariff.
All that would do is make it easier for suppliers to work out what each other was doing and would lead to prices going up."
Waterson said Ed Miliband was right to call for a shakeup of the wholesale power market, which is dominated by the same big six who control more than 90% of the retail supply sector.
He said Cameron's other possible policy change – shifting green levies from fuel bills – would help but did not go far enough.
"An even more difficult political decision needs to be made: deliberately reduce inequality and even out the income distribution by raising income tax and increasing transfers to the poor, in order to make the higher energy costs more affordable for all."
Cameron's pledge to push back the estimated £112 average annual cost of environmental burdens on energy bills was welcomed by the large power companies but has unnerved windfarm operators, who fear it could be part of a wider agenda to undermine low-carbon technologies.
Nina Skorupska, chief executive of the Renewable Energy Association, said: "David Cameron must clarify which levies he is looking to roll back and how, or risk severely undermining investor confidence at a time when this country desperately needs investment in new low-carbon capacity.
Renewables are the only low-carbon options on the table to bridge the near-term capacity crunch, which will bite well before new nuclear or shale gas come on stream.
"Renewables policy makes up only 3% of average bills overall and less than a third of the government's green levies, so politicians and the media are simply wrong to say that green energy is to blame for pushing up bills. It is the ever-increasing cost of gas which has been the main cause of rising bills in recent months and years.
With more energy-efficient homes and more homegrown renewables we become less exposed to these volatile gas markets," she said.
Keith Anderson, chief corporate officer at Scottish Power, which is one of the big six, said the energy industry would comfortably pass any competition test and there was no question of his company profiteering, as the supply and power-generating arms of SP had just reported financial losses.
"If people don't believe the numbers in our accounts and think there are games being played and thus there is some form of review, then so be it. We are not afraid of competition. This is a hugely competitive sector. We are not afraid of transparency," he said.
The energy regulator, Ofgem, which has been effectively sidelined by the prime minister who wants a competition inquiry by the Office of Fair Trading, said: "The most significant reforms to drive competition in the retail market are being implemented now by Ofgem.
Reforms to the wholesale power market to strengthen liquidity and promote conditions for new entry are also in train." Parts of the business lobby welcomed Cameron's call for a new investigation.
Terry Scuoler, chief executive of EEF, the manufacturers' organisation, said: "We welcome any approach that involves more competition in the energy industry, which should lead to lower prices for hard-pressed consumers, including manufacturers.
"We've consistently pressed ministers to address the issue of competitiveness of electricity prices and the need to avoid cost increases that are out of line with our competitors. This review should be rapid and report back as soon as possible, as the rising cost of energy is acting as a block to investment and growth for many companies."
theguardian.com
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