My regular Times column from 26th September
2013:
Hypocrisy can be a beautiful thing when done well.
To go, as Ed Miliband has done, within four years, from being the
minister insisting that energy prices must rise — so uncompetitive
green energy producers can be enticed to supply power — to being
the opposition leader calling for energy prices to be frozen is a
breathtaking double axel that would make Torvill and Dean
envious.
Remember this is the very architect of our current energy
policy, the man who steered the suicidally expensive Climate Change
Act through Parliament; the man who even this week pledged to
decarbonise the entire British economy (not just the electricity
sector) by 2030, meaning that nobody will be permitted to heat
their house with gas.
Has he checked the price of electric heating versus gas
recently? The gap is due to grow greater. By 2030 much of the
electricity will, in theory, come from offshore wind, which is
being promised three times the price that gas-fired power stations
get for making electricity. So Mr Miliband is telling us to treble,
and freeze, our heating bills at the same time.
“There is not a low-cost energy future out there,” Mr Miliband
the Energy Secretary said in July 2009, insisting that we learn to
live with higher energy prices. “We can work together on the basis
of this price freeze to make the market work in the future. Or you
can reinforce in the public mind that you are part of the problem
not the solution,” Miliband the Opposition Leader threatened energy
companies yesterday.
In a prescient paragraph entitled “And guess who gets shot?”, a
Liberum Capital report in April suggested that when the
energy-price crisis came, the government of the day would heap most
of the financial pain on to investors by insisting that they cut
profits. That day has arrived early. Mr Miliband has effectively
admitted that he will try to delete investors’ return on equity
rather than take any blame for the huge bills that will drive
people into fuel poverty.
Liberum estimated that to deliver the current Government’s
low-carbon energy policy, which Labour thinks is too wet, would
require £161 billion to be spent by 2020 and up to £376 billion by
2030. That will be passed to consumers. Much of the discussion on
the Energy Bill in the House of Lords this summer was about how to
make sure the subsidies were generous enough to entice such large
investment. Liberum calculated that “if the investment does take
place we see electricity bills rising by at least 30 per cent by
2020 and 100 per cent by 2030 in real terms”.
Mr Miliband may have ensured that it does not take place. There
has never been a price control that did not crimp supply. America’s
controls on natural gas prices, instituted in the 1950s on the
assumption that supplies were limited, and meant to protect
consumers from monopoly pricing, ended up causing shortages and
high prices. Nobody wanted to look for gas if the price was fixed
by the government. After controls ended in 1989, America became
awash with natural gas and prices plummeted.
Imagine you are a big energy company wondering whether to spend
millions pouring cement into the Dogger Bank to bear the weight of
wind turbines. You reckon there’s a 50 per cent chance of a
Miliband government in 2015 when the turbines come on stream. But
you’ve just heard that Prime Minister Miliband will not let you
make a profit. You will scale back your plans now. “If Centrica and
SSE cannot make any money supplying electricity to the retail
market then they won’t supply it. The lights will go off,” said
Neil Woodford, the head of equities at Invesco Perpetual, one of
Centrica’s biggest shareholders. And he has the power to make it
so.
Shed no tears for the energy firms. They went along with the
crony-capitalist plan for driving up costs, mouthing green
platitudes that gave them cover for price rises. Meanwhile, the
rising cost of oil and gas gave the Government the excuse to argue
that they would have risen anyway. They are counting on further
rises to come, but may not be so lucky as the shale revolution
gathers pace.
In a subsidised system, the politician becomes the customer. The
companies thought all they had to do to make profits was to pick up
the phone to the Energy Minister, sigh and tell him that they would
not build a wind farm unless he raised the “strike price”. That’s
how it got to an unbelievable £150 per MWh. As the closure of
Britain’s nuclear and coal plants is ahead of schedule, and the
opening of green and nuclear replacements is about three years
behind, the minister was at their beck and call.
Now suddenly they will be realising that they should have been
listening to their real customers all along and championing cheap
energy. Maybe even ministers will think the same thing. If so,
there is a silver lining. This just might tear up the cosy
consensus on energy policy that has driven the current Energy Bill
through Parliament so far. After all, the public will get the
impression that Mr Miliband is standing up for consumers, albeit
against the wrong enemy. David Cameron needs to outflank him or
risk looking like a friend of crony capitalists.
Around the world, government after government is walking away
from the expensive fiasco that is energy decarbonisation. Stephen
Harper, of Canada, led the way. Tony Abbott, of Australia, is
hurtling down the same path. Spain reneged on its promises to green
investors. Even Angela Merkel, now leading a largely Green-free
parliament, is being told by leading economic adviser that the
gigantic expense of the green “Energiewende” cannot be afforded.
She’s already building new coal-fired power stations. (In passing,
I declare a commercial interest in coal.)
When he came to power, Mr Cameron thought energy policy didn’t
matter much and could be safely contracted out to Lib Dem wishful
thinking to guard his Islington flank. In fact, affordable energy
is crucial to economic recovery. It deserved a Gove or Duncan Smith
to challenge producers and champion consumers. Maybe, by mistake,
Mr Miliband will trigger such a rethink.