Why the UK’s politics are incapable of governing energy
Labour leader Ed Miliband’s conference party announcement about freezing electricity prices has prompted some commentators to claim UK energy policy is now in crisis. And they’re probably right – but crises can present opportunities for profound policy change. This might just be what is required to fix the UK’s dysfunctional energy system.
Part of the crisis is that UK energy policy has not been able to deliver on core objectives – climate change mitigation, energy security and affordability – for some time now.
Growing tensions
UK energy policy has become increasingly complex and full of inherent tensions – between addressing price issues, delivering renewables and other important investments and security of supply – for some time now.
My book, ‘The Energy Security-Climate Nexus‘, aims to explain these complexities by tracing energy policy changes through three phases, assessing catalysts for change as well as responses.
What becomes clear is that changes have been informed by three different, and sometimes contradictory, perspectives on energy and how it should be governed: the security of supply perspective, the climate change perspective and the pro-market perspective.
This suggest an energy policy that is full of internal tensions – tensions that arguably leave it open to further, perhaps more radical, change.
Institutions matter
A further argument is that UK energy policy institutions simply do not have the capacity to deliver on climate change mitigation whilst ensuring security and affordability of supply. Institutions, and how they are designed and informed, really matter. Energy policy makers, as well as other political elites, have believed for too long that the state should not intervene in energy markets.
In 1992, responsibility for energy policy was passed away from government and institutions like Ofgem and the Energy Directorate of the Department of Trade and Industry were designed accordingly. Their role was to maintain the energy policy framework and support business but not to design changes – even in the face of new objectives.
Even the Department of Energy and Climate Change, with its energy-specific objectives, is under-resourced and low on ideas about how to create a secure and sustainable low carbon transition. Radical changes have been rejected by departments higher up the UK government hierarchy – like the Treasury.
The problem with privatisation
Another negative outcome for political capacity has been the decision to pass responsibility for energy services, and increasingly for implementing energy policy, to private enterprise. The privatised energy market has been designed in such a way that energy companies must be economically viable – they need to be able to make a profit and sustain a healthy investor base in case they need to raise future equity capital.
Shareholder dividends at the big six energy companies jar heavily with the need for investment in UK infrastructures to maintain security of supply and deliver on climate change objectives. The primary objective of profit maximisation, and keeping shareholders happy, basically prevents energy companies from acting for the common good and delivering climate change mitigation objectives.
Under the current political model, DECC and Ofgem have few resources, little ability to change the system, little access to energy market data, and have to rely on energy companies to implement energy policy. Current structures reinforce embedded corporate power in the UK.
By understanding why structures matter – and why current structures underpin deep tensions between corporate power and delivering energy policy goals – we can start to understand why the UK energy policy is under-delivering.
It all leaves energy policy open to Ed Miliband’s critique and voters delighted with talk of price freezes and a dismantling of energy companies.
Caroline Kuzemko is a research fellow in the Energy Policy Group of the University of Exeter and a visiting fellow in the Centre for the Study of Globalisation and Regionalisation at the University of Warwick. She was director of emerging market equity sales at UBS Warburg between 1994 and 2002.