It’s “perfectly plausible” for a future Conservative government to row back on future contracts for difference (CfD) rounds and other decarbonisation schemes, an energy consultancy has warned. Speaking to Utility Week, the chief executive of Cornwall, Gareth Miller said a future Conservative government could break away from the cross-party consensus on decarbonisation, which has been in place for almost two decades. In the event of a Conservative victory in next month’s general election and an increased majority, Miller said he could envisage a situation where “there is no such thing as an untouchable policy, when it comes to supporting low carbon generation”. “We’ve seen plenty of changes in policy that were unexpected over the last two or three years, and that’s been in an environment that reflects a consensus of pursuing low carbon ambitions,” added Miller. “Post-election, that consensus may not matter so much.” “There is an opportunity for a new government to pause, think and reconsider what they do,” he said.
Utility Week 24th April 2017 read more »
Energy price controls are a potent cause but they will have long-term costs. Ed Miliband feels aggrieved. As Labour leader in 2015, he fought a general election on a policy of energy price controls. Much criticised for it at the time by his opponents, he now finds that the Conservatives are proposing an eerily similar scheme. While the policy has populist appeal and points to genuine public dissatisfaction with the energy utilities, it will not work. Sir Michael Fallon, the defence secretary and a former energy minister, yesterday denied the charge of hypocrisy and distinguished between a price freeze, as proposed by Labour, and a price cap, apparently being considered by the Tories. The latter, he said, allowed prices to fall but not rise. In reality, the difference between the policies is more the timing than the substance. The Competition and Markets Authority reported last year that there was a genuine problem with customers being overcharged, yet it backed away from radical notions such as price caps or breaking up the big six energy companies. The caution may be infuriating but it’s essentially correct. Price caps cause shortages. They did in California in 2000, when producers chose to ration supply rather than expand production. The same would happen in Britain, with a lack of replacement capacity for coal-fired power stations.
Times 25th April 2017 read more »
More than £3.5bn has been wiped off the value of two of Britain’s biggest energy companies by the government’s crackdown on expensive tariffs. Centrica, owner of British Gas and the UK’s biggest energy supplier to homes, and SSE were among the biggest fallers on the FTSE 100 index on Monday after the Conservatives confirmed over the weekend that they would include a pledge to put a price cap on “standard variable tariffs” in their manifesto, to be published next month.
FT 24th April 2017 read more »
When Ed Miliband proposed a freeze on energy prices in the run-up to the last UK general election, the former Labour leader was ridiculed as a throwback to 1970s socialism. Now Theresa May promises similar intervention to cap power prices for two-thirds of British households if her Conservative party prevails next month. There is no denying the anomalies of the UK’s gas and electricity market. Fifteen years on from deregulation, competition is working well for the minority of customers prepared to seek out the best fixed-term deals and switch supplier. This part of the market is keenly contested and has become more so in recent years, as new entrants took advantage of falling wholesale prices. However, some two-thirds of households remain on a “standard variable tariff” (SVT) that can typically cost some £200 a year more. Most have never switched supplier, and the poorest are among the least likely to do so. A price cap – while it might address some of the current inequities – brings its own problems. Regulators are not best placed to determine the right level. If they set the cap too low, companies will struggle to make the investments in the National Grid, power generation and storage that are needed to tackle climate change and keep the lights on. If they set it too high, customers could be worse off than they were in the first place – in theory suppliers can compete below the cap, but in practice, they are likely to converge on it.
FT 25th April 2017 read more »
‘We economists don’t know much”, Milton Friedman was once candid enough to admit, “but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can’t sell tomatoes for more than two cents per pound. Instantly you’ll have a tomato shortage. It’s the same with oil or gas.” Friedman’s observation on the dangers of price controls is likely to hold true in virtually all circumstances where there is a properly competitive market. If politicians set the price, and set it moreover, as inevitably they are inclined to, at an artificially low level, you quickly get a famine in investment; pretty soon, companies will struggle to sell at their cost of production. Unable to make a profit, some of them will shut up shop altogether. For a modern day example of the phenomenon, look no further than the economic misery of Venezuela, where price controls, supply shortages and rampant inflation in the black market are commonplace. The question is, then, whether the UK market in energy supply is sufficiently dysfunctional as to override these concerns and justify the proposed price cap that the ruling Conservative Party seems minded to include in its election manifesto. The answer is an unambiguous no. But don’t take it from me. It’s what the Competition and Markets Authority concluded less than 12 months ago after an exhaustive two-year investigation, and it’s also what the Conservatives themselves said when Ed Miliband, the Labour leader, proposed something similar in the run-up to the 2015 election.
Telegraph 24th April 2017 read more »