Why the energy price cap is needed in order to keep renewables cheap for the consumer

Just as it has been announced that the energy supply companies have returned to making some money, demands are being made to scrap the energy price cap. The energy price cap protects domestic energy consumers against, to put it simply, against being ripped off by energy suppliers if you are not subscribing to one of their contracts. Now the right-wing think tank, the Centre for Policy Studies, has jumped in to champion the abolition of the price cap and a return to what they describe as competition. Worryingly Jonathan Brearley the OFGEM boss seems to be leaning also in that direction.

That brings me to the first reason why we should keep the price cap - at least in some form. Competition in the domestic retail market did not work for around 20 years of its existence and there is no reason that it will work in the future. There are simply too many, too small, consumers for suppliers to effectively market. The bulk of these consumers do not have the time or the desire to spend a lot of their time checking which suppliers are offering the best rates and then signing off or on to them. I certainly didn’t!

The price cap brought to an end the practice whereby the suppliers rewarded people who signed up to fixed-term purchase agreements and then soaked the rest of the consumers (the majority) who were on so-called variable (read rip off) tariffs. We do not want a return to this! The Centre for Policy Studies claims that this will be avoided if only we abolish the fixed term agreements, which they call ‘acquisition only tariffs’.

I very much doubt it! The suppliers will just change their tactics and just change their tariffs every little while - probably after an interlude following a quick burst of marketing to pick up consumers before putting tariffs back up later. The Competition and Markets Authority talks about educating consumers to take part in the market. I say, no thanks, I haven’t got the same to play at being a petty capitalist consumer in a market that is really an effective monopoly.

The second reason that the price cap should stay is that it ensures that the money saved on cheap renewable energy schemes stays with the consumer and not diverted down some hole by the energy suppliers. Renewable energy projects that are signed up for ‘contracts for difference’ (CfDs) are giving an increasing amount of money back into consumer’s pockets. The consumers get reduced bills as a result.

This works because CfD contracts involve the generators paying the money back to suppliers when (as they are usually these days) the generators are receiving more than the ‘strike price’ set out in their contract. The way this works is that in the so-called green levies which we pay on our energy bills is a section that funds renewable energy. But when renewable energy saves money these levies turn negative - ie the consumer saves money - or it will do if the suppliers pass on to them the savings in terms of reduced bills.

However, this process is only guaranteed because of the price cap. That is because OFGEM calculates the price cap taking into account these flows of money associated with CfDs. If the price cap is scrapped, ergo, the suppliers can do what they like with the savings for cheap renewables!

The trouble is of course that in the post-Thatcher world anything that claims to involve markets is assumed to be the default best solution, even when it patently fails in practice. My own preference would be put the domestic retail energy supply sector into public ownership, about which I shall say more at a later date. But for now, please don’t let them scrap the price cap!

In a few months time you will be able to buy a definitive guide to the renewable energy revolution and how to save the energy industry from the profiteers - this is my forthcoming book ‘Energy Revolutions - profiteering versus democracy’ to be published by Pluto Press

A publicly owned energy system would have much reduced the present energy price crisis - but nationalising things now won't solve this crisis

 Amidst the unfolding horror of the UK's energy price crisis there is a debate about public ownership of the energy system to make things better. Well, as I discuss below, it's very plausible to argue that things would have been a lot better in the current crisis if energy had stayed in public hands instead of being privatised and liberalised. But whatever the merits of taking parts of the energy system now into public ownership may be, it won't help us beat the current crisis. It is an unstoppable tsunami that will drown many of us.

Let's go back and 'imagine' what would have happened if natural gas, electricity, oil and coal had not been privatised in the first place.

Perhaps most importantly for the present crisis, things could be crucially different if the publicly owned British National Oil Corporation had not been sold off in the 1980s. It could have adopted a role of dominating the nation's oil and gas industries as in the case of Norway with its state owned oil company Statoil. Then the nationalised company could be told by the UK Government to contract with the UK gas distribution and supply agencies to supply natural gas at much lower prices than the global LNG prices which form the basis of our current gas prices.

And there would be most likely be more of the natural gas, as well, because our natural gas stocks would not have been depleted so much. That is because the end of British Gas's monopoly on gas in the 1980s opened the way for the operation of a lot of gas fired power stations in the 1990s, something that was pushed along by the privatisation and liberalisation of electricity markets after 1990. This depleted UK natural gas reserves at a much more rapid rate.

