Sunday, 28 August 2022

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

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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