Guest essay by Eric Worrall
h/t John – Faced with mounting voter anger over green policy driven electricity price rises, a precarious, under-resourced energy grid, and with a national election looming June 8th, the British Conservative Government has responded by promising Venezuelan style price caps on domestic electricity bills.
UK Conservatives pledge energy price cap, hitting utility shares
By Kate Holton and Alistair Smout
Mon Apr 24, 2017 | 4:13 PM BST
Britain’s ruling Conservative Party said it would cap domestic energy prices if it retained power in an election in June, targeting an industry it accuses of not working properly and sending shares in the leading providers down sharply.
Shares in British energy suppliers Centrica and SSE fell as much as 5 percent, and were last down around 3 percent, after ministers said the Conservative’s election manifesto would include pledges on controlling energy prices.
Energy bills have doubled in Britain over the past decade to about 1,200 pounds a year, angering consumers who face rising inflation, and drawing the ire of politicians ahead of a June 8 national election. Energy companies say higher prices reflect increased wholesale costs and environmental levies.
…
Centrica condemned the proposal as against consumers’ interests. The proposals made Centrica and SSE the biggest fallers on a FTSE 100 index which was up 2.1 percent.
“Price regulation will result in reduced competition and choice, stifle innovation and potentially impact customer service,” Centrica Chief Executive Iain Conn said in a statement.
Read more: http://uk.reuters.com/article/uk-britain-election-energy-idUKKBN17Q0LR
This is a mess of the British Government’s own making. In 2014, analyst Peter Atherton of Liberum Capital described the British energy market as uninvestable.
In 2015, then British Energy Secretary Amber Rudd admitted;
“We now have an electricity system where no form of power generation, not even gas-fired power stations, can be built without government intervention. And a legacy of ageing, often unreliable plant.
“Perversely, even with the huge growth in renewables, our dependence on coal – the dirtiest fossil fuel – hasn’t been reduced. Indeed a higher proportion of our electricity came from coal in 2014 than in 1999.
“So despite intervention we still haven’t found the right balance.”
Read more: https://www.gov.uk/government/news/new-direction-for-uk-energy-policy
The obvious solution to Britain’s problems is deregulation. Remove the obstacles to fast tracked gas fracking, cancel the green mandates, provide financial guarantees against future government intervention, and do everything possible to restore confidence in a level playing field for all energy investors.
But British politicians are not yet ready to abandon their unrealistic dreams of a green energy future.
Price controls are a direct attack on the profitability of British energy utilities, and badly undermine any remaining shreds of confidence in the British energy market.
Price controls expropriate investors of returns they would otherwise have received, and signal that further expropriation, maybe even complete re-nationalisation of the entire industry may be looming.
Price controls do not guarantee that order will be restored – as the long suffering people of socialist Venezuela have discovered, imposing government mandates that the shelves be filled with food and that electricity be supplied to homes does not guarantee either of these things will actually happen.
Perhaps worst of all, these newly proposed price controls are the brainchild of the British Conservatives, what passes for the mainstream right wing of British politics. If the opposition Labour Party wins the June 8th election, even more extreme policies may be imposed – Jeremy Corbyn, leader of the British Labour Party, is one of the most leftwing politicians to ever head a mainstream British political party.
As a former British resident I understand how difficult life can be in Britain. A lot of people are hurting, caught between soaring prices and a moribund jobs market in many regions and sectors of the economy. But price controls are not the solution, they are a wrecking ball which will do even more damage to an already severely dysfunctional British energy market.
The Climate Change Act and it’s consequential effect on energy suppliers was backdoor nationalisation without government purchase of equity.
Having thus legally prescribed the parameters attaining to the production methods and supply of product, the 99% of shameful parliamentarians who voted aye in 2008 now own the situation that exists today, and to double down on that stupidity by proposing a price cap ten years later in an attempt to pass the buck is no more than a momentary encumbrance to the cash devouring monster they created at that time.
It’s an old trick. Use regulations to force an industry into bankruptcy. Buy the assets at pennies on the dollar, then remove the regulations.
Price controls haven’t worked since the Romans first tried them over 2500 years ago. The Chinese may ache tried them even earlier than that – and also failed.
Deregulation and stopping the “green” c**p will not work to produce the necessary investment because of the ever present threat that they will be reintroduced by future vote-seeking “progressive” govts. The “green” genie is out of the bottle and will not return there for decades, so I believe that hankering after a return to a (largely mythical) Free Market is doomed.
