Will the UK Repeat California’s Energy Disaster?
The U.K. is in the middle of its annual party conference season and today was the turn of Labour leader Ed Miliband to light up his bid to win elections in 2015. The result: It looks like Britons will be choosing between two brands of populism when it comes time to vote.
Miliband’s headline-grabbing news was a pledge that if Labour returns to government, it will impose a roughly 20-month freeze on natural gas and electricity prices; break-up the six dominant utility companies; and “reset” the industry under a powerful regulator that would ensure retail energy prices fall when wholesale ones do.
Energy has been a big issue in the U.K., where prices have continued to rise, squeezing consumers whose salaries are falling in real terms. At the same time, the big utility companies have reported healthy profits.
According to Labour Party data, the U.K.’s energy companies have skimmed 3.9 billion pounds from consumers since 2010, mainly by not passing on declines in wholesale prices. It has proposed clawing back 4.5 billion pounds from the companies. Miliband’s idea would be to freeze prices and then put a new system in place — details to come — that would marry low prices with investment in the country’s crumbling infrastructure.
And yet the U.K. is already struggling to persuade global energy companies to invest in new nuclear and other aging energy systems (the government’s own plans call for 110 billion pound investment in energy infrastructure during the next decade). So it’s hard to understand how the prospect of price controls and threat of corporate breakups will encourage companies to jump in and commit money.
The U.K.’s Committee on Climate Change says that while the average household energy bill rose by 60 percent from 2004 to 2011 (compared with 17 percent in general inflation), almost a third of this increase was due to government polices to fund investment in low-carbon energy and making homes more energy efficient, policies that Labour supports.