In a move straight out of the failed Ed Miliband play-book, Theresa May has announced plans to introduce a price cap on energy bills. May’s proposals are intended to cut £100 off the average annual bill. However, the proposal has been met with disapproval by investors and energy insiders.
The announcement was met with a large fall in the share price of the two publicly-traded of the ‘big six’ energy companies – Centrica and SSE. According to Zlata Rodionova at the Independent:
“Centrica was the worst performer on the FTSE 100, ending the session 3.5 per cent lower. SSE shares fell close to 2 per cent.”
Theresa May’s announcement flies in the face of recommendations made by the competition watchdog, which sees moves to make it easier for customers to switch deals as more likely to result in lower prices in the long run. According to Hannah Maundrell, editor in chief of money.co.uk:
“By ignoring the competition watchdog’s recommendations and taking matters into their own hands the Conservatives actually run the risk that people will end up paying more in the long run. An energy cap could lull people into a false sense of security and actually reduce switching; not to mention knock out incentives for energy companies to compete with cheaper prices.”
The move has also been met with hostility from overseas investors that the government will rely upon to provide the capital to replace the UK’s ageing energy infrastructure. As Eric Worrall at WUWT notes:
“Price controls are a direct attack on the profitability of British energy utilities, and badly undermine any remaining shreds of confidence in the British energy market. [They] expropriate investors of returns they would otherwise have received, and signal that further expropriation, maybe even complete re-nationalisation of the entire industry may be looming…
“As a former British resident I understand how difficult life can be in Britain. A lot of people are hurting, caught between soaring prices and a moribund jobs market in many regions and sectors of the economy. But price controls are not the solution, they are a wrecking ball which will do even more damage to an already severely dysfunctional British energy market.”
Investment is likely to be even harder to secure in future, as more and more households and businesses turn to increasingly cost-effective renewables and battery storage to avoid energy bills altogether. As a recent report by the Green Alliance argues:
“Britain’s future energy market will not only consist of passive customers buying power from big and distant power stations. Instead, it will increasingly be owned and operated by the consumers who install distributed energy technologies. These new, small scale technologies will not displace the need for large scale, low carbon energy. Big power stations and networks will continue to be essential and will provide the majority of power at a lower absolute cost than small scale technology for a long time to come. But small changes can have big effects: a ten per cent fall in market share was sufficient to cause the near collapse of the US coal industry in less than a decade.”
This is the real risk in what may amount to little more than an electoral gimmick. Britain’s energy infrastructure is already struggling to cope with demand. The bright new gas- and nuclear-powered future promised by David Cameron and George Osborne has failed to materialise in the face of unprofitable fracking and a bankrupted nuclear industry. As more households and businesses move off-grid, the cost of operating the industry will fall on an increasingly squeezed middle that simply cannot provide the income to maintain and develop the infrastructure. Two years ago, then British Energy Secretary Amber Rudd conceded that:
“We now have an electricity system where no form of power generation, not even gas-fired power stations, can be built without government intervention.”
With coal power stations closing ahead of time, and insufficient investment in grid-scale renewables, Britain is now uncomfortably dependent upon imported electricity to keep the lights on and the computers running. And this situation can only worsen for the time being. As the Green Alliance report warns:
“The UK’s energy system is designed for older, large scale generation assets. The experience of countries which have seen rapid growth in small scale technologies shows that matching 21st century technologies with 20th century energy markets is a recipe for disaster. It leads to grid congestion, expensive grid upgrades, inadequate generation at peak times, and a utility death spiral, as customers opt for self-generation, resulting in rising bills, blackout risk and angry consumers.”
The very last thing Britain needs is a ruling party that puts a short-term electoral bribe ahead of a desperately needed and long-overdue strategic plan for energising the UK economy for the future.