Both Labour and Tories have failed to mind the energy gap

Labour Leader Ed Miliband called for a cap on energy prices at the recent Labour Party conference. The energy companies’ profiteering, he declared, was too much. The move was immediately rubbished by Tory ministers as an obvious own goal. Here was Red Ed, the Stalinist, trying to fix prices! Surely everyone knows that you cannot buck the market. In a few hours the Conservative front bench had changed its tune. Tory education secretary Michael Gove joined in the criticism of the energy companies, saying that they were blackmailing the country with threats of imminent black-outs.

The reason for the Conservative about-turn on energy is not hard to work out. Miliband’s attack on the energy companies was very popular. Why would it not be? Energy prices have been ramping up year on year. The average household energy bill is now £1,300 a year, twice what it was 10 years ago. And energy companies have let it be known that more price rises are in the pipeline.

According to the energy companies, price rises are unavoidable. The problem is that Britain does not generate enough energy. From 2004 to 2010 energy consumption fell from 2,718 to 2,355 terawatt hours, but over the same time energy generation fell from 2,610 terawatt hours to just 1,730. The shortfall was met by importing more energy, 705 terawatt hours, or five times as much as in 2004. Buying in the shortfall pushes up energy prices.

The shortfall, or ‘energy gap’, is a real concern. Last year, Britain came within six hours of energy blackouts, and will come close again this winter. Alistair Buchanan of energy regulator Ofgem explained earlier this year: ‘A number of older, UK coal-fired power stations will be decommissioned this year, but new power sources have not yet come on stream. The shortfall, which amounts to a 10 per cent decrease in capacity for this April alone, will mean an increased reliance on imports. Competition for imported fuel is set to drive up prices.’

‘New power sources have not come on stream’ is putting it mildly. So far, just one tenth of all energy in the UK comes from renewable energy sources; just one twentieth comes from wind. All the same, by law, energy companies must subsidise renewable energy by buying renewable obligation certificates. These cost around £2 billion in 2013.

The reason that energy is more expensive today is because policymakers decided it should be. In his review of the economics of climate change for Her Majesty’s Treasury, Sir Nicholas Stern (now Lord Stern) protested: ‘In a liberalised energy market, investors, operators and consumers should face the full cost of their decisions. But this is not the case in many economies or energy sectors. Many policies distort the market in favour of existing fossil-fuel technologies.’ (Stern Review on the Economics of Climate Change, HM Treasury (2006) p355.) What Baron Stern meant was that people ought to be paying more for their coal-generated electricity, because the bills do not reflect the financially unreckoned ‘externality’ of climate change.

Police spy Mark Kennedy (left) protesting against Kingsnorth Power Station.

Shortly after the publication of the Stern Report, electricity suppliers E.ON set about replacing its coal-powered generators at the Kingsnorth power station. A coalition of Greenpeace, WWF and the Royal Society for the Protection of Birds raised protests. A climate camp was established (and heavily infiltrated by secret policemen). Former US Vice President Al Gore spoke out against the building of the power station, and shortly afterwards the government announced that no new coal-powered stations would be built. By November, the then energy secretary, Ed Miliband, had announced a shift away from coal; unfortunately, the proposals he set out for meeting the shortfall never materialised.

Since coming to power under the slogan ‘Vote Conservative, go green’, the prime minister, David Cameron, has not changed the policy of winding down coal-fired electricity production in the UK, and nor has he addressed the energy gap, or explained how it will be met.

James Heartfield is author most recently of The European Union and the End of Politics, published by ZER0 Books. Visit his website here.