It’s time for the government to face the facts: it needs to take the energy sector back in hand.
When the Thatcher government privatised the state monopolies on gas and electricity production, distribution, and sale in the 80s and 90s, it was seen as the natural continuation of ‘Maggie’s’ vision for the United Kingdom: a neo-liberal paradise where private interests and competition would allow for more efficient governance and services. Thirty years on, the difference between the promised neo-liberal utopia and reality is stark, with the current private energy sector actively harming consumers, reducing the UK’s sovereignty, and limiting its climate action. In this situation, it would appear as if logic and efficiency don’t speak as much to the Tories as their desperate craving to continue along their decades-old rhetoric, which is as outdated as it is, well, frankly, dumb.
What is the situation of the electricity and gas sector in the UK today? A plethora of companies, producers, suppliers, and sellers, working on mainly private infrastructure. It’s a complicated mess in which the government has oversight and some control, but which shows its true flaws in times of crisis.
The main negative effect of the current system shows itself in times of increased energy production costs. As of late September 2022, the typical UK household’s energy bill (electricity and gas) was four and a half times higher than at the same time in 2020. This only exacerbates the broader context of the cost-of-living crisis, caused by a plethora of factors. A large part of it is self-inflicted—Brexit being about as close to an economic shot-in-the-foot as one can get—and it has been coupled with the consequences of the pandemic and of Russia’s invasion of Ukraine. In this context of inflation and energy cost increases, the state’s role should be to do its best to limit its effects on the general population, in the sectors in which it can have a true effect. And to the Tories’ credit, they did take decisive actions: on October 1st 2022, Downing Street established the Energy Price Guarantee (EPG), to cap the typical household’s energy bills at £2500 per year; the difference between the wholesale price of energy and the price at which it is sold to individuals being covered by the state and paid to energy providers. Though this limits the effects of the current crisis, one can’t help but feel somewhat uneasy at the idea that the government is using £100 billion (Institute for Fiscal Studies) in tax money and borrowing to compensate the same private companies whose earnings have increased upwards of 140% between January 2022 and January 2023 (Simply Wall Street).
Another problem with the current workings of the energy market is that it significantly slows down the climate transition: good will just won’t cut it. The government has set goals to transition its electricity production mix to greener sources, but relies on private companies to implement it. The issue is that for them to actually take action, private companies must see it as in their best interest to do so. This means the government relies on subsidies and fines to coerce the companies into closing their most polluting facilities, and finance the opening of greener ones. It sure seems like a lot of time, effort, and money which goes into dealing with the multitude of actors on the energy market. This could be substantially cut down on if there were a single actor to deal with, whose interests weren’t dictated by their shareholders or profits, but by the state and following the state’s goals.
This slow-changing energy mix is also a threat to the UK’s energetic sovereignty. The country relies on gas for nearly 40% of its electricity production (in 2021, National Statistics), of which more than half is imported. This is a great strategic weakness which leads to price volatility (in this case, caused by the increased European demand for non-Russian gas, which drove prices up), and makes the UK dependent on gas exporters, whereas countries who use other forms of electricity production (wind, solar, even nuclear to a certain degree) are much less prone to such phenomena. The necessity of creating a cleaner and more reliable energy mix is something impeded upon by the private sector.
On top of this, the private energy sector means that foreign actors now have control over large swathes of the UK’s energy. Of the Big Five energy companies, who sell gas and electricity to most Britons, all are the subsidiaries of companies whose shareholders range from the French State to the Qatari Investment Authority, to American investment banks, to German energy companies. It’s not that those countries weaponise this ownership, but it seems like a precarious situation to have foreign actors control your energy. For a country who underwent a messy divorce with the EU in order to take back its sovereignty, its strategy seems to have an energy-sized blind spot.
So what’s the alternative? What sort of energy sector would most benefit the UK? One should look to countries like France, who have made the best of both worlds. Since 2007, the French energy market has been open to competition, meaning that the state-owned companies no longer have a monopoly over energy production and sale, but the state still owns the historic monopolies and is heavily implicated in the governance and ownership of the private actors. When it comes to electricity, the grid is owned by RTE, and distribution is managed by Enedis, both publicly owned. Production and sale are dominated by EDF, the publicly-owned ex-monopoly, with over 70% of the market share (Q4, 2021). In the current context, through state support to EDF, the price increase in light of the crisis only increased by 4% from 2021 to 2022, as opposed to the 35% real increase in electricity production costs. When it comes to gas, the market is dominated by EDF and the historic gas company Engie, in which the French state has over 35% of voting rights, meaning it determines the policies of the group and its executive officers. Here too, state support and control has allowed for the blocking of gas prices in 2022 at their 2021 level. This system works for consumers, but it also allows for more direct piloting towards greener energy sources by the state. Furthermore, these state-backed companies have the resources and support to invest overseas—UK included—which makes the French economy a more dynamic and unavoidable presence on the world stage. For example, EDF has partial or total ownership of electricity companies in over 15 countries.
This model of an open market in which the state has a large stake, both in the historic monopolies and with public-private partnerships in the private sector, allows for the advantages of competition, but also state intervention for the protection of consumers, the green transition, and sovereignty. It’s the best of both worlds.
So what should the UK do? At this point, the solution seems to be the full renationalisation of the five biggest energy companies, and of the entirety of the national grid. The cost of purchasing the big five has been estimated to be in the ballpark of £2.8 billion (Trades Union Congress). Even if this estimate should be taken with a grain of salt, it at least shows that it’s something perfectly feasible. It would create a giant which could ensure state control over prices. Later, it could even be partly privatised, by bringing it onto the stock market, all while maintaining state control over voting rights.
This could, of course, be branded as a Labour idea—who have recently called for the creation of a national energy company, Great British Energy—but it isn’t just a Labour idea, it increasingly seems like common sense. Instead of letting private companies run the market in search for profit and at the expense of both consumers and national sovereignty, there should be a real push towards the creation of what would be a British energy giant, who through government control would allow for a fairer, greener, and more efficient energy market in the UK.
Illustration: Marios Diakourtis