If electricity had remained in the shape of the nationalised CEGB then we would have had fewer gas fired power stations because the newly privatised regional electricity companies would not have any incentive (they would not have existed) to promote building the gas fired power stations! Certainly the CEGB would probably have built some; combined cycle gas generation was a new, spreading technology then and the CEGB would have wanted to be seen to get ahead - but I'd guess far fewer would have been built than what we have now. We might also have had another nuclear power station built, - Hinkley C in fact, albeit a version only a third the size of the version being ponderously built at the moment. The original Hinkley C was never built because of electricity privatisation. I doubt that there would have been more than this since energy prices plunged in the 1990s making nuclear look costly even for a nationalised energy company (the Governments of the 1990s certainly didn't encourage nuclear build). But we'll just have to wonder about that.

The speed and scale of renewable energy development would have depended partly on how nationalisation was configured. It is difficult to see how a monopoly, whether public or private, could deliver an effective, never mind cost-effective renewables programme without a competitive element. That's what the international examples tell us. Really! Plus of course the nationalised electricity monopoly would most likely have fought against big targets for renewable energy since it would reduce the value and viability of its own power plant. I assume, however, that this could have been largely overcome. 

So probably the force of political gravity would have forced some licensing procedure in which there was competition for contracts to generate renewable energy from a variety of companies, just as today.- not a million miles from the present system we have now of CfDs (contracts for difference) whereby the Government gives direct contracts to the renewable energy developers.

I really do not know where energy efficiency would have been delivered better or worse - there was a recognisable energy efficiency programme organised under the Blair/Brown Government, but that mostly disappeared after the Conservatives failed to renew Labour's programme.

So what are we left with? The Government would easily be able to tell the nationalised oil and gas industry to sell us gas at much lower prices than at present, We'd have a position whereby the UK gas reserves would have been less depleted, meaning that a higher proportion of natural gas was being supplied by our nationalised companies. Carbon dioxide emissions would have been higher. There's unlikely to have been enough new nuclear power to make a key difference there, especially when one considers that we would have had to argue with the fossil dominated CEGB to make a rapid expansion of renewables. And yes, we would almost certainly have more gas storage capacity than we have now since it would have been by definition a political rather than a market choice that it has been left up to - but how much would be a matter of debate. If we had as much storage as Germany, for example, we would be in substantially better shape.

So, all in all, we can argue that the energy price crisis, whilst still bad, would have been much less severe than the terrible position we now face if the energy industries had remained in public hands.

But, I'm afraid, that is not the same as arguing that nationalising the energy industry will make the current situation much better, or at least not better than could be achieved with better regulation at lower cost. That's not to say that there aren't some plausible arguments for public ownership of some parts of the energy industry as a general proposition. But nationalisation now will not save us from our present predicament since the crisis is caused by ultra high global LNG markets upon which we are reliant. Certainly a nationalised industry could pay the nuclear and renewable generators much less than we do at the moment. But we can do that with much better regulation than there is now without having to spend money on buying out the assets of the companies involved.

Ah, yes, we could nationalise North Sea oil and gas assets. But that would be very expensive, and anyone who claims this can be done without paying the full price is talking nonsense. There are too many treaties and international courts and lawyers around to allow that to happen. To give you an example - BP, which used to be owned by the UK Government, would cost over £100 billion including debts. And even then most of the North Sea hydrocarbon assets are owned by other companies.

I don't see much advantage in monopolies such as the transmission and distribution companies being privately owned. True, they have an incentive to reduce costs, and deliver their services with fewer costs, which means fewer employees mainly. But that looks to me like a trade-off between employing people and giving profits to shareholders, arguably also including having fewer people around to give a better service. Added to that the so-called competition in the retail supply sector has always been a joke. It's just too costly for the suppliers to market themselves to so many small consumers. The industrial and commercial sectors might involve some competition, but the gains overall must be small. As we know it's the generation of energy which dictates the bulk of the prices. 

The most likely short-term possibilities for nationalisation would be some suppliers who go bust after consumers are unable to pay their bills!

A radical idea would be to give ownership of energy distribution and supply to local authorities. There would be some accountability to local people there, which might help net zero carbon transition. But of course this will cost money and need to be organised well. I have commented on this before. See https://realfeed-intariffs.blogspot.com/2019/06/labour-and-energy-nationalisation-why.html

But, to get back to the reality of our current predicament. We're about to drown. The only way this might be ameliorated in the short term is if a world recession saps the too-fast-growing demand for natural gas in the East. That would moderate global LNG prices. But if our best hope is a bad world recession, you can see how much we're really screwed.........