Thus, despite being a Free Market zealot I support a price cap, which will inevitably change from being The Cap to being The Price. The govt needs to fully interfere in the electricity market, i.e. a return to central planning, it must keep the lights on, and that is the only way to make sure that happens.
As well as a price cap there needs to be a subsidy cap (around 10% of electricity bills), at present it seems like any loony-tunes “green” scheme gets a promise of massive subsidy, with no regard to consumer bills.
If implemented (price controls), the British grid will go into rolling blackout mode and rationing. There’ll be no incentive to even attempt to conserve. Perhaps the UK will then convert to personal battery storage devices so everyone can queue up every day to get their allotted energy. For the nostalgia folks it’ll be replaying the queues of WWII. Great fun, what?
Your post above abruptly took me back to the 1940’s, when, as a young child, it fell to me to cart my grandmother’s ‘accumulator’, as she called it, to the shop on the corner of her road, to have it recharged to enable her radio to work.
She was not on mains electricity and depended on gas for lighting at that time, despite being located in the centre of Portsmouth.
Could we really be so stupid as to cast ourselves back to the bleak post war conditions that we then endured?
I remember them well ; too well.
Eugh!
Um, I’m a bit confused here, if power derived from renewables is cheaper than that from fossil fuels, as we’ve been told repeatedly, why do they need price controls?
(natural) gas is still the largest part of UK energy… 80% of people use it for heating and it supplies most of the electricity (for the moment).
the price fluctuates… UK consumers get sudden increases when it goes up for heat and electricity… then gas wholesale price goes down, and for some reason firms don’t drop the price to consumer…
Also, UK firms have a history of obscure pricing structures and a habit of giving new customers cheap rates while keeping old customers on high tariffs.
The issue here is not renewables, but a perception UK firms rip off customers. So govt will be popular if they beat said firms with big stick…
As Griff so well demonstrates, when a left wing media repeats something often enough, those who rely on government for their daily bread will quickly come to agree.
Well griff, for once you are correct, there is a perception that energy companies are ripping is off, and its true. Renewable energy companies have ripped the UK so far that we now have two…well let’s leave it there…
I get my energy company information from the business pages of the likes of the Times and Telegraph Mark.
If you want to know what’s going on always read the business pages…
Like I said, Griff gets his information primarily from propaganda sources.
Let the solar and wind generators, compete on the open market without subsidies or tax breaks, if they can sell at a profit around the 3D a KWH like a coal power station they have a right to exist. If they cannot it is their problem, they have been propped up long enough. I live in OZ and the same madness is here , just got my power bill @38cents a KWH, last week they forced a coal plant to close that was efficient at 3C a KWH, bat shit crazy green BS.
You also have to eliminate the mandates.
Competition and choice is the ONLY cure for high prices ! IMHO….
As climate scientists appear to have high confidence in their ability to assign causation to correlated events, perhaps they should analyze this correlation with respect to energy prices doubling:
“For First Time Since 1800s, Britain Goes a Day Without Burning Coal for Electricity”
https://www.nytimes.com/2017/04/21/world/europe/britain-burning-coal-electricity.html
No relation at all, surely?
(and since 50% of UK coal for power stations imported, an increase in energy security to boot!)
This was originally a Labour party proposal ( centre left party) which was severely criticised by the Tory party ( centre right party) . It ‘s interesting to see that in view of the massive profits made by energy companies in the UK, politicians, even on the right have now thought twice about opposing the cap.
My advice is to generate as much of your own as possible through Solar PV panels and panels that generate hot water. You are then largely protected against both political meddling and profiteering by energy companies as well as saving money.
Massive profits. Now that’s funny.
Gareth says
“massive profits made by energy companies in the UK”
What planet do you live on?
Its should be easy, even for you, to look at the share price of Centrica and SSE
What a socialist solution. If the government makes something too expensive, just order the makers to sell at a loss.
Nicely said.
The solution in Venezuela is to Inflate the currency while imposing price controls. Then even the poorest have money to buy anything they want. What could go wrong?
