Energy privatisation disaster

Dave Toke explains how public ownership of energy would have greatly reduced the scale of the UK energy crisis 

The crises of high prices in the natural gas and electricity sectors would have been reduced if energy had not been privatised and liberalised in the 1980s. Back then, the British National Oil Corporation, British Petroleum and British Gas were sold off. But if they were in public hands (as is the case with Norway’s Equinor), then two things would be different. First, 100% of the profits would be going to the Government, not just the 0% to (at most) 65% rates that have been paid in recent years. These companies would also have contracted to give low price contracts to supply gas to British consumers. This is because before privatisation and liberalisation, domestic gas consumers had priority access to gas from the then state-owned British Gas.  

Crucially, we would almost certainly have a lot more gas storage capacity than we have now, since it would have been by definition a political rather than a market choice. Energy storage capacities would have been decided on the basis of what benefited the country rather than individual energy companies. If we had as much storage as Germany, for example, we would be in substantially better shape. That is because Germany can buy up gas to be stored during the summer when international gas prices are much cheaper than in winter. 

There would likely be more of the natural gas left in the North Sea, allowing more to be supplied at any given time. That is because natural gas stocks would not have been depleted so much. The end of British Gas’s monopoly on gas in the 1980s opened the way for the operation of a lot of gas-fired power stations in the 1990s, something that was pushed along by the privatisation and liberalisation of electricity markets after 1990. This depleted UK natural gas reserves at a much more rapid rate.

In Northern Europe, the bulk of the oil, gas and electricity industries are state-owned – Statkraft and Equinor in Norway, Vattenfall in Sweden and DONG (now called Ørsted) in Denmark. All are engaged to a greater or lesser extent in renewable energy development, but they tender for renewable generation contracts in their own countries in competition with other companies. That helps in innovatory technologies in particular. 

Alongside a state-owned CEGB, there might have been some licensing procedure involving competition for contracts to generate renewable energy from a variety of companies, just as today. This would be close to the present system of CfDs (contracts for difference) whereby the Government gives direct contracts to the renewable energy developers based on paying a fixed price for the units of energy generation. Almost half of the UK’s offshore windfarms are owned by foreign companies already. 

If public ownership of electricity had still been in place, we could have avoided the present mess wherein a lot of what are really cheap renewable projects are being paid the same as super-expensive power from gas-fired power plants.

The Renewables Obligation (RO) was set up in 2002 to give a gloss of market-based ‘efficiency’, but in reality this just allowed all sorts of companies, hedge funds, energy traders etc. to cream off a lot of business. Using a fixed price system to pay energy generation would have saved consumers a lot of money. This is especially true today, with sky-high prices for natural gas and power from gas-fired power plants. The renewable projects are much cheaper in cost terms compared to gas-fired power generation, but are given the same prices. 

So what are we left with? We would likely have had a much higher level of gas storage, which would have made a big difference. The Government would easily be able to tell the nationalised oil and gas industry to sell us gas at much lower prices than at present. We would have a position whereby the UK gas reserves would be less depleted, meaning that a higher proportion of natural gas was being supplied by our nationalised companies.

So, all in all, we can argue that the energy price crisis, whilst still bad, would have been much less severe than the terrible position we now face if the energy industries had remained in public hands. 

I don’t see much advantage in monopolies such as the transmission and distribution companies being privately owned. True, they have an incentive to reduce costs and deliver their services with fewer costs – which mainly means with fewer employees. But that looks like a trade-off between employing people – and arguably providing a better service – and giving profits to shareholders. Added to that, the so-called competition in the retail supply sector has always been a joke. It’s just too costly for the suppliers to market themselves to so many small consumers. As we know, it’s the generation of energy which dictates the bulk of the prices. In fact, economic analysis of the results of privatisation of the electricity supply industry has concluded that its productivity is no better than that of other countries. 

Of course, concluding that our energy situation would be much better if the energy situation had not been privatised and liberalised is one thing, but it is too late to stop the present crisis through nationalisation. That is because compensation would have to be paid at market rates – there are too many international treaties and lawyers to avoid that. But there is a strong case for selective public ownership to look after future national energy security. 

Leave a comment...

This site uses Akismet to reduce spam. Learn how your comment data is processed.