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Why Labour's green policies are fatally undermined by its 'nuclear first' stance

 It is now clear from Labour's stance in the House of Commons, that nuclear power comes before every thing else. Indeed, aside from Keir Starmer's emphasis on 'nuclear first' attacks on the Government in the House of Commons, Labour's allegedly massive green energy spending strategy seems likely to be swallowed up almost entirely by its pledge to rush to embrace the Sizewell C development. 

The Treasury knows full well that to get Sizewell C going reasonably quickly the Government will have to commit to a potential bill of £30 billion or more in public spending. This must come, either or both, from hard-pressed energy consumers by adding to their bills, or directly from Treasury coffers. The Department of Business Energy and Industrial Strategy's (BEIS) spending plans are closely controlled by the Treasury, and the commitment to Sizewell C will swamp the budget and reduce Labour's ability to spend on things like insulation and heat pumps to a trickle.

Keir Starmer thinks he has seen a weak point in the Conservative's energy strategy in that it is finding it difficult to turn the commitment to support Sizewell C into reality. But that's because funding Sizewell out of a public commitment is likely to present the Government with a crippling financial burden. It is especially crippling because Starmer will refuse to acknowledge the fact that to get Sizewell C going will require the Government to fund a black hole of spending as cost overruns inevitably escalate on the project. 

It's a cynical ploy on Labour's part. They know full well that the Government's difficulties with launching Sizewell C are to do with the sheer financial unviability of new nuclear power, not from any lack of faith in nuclear power on the part of the Government. But apparently, Starmer does not care about this, and it also seems that he takes the green energy lobby for granted in that he expects that it will support him regardless. But if other Labour commitments to support really big programmes in areas like heat pumps and insulation are to happen, there's just not enough money going to be made available for them if BEIS's budgets are swallowed up by the commitment to support Sizewell C.

So how should green energy supporters react to this? Well, there's plenty of other parties to vote for. Indeed if this Government does actually go ahead and reverse the English planning ban on onshore wind, there's probably not going to be much difference, in practice, between Labour and Conservatives on energy. Except of course that the Conservative will be more cautious, it seems, on accepting unmanageable commitments to new nuclear power!

world war three is now becoming more and more likely to happen

 As I said in my last blog post, action by NATO to become directly involved with notions such as 'no fly zones' to oppose the Russian invasion of Ukraine, is madness. I stand by that argument in full. However, the pressure on Western Leaders to become directly involved is increasing and likely to greatly increase. Western publics are becoming more and more outraged by the pictures and news coming from inside Ukraine. 

On the other hand, it seems like while the Ukrainian armed services may not be able to halt the advance of the Russian army, the war may now turn into a series of dreadful sieges of Ukrainian cities. Evidence from the examples of the Russian led destruction of Grozny and Aleppo suggests that this process could, even in the case of single cities, take months, perhaps several months, for each city. The grisly razing of Ukrainian cities, one by one, with attendant seemingly never  ending horrific media coverage will increase now strong currents of public opinion demanding that the west enters the war in defence of Ukraine. And as the sieges occur one after the other, for months and months, this pressure will grow ever stronger and stronger.

So far there have been sanctions applied and arms supplies given to the Ukrainians. Sanctions and sending in arms supplies, of course, do not constitute direct military engagement, and indeed there are clear instances of wars since WW2 when such actions have been taken without leading to WW3. The Russians and Chinese supplied North Vietnam in their war with the USA. The USA supplied the mujahideen in Afghanistan in their war against the Russians. The West has practically no alternative but to engage in such action in this case. Hopefully Russia feels that it has an alternative to that of responding with a military attack on the West.

Up until now, barring one or two instances that both NATO and Russia agreed were tangential mistakes, no situations since the Cuban missile crisis of 1962 have looked as likely to tip us over the edge into a wider war compared to the present situation. The danger now is not so much a mistake of a stray plane being shot down, or an artillery shell landing in the wrong place, but the result of an intentional strategy that one side or other (the West or Russia) to attack the other.

But direct NATO engagement in the war in Ukraine does not even have to start with a collective decision by NATO. It can come from a member of NATO, or a NATO member interpreting NATO policy in a particular way. Once the action starts, however, even if constructed as a limited act, retaliation and counter-retaliation is likely to lead to a general war. 

