Tories expose their weakness in energy debate

I had expected a very well prepared and incisive rejoinder from the government when the Opposition chose to use their supply debate to press the case for a temporary energy price freeze now. I was however astonished at how contrived and unconvincing the response was. Ed Davey, the DECC Secretary leading the counter-attack for the government, was a mixture of noisy, patronising, shrill and blustering. He produced no more thoughtful answers than the Labour proposals were completely wrong and would put up prices, the Tories were the defenders of the consumer, and that the best way forward was what the government was already doing.   If you believe that, you’ll believe anything.

The only real point made by the Tories was that a price freeze would discourage the investment that was needed and would turn the lights out. But so far from it being the case that the companies were pouring their profits into investment before the price freeze announcement which then discouraged them, the reversxe is true that despite egregious profits there was such a dearth of investment as to lead to a warning years ago that there was likely to be a capacity shortage (i.e. the lights would go out) in the middle of this decade.

The other charge made by the Tories was that the companies would sidestep the freeze by either jacking up prices beforehand or afterwards or both. But that is easily refuted. First, if the Big 6 tried to do this in concert in the months just before the next election in 2015, even a weak regulator like Ofgem would have to take action because cartelised price-fixing of this kind is illegal, and anyway a new Labour Government would take powers to adjust the licences of the Big 6 to deal with price rigging.

If an attempt were made to hike prices after the election when the freeze was over, i.e. in or around January 2017, the structural changes put in place during the 20-month freeze would operate to prevent it, namely a return to trading energy through a pooling system (as in Germany), the separation or ‘unbundling’ of the generation and retail arms of the Big 6, and the establishment of a more powerful and vigorous regulator with significant new powers.

The real problem, which unsurprisingly the Tories ignored, is that the present energy system – a Byzantine industrial structure theoretically co-ordinated by the market mechanism, but nevertheless still requiring omniscient policy-makers to mastermind everything it does – has irreversibly broken down. The liberalised market alone is demonstrably unable automatically to achieve the wider objectives needed – mitigating CO2 emissions, ensuring security of supply, managing the energy sector’s impact on the balance of payments, and investing to ensure the lights are kept on. Planning by the State turns out to be necessary after all.