Eugene WR Gallun
The UK domestic energy market is not a true market, it is a fog of obfuscation by 6 major and 50 minor so called energy providers. About 30% of folk use price comparison websites once per year to choose their next supplier. There is no company loyalty because the companies will let you roll over onto much higher tarrifs if you don’t switch each year. The same gas and electricity comes out of the pipes and wires no matter which supplier you choose. The 70% who don’t use price comparison websites are the ones ripped off by about £300. Inertia is the basic supplier philosophy with the poorest, less tech savvy folk being ripped off. None of this has anything to do with sources of energy or policy.
A far more successful market would be created if the 70% could pick up a card at the supermarket showing the cheapest supplier so they could fill it in, mail it and so save £300 per year. But hey the present system employs lots of folk dancing on a pinhead in call centres, comparison websites etc.
One of the many reasons why the UK has such low worker productivity, lots of non-jobs.
surely the existing websites do what a card would do… the problem is not the means of finding cheapest it is people not being inert.
Yes they do but 70% of the population are not using them regularly or at all. I’m pretty sure many would fill in a form and post it. Price comparison websites have been around for years. Many folk are either too old (I help two elderly folk to use them ie I do it for them) or don’t trust computers/internet because of the horror stories they hear about hacking/crime and are scared of something they don’t understand. No business model should profit from inertia. The banks use inertia, insurance companies do and they take advantage of people’s (misguided) loyalty.
And the irony in the UK is that a single elderly person over 75 recieves a £300 annual payment for heating which in many cases is just gobbled up by the energy firms overcharging.
son of m
” gobbled up by the energy firms overcharging.”
Far from it Centrica made losses in two of the last 4 years brackets ( ……..) indicate losses
Here are the financial reports for Centrica
Dividend Data
31-Dec-16 31-Dec-15 31-Dec-14 31-Dec-13 31-Dec-12
Interim Dividend 3.60p 3.57p 5.10p 4.92p 4.62p
Final Dividend 8.40p 8.43p 8.40p 12.08p 11.78p
Total Dividend 12.00p 12.00p 13.50p 17.00p 16.40p
Fundamentals – based on IFRS
£ (Millions) £ (Millions) £ (Millions) £ (Millions) £ (Millions)
Income Statement 31-Dec-16 31-Dec-15 31-Dec-14 31-Dec-13 31-Dec-12
Continuing Operations
Revenue 27,102.00 27,971.00 29,408.00 26,571.00 23,942.00
Operating Profit/(Loss) 2,384.00 (670.00) (1,005.00) 1,721.00 2,491.00
Net Interest (300.00) (279.00) (266.00) (243.00) (209.00)
Profit Before Tax 2,186.00 (1,136.00) (1,403.00) 1,649.00 2,416.00
Profit After Tax 1,662.00 (884.00) (1,005.00) 950.00 1,245.00
Discontinued Operations
Profit After Tax n/a n/a n/a n/a n/a
PROFIT FOR THE PERIOD 1,662.00 (884.00) (1,005.00) 950.00 1,245.00
Attributable to:
Equity Holders of Parent Company 1,672.00 (747.00) (1,012.00) 950.00 1,245.00
Minority Interests (10.00) (137.00) 7.00 n/a n/a
Total Dividend Paid cn/a cn/a cn/a cn/a cn/a
Retained Profit/(Loss) for the Financial Year cn/a cn/a cn/a cn/a cn/a
Continuing EPS
Earnings per Share – Basic 31.40p (14.90p) (20.20p) 18.40p 24.00p
Earnings per Share – Diluted 31.20p (14.90p) (20.20p) 18.30p 23.90p
Earnings per Share – Adjusted 16.80p 17.20p 18.00p 26.60p 26.60p
Continuing and Discontinued EPS
Earnings per Share – Basic 31.40p (14.90p) (20.20p) 18.40p 24.00p
Earnings per Share – Diluted 31.20p (14.90p) (20.20p) 18.30p 23.90p
Earnings per Share – Adjusted 16.80p 17.20p 18.00p 26.60p 26.60p
Dividend per Share 12.00p 12.00p 13.50p 17.00p 16.40p
£ (Millions) £ (Millions) £ (Millions) £ (Millions) £ (Millions)
31-Dec-16 31-Dec-15 31-Dec-14 31-Dec-13 31-Dec-12
Bryn, Centrica are the parent company of British gas which is the operating arm selling energy in the UK. It is estimated that the Cap will reduce Centrica profit by £330M. from £1.6Bn to £1.3Bn. My heart bleeds.
son of m says
” gobbled up by the energy firms overcharging.”
But the reality is Centrica made losses in two of the last 4 years brackets ( ……..) indicate losses
See above.
