Labours energy plan leaves Miliband with some explaining to do
Labour party leader, Ed MIliband, wants to shake up the UK’s energy sector. Speaking at Labour’s annual conference yesterday, he said he was fed up with big energy companies taking customers for a ride, and – if Labour got elected – he was ready to act. But not everyone is convinced his plans will deliver.
Miliband pledged before the party to decarbonise the UK’s energy sector by 2030 and freeze energy prices for 20 months from 2015. While Miliband hopes the price freeze policy will be popular with voters suffering from rising energy bills, energy companies were quick to criticise the plans.
Miliband’s announcement led to a flurry of responses claiming Labour’s plans could be economically ruinous – some companies even threatened to pull out of the UK market as a result.
Industry concerns
Miliband’s main frustration is with the way energy company profits are reported, and a lack of transparency over the reasons for recent price hikes. His speech put the focus squarely on energy companies’ obligation to deliver value for money tariffs at a time when household budgets are increasingly strained.
It’s notoriously difficult to know just how much of our bills go toward energy company profits. There’s the money households pay directly to companies like British Gas for their energy. But because these companies buy and sell gas on the wholesale market, too, it’s hard to know how energy companies benefit indirectly. It’s a fiendishly complicated system, and one that many – from politicians to consumer organisations – have complained about.
There have been investigations of whether the UK’s energy companies could be rigging prices – and in turn forcing up bills – but they haven’t come to much so far, and don’t seem to have increased transparency in the market.
Energy companies deny the allegations and argue that it’s important their profits continue to rise because the money gets reinvested in much needed energy infrastructure upgrades, however. Angela Knight, chief executive of industry association Energy UK, told the BBC Labour’s planned price freeze could “also freeze the money to build and renew power stations”, however.
And it’s not just new infrastructure that could be affected, the energy companies argue – the measure could also make running the current fleet of power stations impossible. Energy company Centrica, which owns British Gas, said in a press release that, if implemented, Labours plans mean “it would simply not be economically viable … to continue to operate”, leaving the UK at risk of power blackouts.
Labour dismissed the concerns as scaremongering. Shadow business secretary, Chuka Umunna, told the BBC energy companies’ claims were “patently absurd”.
Labour remains confident its plans won’t cause a market meltdown. A party representative told Carbon Brief that the industry makes long-term investments, with a 20 month price freeze expected to have little effect on decades-long infrastructure plans.
Nuclear and renewable energy providers are also set to be offered a guaranteed price for electricity for a minimum of 15 years under the government’s upcoming electricity market reforms – giving long-term price certainty for those sections of the industry – according to the spokesperson.
In an open letter published by the BBC, Miliband said rather mildly that he expected energy companies would “not welcome all aspects” of the package. He challenged the industry to “work together” with government to restore the public’s faith in the energy market. If it didn’t, companies risked reinforcing the view that they were “part of the problem not the solution”, he wrote.
Nonetheless, Labour’s plans still need fleshing out. Until then, it looks like both Miliband and the energy industry are going to continue to play to their respective galleries.
Feasibility
While there are plenty of questions about whether or not Labour’s plans will work, eyebrows have also been raised over exactly how it will enforce the price freeze.
Miliband said Labour it would implement the price freeze – if it gets elected – by bringing in emergency legislation. The legislation would give the secretary of state for energy the power to adjust energy companies’ operational licenses, forcing them to freeze prices.
There could be political hurdles, however. There would certainly be difficulties if Labour entered a coalition. The Department of Energy and Climate Change is currently run by a Liberal Democrat, Ed Davey. And Davey is siding with the energy companies on this one, saying Labour’s plans could lead to blackouts.
Miliband will also have to work to convince some sections of the media that more government interference in the energy market is a good idea. The Daily Mail claimed Miliband’s speech “set out a defiantly socialist platform” that would see a return to “1970s-style” regulation – though some Labourites may see that as a compliment.
Work to do
Labour’s plans would mean a fundamental shake up of the way the UK’s energy system works. While cheaper energy bills may sound like a nice idea to most voters, there currently isn’t enough evidence one way or the other to really judge how the proposal could affect the UK’s economy. Miliband may well have some explaining to do once the dust settles – but his intervention could signal a shift in the way the country looks at the energy debate, forcing another look at how the industry makes money. And he’s certainly got people talking about Labour.