Ed Miliband’s Price Freeze May Be Nonsense, But It Could Become Popular
First politicians banned cheap energy. They are creating an affordability crisis by insisting on the rapid deployment of expensive technologies like offshore wind and by imposing endless green taxes.
It is simply illegal to generate electricity at an affordable price with a modern, efficient coal and gas power plant, without bearing all of those other costs. Ed Miliband was one of the people who imposed those high costs on consumers, as the Secretary of State for Energy and Climate Change in the last government. Now his plan is to fix the situation by banning expensive energy too.
The Government already decides which technologies are good – wind, solar, carbon capture and storage – and which are bad – coal and gas. Under the new contracts for difference (CfDs) introduced with the Energy Bill, they will now decide what power stations get built: when, where, and with what technology. Analysts at Liberum Capital wrote that ‘it is arguable that even when the industry was state owned prior to 1990, central government had considerably less control than envisaged by the Energy Bill.’
Under the new Labour plan, politicians will set the retail price too. Renationalisation is too mild a word to describe it. What happens when the price freeze ends, will the market be allowed to return to equilibrium with even more rapid price rises or is the political fixing of the energy price to be – in reality – a permanent part of our energy policy?
What happens if there is a spike in the wholesale gas price – perhaps because of a new crisis in the Middle East? It is easy to imagine the Government being confronted by a stark choice between ending the freeze or bailing out the sector and completing its creeping nationalisation.
Remember that a Labour Government would still be expecting massive investment in the energy sector – hundreds of billions of pounds – to meet climate change targets. Ed Miliband thinks that the current Government targets are too soft, not too tough. Just like in any other sector, paying for an enormous increase in investment requires higher profits, paying for those profits requires higher prices.
That whole agenda only ever made sense if politicians were intensely relaxed about rising prices, thanks to rising household incomes or improvements in energy efficiency. Environmentalists and energy companies alike convinced themselves that was possible. It is now very clear that they were wrong.