Energy Prices and Investment – Nationalize the Utilities

The reaction by the energy companies to the Labour Party policy to freeze price increases for two years while the market is ‘re-set’ has been to threaten blackouts by stopping investment in energy generation.

The implication is that under their current freedom to increase prices at will, they are investing in energy generation. The facts show the opposite. At the time of privatization the then central Electricity Generating Board had a duty to have a minimum of 20% spare generation capacity to ensure security of supply for the UK. Similar requirements were met by the nationalised gas industry.

Since 2001 there have been concerns about an energy gap in the UK generating capacity. A report from the industry in 2005 forecast that without action to fill the gap, there would be a 20% shortfall in electrical generation by 2015. The latest estimate is for only 2% excess capacity. The firms’ dismal performance in energy supply can be seen by comparing the situation in 2004 and 2010.

The changes are:

Population 3.9% increase

Primary energy consumption 13.9% reduction

Energy production 33.9% reduction

Energy imports 420% increase

CO2 emissions 10% reduction

As recently as 2004 the UK was an exporter of energy, but as the easy availability of North Sea oil reduced, the energy companies simply switched to imports. They have not responded to the demand to invest in low carbon technology, where most of the investment is by small companies outside the big six privatized utilities.

After the privatization by Thatcher in the 1970s the damage to UK energy supply was limited, partly by the increased availability of North Sea gas and also because the government retained a measure of control through holding ‘Golden Shares’. In their greed to get public assets and blind belief in the market, the Major government got rid of the Golden Shares in 1995 for electricity.

The result has been a very quick swallowing up of the UK firms by six foreign multinationals who now own most of the capacity for supply and distribution. With the exception of Scottish Power and Scottish and Southern our energy is controlled by EDC (France), EON (Germany) CE Electric and Western Power Distribution (both US). All these are regulated more strongly in their countries of origin and see the UK as an easy profit source.

The Labour Party proposal to freeze prices for two years and re-set the market is therefore ultimately inadequate. We must renationalise the utilities, initially obtaining at least 51% ownership. This will ensure the money from British consumers is invested in our energy supply capacity and development of much needed new technologies and jobs.

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