Editorial: When Britain’s Lights Go Out

  • Date: 28/03/14
  • Editorial, The Wall Street Journal

Green policies destroy the economics of power generation.

On Thursday, the U.K. power regulator Ofgem announced it would refer the six biggest power companies to the antitrust authorities for investigation. Not that there’s any evidence of price collusion, mind you. It’s just that prices for consumers rose by about 9% last October, outpacing the increase in wholesale prices, and so politics demands that something is done.

To anyone who is economically literate the price increases come as no surprise, since Britain faces electricity shortages. A cold winter would push demand to 95% of capacity, meaning a real risk of blackouts.

When markets are working properly, shortages lead to higher prices, which in turn lead to investment in new supply. But U.K. generating capacity is expected to fall further as obsolescent oil and coal plants close. The government is pleading with producers to restart gas plants that are mothballed because they operate at a loss. So why aren’t energy companies putting their increased profits into building new oil and coal plants?

In the last general election in 2010, David Cameron’s Conservative Party endorsed the low-carbon rhetoric of the environmental movement and asked voters to “vote blue, go green.” After winning a mandate, the Tories continued to support the 2008 Climate Change Act that commits the U.K. to reducing greenhouse emissions 80% by 2050, increasing environmental taxes on power to subsidize renewables.

A modern power plant takes about four years to build, and costs can run into the billions of dollars. So regulatory predictability is crucial. Yet both the government and the opposition continue to make green promises that destroy the profitability of the very plants that Britain relies on for its energy security.

The current investigation will only make things worse, since it means a wait of two years to see whether the big energy companies will be broken up. Meanwhile, former Conservative Prime Minister John Major has proposed a windfall profits tax on the power companies. And Labour leader Ed Miliband promises to freeze power prices for 20 months if he wins next year’s election.

Last October during question time, Mr. Cameron blurted out that “we need to roll back some of the green regulations and charges that are putting up bills.” He was promptly attacked by the environmentalists in both his own government and the opposition. Britain’s politicians remain determined to blame greedy power companies for gouging consumers even as they prevent those companies from building economical plants. Who will they blame when the lights go out?

The Wall Street Journal, 28 March 2014