It does now look like the war in Ukraine will last for months. Rational arguments from NATO leaders are likely to be overwhelmed by the reactive feelings of the public to the sheer horror being explained on the news bulletins. The seductive but toxic charm of  'something must be done' is likely to eventually triumph. Then the progress towards the apocalypse of a new world world war will achieve an irresistible, and dangerously unpredictable, dynamic. The outcome of this process of escalation leading to general war will means that millions rather than (as seems almost 'priced in' at the moment) tens of thousands will die. Potentially, of course this could be tens of millions, or.........

Action to avoid this outcome rests not only in Western Leaders acting with caution, but also, and indeed primarily, on the Russian Leadership bringing this atrocious bombardment and siege of Ukrainian cities  as quickly as possible to an end. The only way they can achieve this is by now not bombarding and besieging the cities in the first place, or at least stopping it as soon as possible.

Why talk of western imposed 'no fly zones' and NATO attacks on Russian forces is total madness

 I have been horrified by the Russian invasion of Ukraine and am fully supportive of the sanctions on Russia and also ammunition/munitions support given to the Ukrainian Government. But the now common talk of so-called NATO-imposed no-fly zones etc,  effectively means Western war with Russia and is utter and compete madness. Far from saving lives the result will be that many more will die. 

At best attacks by NATO aircraft on Russian planes or other military positions in Ukraine will simply drive many so-far war-sceptical Russians into the arms of Putin's war rhetoric, and support for yet more killing and retaliation. Why embolden Putin and convince Russians more thoroughly that NATO is really at war with them? It risks a far, far larger number of lives than we can ever save in Ukraine (whether or not things go nuclear), no matter how barbaric the artillery attacks on Ukrainian cities may be. Once NATO starts an attack, there is no knowing where things will end. War is very unpredictable, so why open Pandora's box?

It may, of course, be that the act of supplying surface to air missiles and anti-tank weapons etc via Poland or wherever risks conflict with the Russian military. Well, on balance, I think that risk is one that is worth taking,   The risk involves the danger of efforts by Russian forces to intercept that support,  and leaves it open to NATO to decide a response if that is the case. 

However, a premediated attack by NATO on Russian forces is an altogether different act. It is a an act of sheer unadulterated madness. You don't require a war gaming analysis to work that one out. Please leaders of the Western World, do not get carried away by too much liberal rhetoric. The road to hell is paved with liberal intentions. 

Why we should definitely protect people with dementia against age discrimination

 I certainly welcome the decision in favour of the discrimination case against Asda brought by a dementia sufferer who was encouraged to retire. But the trouble is that this case also condemns ageist attitudes that dominate society which implictly argues that older people can't do their jobs as well as younger people and that they should be encouraged to retire to make way for them.

Now of course if somebody cannot do their job up to the required standards then they should be asked (and given all reasonable support, including disability support) to do better. Ultimately if that does not prove possible,  standard disciplinary procedures should be applied. If absolutely necessary, they should be fired just as much as somebody younger should be fired if they cannot do the job up to expected standards. But such a process should be independent of their age. In the past before the 65-year default retirement was abolished people were literally shown the door at that age (or 'encouraged' to retire earlier), often as a form of cost-reduction. 

Obviously it is cheaper to hire a newbee than to employ somebody at the top of a payscale, and you can still hear people even on the left arguing in favour of the now (ostensibly) abandoned policy with phrases such as 'giver youth a chance'. But the left is keen to oppose employers who have tried to deploy economic arguments against protecting women giving birth, or acted in a racist or homophobic/transphobic way, and the 'youth first' argument is no less discriminatory than sexist and racist tropes of the past. The political right meanwhile, have historically tended to be slow to protect people against discrimination.

The trouble is that there's often a lot of political rhetoric against 'old' people at the top. If some leader is unpopular and they are getting on in years, you can bet your life that somebody will argue that part of what's wrong with them is that they are 'old'. It is done because it resonates with many people's prejudices, prejudices that are so taken for granted that such tropes go unquestioned most of the time. 

Yet of course the people who suffer most from this type of discourse are the ordinary, often quite poor, older people struggling to find a job. They may be in their fifties/sixties or do not have much of an occupational pension, but are often only hired when the employer cannot find anyone young. At this point people start arguing 'but give young people a chance'. Of course they should be given a chance, but on the basis of their fit for the job regardless of their age. Sometimes, indeed young people are actually passed over because they are too young - that is also indefensible.

Ageism needs to be fought with as much vigour as racism and sexism. Period.