So instead of correctly identifying the damage that the green policy does to power supply companies and the loading of these costs being passed on to customers som falls for cheap government propaganda.
Government does not want to admit that it forced the power companies to adopt highly expensive green policies.
So instead the government says the increases bills are due to ‘ greedy’ power companies.
Bryan, because Centrica make losses in other parts of their business in some years is no excuse for their British Gas subsidiary ripping folk off where there is such low hanging fruit.
Bryan , and as for the green policies that simply puts costs up for all and I condermn it but it is an irrelevant argument when it comes to inertia selling.
Price caps create an economic illusion for the customer. It is a way of disconnecting the cost of energy from how much the customer chooses to use. Of course, when government policy preferences force the utility to generate electricity using technologies that are several times more expensive than others, both the utility and government get pushback from the voting consumer whose bill is far higher than he knows it could be. So government and the utility conspire to fictionalize prices.
This in essence only adds to the burden and public cost of the pursuit of “climate change” policies. It is all a form of fraud and lies. The government data is “adjusted” which is a form of altering past readings into useless fiction, it subsidizes which shift money from productive sources of funds (business profits, not NGO profits), it distorts costs (more lies) and it then caps some cost components of a bill. Every layer of these compound lies serve to increasingly disconnect the user of energy from the costs. It piles inefficiency upon inefficiency. Such foolishness is often paid for by government borrowing money, which is a form of creating money out of thin air. An then to put the icing on this cake, politicians vie for votes when they claim that this will all be fixed with better “policy initiatives.”
“……Britain’s ruling Conservative Party said it would cap domestic energy prices if it retained power in an election in June, targeting an industry it accuses of not working properly and sending shares in the leading providers down sharply……”
I will hazard a guess here and suggest that the problems with Britain’s grid and energy industry has plenty to do with the British Govt’s meddling in it—much the same as in South Australia. Shutting down plants, shoving wind energy down the industry’s throat, etc….
I heard Libertarian presidential candidate Harry Browne once say something to the effect that …..”Govt is the type of institution that breaks your leg. Then it hands you a set of crutches and takes credit for your being able to get around on those crutches….”
Tilting from the tip of a GE windmill in the North Sea in the dead of winter!
I recall when Comifornia imposed price controls on electricity. The utilities made up the difference by neglecting capacity and maintenance. Until they hit a hot summer and demand exceeded supply leading to statewide rolling greyouts.
The $ equivalent of 1200 pounds would be a nice reduction in my electric bill. No sympathy here.
The truth is we cannot trust any of the major political parties to reduce the cost of buying energy by ditching green policies ,they have been and remain committed to these green policies. The only hope I believe we have of rolling back the green coalition is if ukip makes a breakthrough in this election coming up. I don’t think we should be subsidising renewable energy and we need an opportunity to choose a fuel supply that opts out of doing that ,all energy suppliers remain committed to subsidising renewable energy.
I don’t know what the Venezuelans have been up to with their energy market, but I think this article is somewhat wide of the mark. What they’re proposing to do is stop energy companies ripping people off who remain on their energy proder’s standard tariffs.
At the moment, you have to keep switching providers every time your ‘introductory rate’ expires, or you pay through the nose on a standard rate. Some people, particularly the old and the infirm (often the very people who are in fuel poverty), find it difficult and confusing to keep switching and get stitched up like kippers.
People are confusing the proposed narrowing of the difference in energy prices (between rates for new and existing customers) with the sort of knee-jerk, blanket price-fixing put forward by the slack-jawed Ed Milipede in 2015 (who is also the main culprit behind the UK’s appalling 2008 Death Act (aka Climate Change Act)).
And yes, our energy prices have also ‘necessarily skyrocketed’ due to the appallingly subsidies for ruinable energy.
* provider’s
Blasted auto ‘correct’.
Translation: I demand that the energy companies sell me energy below cost.
Must be an Anglo Saxon thing-
http://www.wattclarity.com.au/2017/04/high-regulation-fcas-prices-on-tuesday-18th-april-in-south-australia/
Not to worry as we have record wind energy-
http://www.wattclarity.com.au/2017/04/aggregate-wind-farm-output-across-south-australia-topped-1400mw-for-the-first-time-on-9th-april-with-more-to-come/
Ready on tap for Mr and Mrs Average-
http://anero.id/energy/wind-energy/2017/april