EITHEROur energy system is crucial to two of the biggest issues facing the British public: the cost of living crisis and the climate and environmental emergency. However, we are leaving this sector to be run inefficiently and exploitatively by private companies.
Electricity is generated by burning fossil fuels or through renewable technology, such as wind turbines; it is then distributed along national and regional grids, and finally sold to us by energy providers. In the UK, there is no role for the public sector in this: every part of the process is privatized.
Right now, Britain needs to tackle three things to deal with the current crisis: we need to transition to renewable power generation, we need to make sure our national grid is ready for this change, and we need to drive down the prices we charge for energy. . providers.
The latter problem has become particularly acute since global gas prices soared due to a rebound in economic activity after the pandemic lockdowns and supply restrictions by Russia ended. Smaller energy providers went bankrupt because their wholesale costs exceeded the ceiling price, the maximum price providers in England, Wales and Scotland can charge households.
In April this year, price cap rules allowed private providers to increase bills by an average of 54%, with more increases expected later this year. The government has provided temporary discounts on energy bills and tax relief to customers. Customers of 29 failed energy providers have been bailed out by switching to other companies, at the cost of a £2bn surcharge on all energy consumers. Bulb, which is considered too big to fail, is supported by the Treasury at a cost of £2.2bn.
Thus, all the costs of the energy crisis are falling on the public, either directly through their bills or indirectly through their taxes. None of these costs are borne by the owners of private companies: quite the opposite. In the last six months, the value of National Grid and Centrica shares have risen 20% above the general trend: it’s a good energy crisis for their shareholders.
By comparison, in France the system is still dominated by EDF, which is 85% owned by the French state. This has allowed the government to directly control prices by imposing a 4% cap on EDF’s price increases at a cost of €10bn, which has been financed by halving the company’s profits. EDF’s private shareholders have seen the value of their shares fall 25% below the general trend of share prices.
The lack of public energy companies also makes it difficult to transition to renewable energy. International evidence shows that “state-owned utilities have a greater tendency to invest in renewable energy”, because public bodies can insist on the implementation of policy objectives and that this investment encourages more private investment.
In the UK, contracts for offshore wind generation, the largest single opportunity for renewable generation, and the associated earnings and employment opportunities, are awarded to commercial companies, including, paradoxically, large publicly owned European companies Ørsted ( of Denmark) and Equinor. (Norway). In Germany, where much of the energy sector is in the hands of regional and local governments, the city of Munich has stopped trying to persuade reluctant private companies and has instead decided to have the municipal utility make the investments. necessary “to produce so much green energy that the entire demand of the city can be covered [by 2025]”.
Private owners of transmission and distribution networks provide continuing evidence of the 200-year-old economic observation that “natural monopolies” are exploited for excessive profits in private hands, so they should be publicly owned. National Grid alone drew £1.4bn in dividends in each of the last two years. They create even more problems for the transition to renewable energy, which offers an opportunity for further extraction of monopoly profits, by charging excessive charges for grid connections, delaying renewable projects by up to 10 years.
A more effective approach would be to allow consumers to sign up with a public energy provider, properly nationalizing Bulb; put the grid in public hands so we can upgrade the system to handle renewable energy and stop extracting billions in dividends; create the capacity for more government- and community-owned renewable energy generation; and open energy policy to public participation through the creation of regional energy agencies.
The British are shouldering the burden of energy and climate emergencies while private companies benefit. The case for public ownership is now made daily for the flaws in our current system. As we see in Europe, there are much better public alternatives.