The Big Six aren’t to blame for high energy prices

UK energy secretary Ed Davey is in the news again. He has written to the Office of Gas and Electricity Markets (Ofgem) and the Competition and Markets Authority, asking them to add a new question to a review they are conducting into Britain’s energy markets. He suggested that they look closely at whether Britain’s main supplier of energy, British Gas, has abused its monopoly position in order to make profits at the rate of 11 per cent. Through this move, Davey has piled extra pressure on unelected officials to find Britain’s ‘Big Six’ energy firms guilty of high prices, and the government entirely innocent of any failure to maintain a decent infrastructure for central heating and electricity.

Everyone hates the Big Six. Labour Party leader Ed Miliband announced back in September that he would, if elected, freeze energy prices for 20 months. Now the government has tried to strike a similarly populist note. Recent floods have overwhelmed Britain’s drainage infrastructure, and the power cuts that have followed in their wake underline the inadequate capacity that the country suffers in the realm of electricity. Now, with temperatures dropping in February and the typical annual bill for household gas running up to £850, politicians are rushing to appear friendly to the needs of voters and consumers.

Davey’s manoeuvre is completely transparent in its cynicism. The structure of the energy market in Britain is no secret, and nor is the dominance of British Gas within it. Liberal Democrat Davey, like many in his party, holds to the utterly superficial view that energy suppliers are ripping off the consumer and laughing all the way to the bank. This outlook only obscures what is really inflating energy prices: the crippling lack of innovation in British energy.

What now counts for innovation in residential energy are costly green initiatives aimed purely at stirring a sense of guilt among British consumers for their carbon footprint. These include the Department for Energy and Climate Change’s £11.7 billion ‘smart meter’ programme, whose stated benefits seem to have been conjured from thin air. Meanwhile, innovation on the supply side of UK gas and electricity is now so weak that the country’s stored gas and electric power stations are sorrowfully inadequate.

Furthermore, the National Audit Office has argued that Britain’s weak infrastructure only serves to inflate prices further. In November the NAO reported that the government ‘has made no assessment of the overall impact of infrastructure on future bills or whether those bills will be affordable’. Yet, instead of paying attention to this uncharacteristic burst of insight from a quango, MPs chose to jostle with each other to throw mud at the Big Six.

It says a lot about the lack of forward planning in this country that it is actually a newly formed investor group, Atlantic Supergrid, that may turn out to do something more useful than Whitehall: over a £4 billion, 1000-mile cable, it hopes to pipe geothermal and hydroelectric power from Iceland to three million UK homes. Britain is having to import more electricity than ever before, but this Icelandic prospect could represent an innovative diversification of energy supply. In the meantime, though, it looks like we will have to put up with yet more hot air from Britain’s exhausted energy windbags.

James Woudhuysen is professor of forecasting and innovation at De Montfort University, Leicester. He will be speaking at the Resource conference in London on 5 March on the subject of ‘The circular economy – what does it mean for the future of retail, waste, energy and innovation?’.