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Hydroelectric power
Image: Marco Fieber

What have nuclear power, tidal barrages, hydroelectric storage and solar farms got in common?

Beyond the obvious – that these are all proposed low carbon alternatives to fossil fuel – they are evidence of the failure of privatisation.  This is particularly obvious in the UK, where decades of over-zealous privatisation have led to a short-term focus on customer prices at the expense of future energy generation.

With National Grid warning that the UK faces an energy deficit next winter (2016/17), and with industry raising concerns about energy security, the UK government has proved unable to develop new generating capacity.  Indeed, their main achievement has been to reduce capacity by closing coal power stations before the alternatives have been put in place.  Worse still, by cutting the subsidies for renewables, the current UK government is staking everything on the development of new generating capacity that, at present, nobody can afford to build.

This is most obvious with the Hinkley C nuclear project that was supposed pave the way for several additional plants to take the place of coal.  However, the project has run into serious difficulties, in part to do with flaws in the design, but primarily because investors do not believe the project can deliver a return even at the eye-wateringly high fixed prices offered by George Osborne.

In fact, the UK energy generation industry as a whole is struggling with a capital formation crisis.  Government either cannot or will not stump up the multi-billion pound cost of securing the Britain’s future generating capacity.  Instead, they have sought to fix the problem by front loading future customers’ bills (with most of the cost falling on business) in an attempt to make private investment attractive.  Unfortunately, private investors have not been forthcoming.

The result for the time being is that energy capacity project managers are lobbying government to increase the amount that energy consumers will have to pay in future, in the hope that this will make investment more attractive.  However, with Britain’s steel industry collapsing largely as a result of high energy costs, it is finally dawning on Ministers that the cost of keeping the lights on in future might involve the collapse of what remains of the UK economy.

In truth, this is not all the fault of the current government.  A major flaw in our politics is that governments are focussed on the short-term goal of winning elections, while the impact of their policies can take several decades to hit home.  For while the coming energy crisis will land on Amber, Dave and George, the truth is that the real cause of the crisis is the energy privatisation that was carried out by the Thatcher government.  It was they who loudly proclaimed that privatisation would modernise energy and keep the lights on for centuries to come.  It was they – and their New Labour successors – who chose not to intervene to ensure that the UK would have sufficient capacity at a price the economy could afford:

“Electricity isn’t a commodity like copper or coffee or water. It’s the only commodity that is both essential to modern life and impossible to store. An electricity system must be able to manufacture and transport as much power as the society it serves demands at every given moment, and not one watt less. The only efficient way to achieve this is for society to invest vast amounts of manpower and resources over generations to plan, build and maintain a network of power stations and supply cables, with excess capacity to deal with breakdowns and peaks in demand.”

Within the next couple of years, as more projects are cancelled as a result of a lack of capital, and as businesses and households struggle to meet the cost of imported energy, we will finally be in a position to judge the policy of privatisation.  I believe we will find it wanting.

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