![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Energy pricing
Oct. 1st, 2013 09:43 amThe announcement by Ed Milliband that, in the unlikely event of him being allowed anywhere near Downing Street, he would cap domestic energy prices for two years after the next election was a perfect bit of politics. Hugely popular with people who aren't all that good at sums but think things are more expensive than they were when I was a lad whilst simultaneously not really thinking things through.
Of course, the energy companies in their turn have promptly reacted by offering "Don't wait for Ed - cap your prices now!" offers, and when the headline electoral policy of Her Majesty's Opposition can be trumped by an advertising campaign within 24 hours then you know politics is now truly beyond the point of all redemption.
But anyway, as I see it, there are four possible consequences to the government capping domestic energy prices and I think they're worth considering:
1) Energy company revenues fall, meaning they invest less in infrastructure, make smaller profits and pay less tax. Yet another hole appears in the government finances which is made up by yet more borrowing and maybe a bit of extra printing too.
2) To make up for the shortfall, energy prices for businesses rise. It becomes more expensive to make stuff, exports become less competitive, the balance of trade drops yet a-bleedin'-gain, and the difference in tax revenues is made up by more borrowing and printing.
3) Anticipating a shortfall, energy companies rack up prices more than they were planning to now and then generously offer to cap their prices until 2017, rendering the policy effectively meaningless.
4) A magic fairy unicorn skips down a rainbow and gives everyone lots of free money and we all live happily ever after.
I'm not holding my breath on 4, by the way.
Anyway, as noted, Ed's plan has been popular in some quarters, and it has given impetus to campaigners to demand he go further. To summarise, the very left-wing position on energy appears to be this:
The mostly foreign-owned energy companies charge far too much for energy, make huge profits at the expense of normal people, and should be renationalised to ensure British ownership.
Perhaps you think that sounds like a pretty fair position, but as I see it this statement has three things wrong with it. Those being:
1) "Mainly foreign-owned". 57% of UK energy supply is provided by two companies; British Gas and Scottish & Southern Energy. These are listed on the LSE and registered for corporation tax in the UK under EU single company control laws. The remaining four of the 'big six' are French, German and Spanish, of which more below.
2) "Charge too much". The UK has the second lowest energy prices in western Europe at E0.17kW/h. Only France gets cheaper energy, and that's because they've got a whole shedload of nuclear power stations (80% of their electricity is nuclear). other countries like Germany (E0.26kW/h), Denmark (E0.29kW/h) and Spain (E0.18kW/h) all pay more.
Something I didn't know before I looked into this is that in Germany the domestic price of energy is higher than the business price meaning domestic users subsidise companies. You know, Germany. That country with a huge manufacturing sector, great export levels and loads of people employed in factories? That Germany. Can you imagine what the reaction from Labour or the Greens would be if a similar system were proposed here? I'm willing to bet it would involve the phrase "Subsidising millionaire chums" somewhere down the line.
3) Nationalisation. It's educational to look at what happened the last time a country nationalised foreign-owned energy assets, and that would be Argentina which nationalised YPF from Repsol last year. Since then, predictably, traditional investment routes have completely dried up meaning YPF can't afford to build infrastructure. As a result, the Argentine government recently started threatening to imprison their own people if they didn't buy bonds to finance the company.*
Moreover, it's also worth pointing out that as the other energy companies operating in the UK are German, French and Spanish, their nationalisation would necessitate an immediate withdrawal from the EU. It's odd, because the pro-nationalising crowd I've spoken to tend to be quite pro EU and think the UK should stay in (without explaining how exactly that would work once we've appropriated stuff from the French and Germans (the Spanish don't really count) in contravention of pretty much every treaty in the single market), whilst I'm anti-nationalisation and think leaving the Eu would be a great idea. Funny how these things work out, innit?
Anyway, to summarise. The energy campaigners seem, as a rule, to want three things. Cheaper energy, more renewables and less in the way of fossil fuels and nuclear. The evidence suggests having all three isn't currently mathematically possible. So you can have two. I'd have more respect if they would just choose which ones.
*Amongst many other imprisonable offenses introduced by the Argentinians, you can now be sent to prison for reporting inflation figures which differ from the official government rate of 6.6%. Most estimates suggest the real rate is closer to 40%.
Of course, the energy companies in their turn have promptly reacted by offering "Don't wait for Ed - cap your prices now!" offers, and when the headline electoral policy of Her Majesty's Opposition can be trumped by an advertising campaign within 24 hours then you know politics is now truly beyond the point of all redemption.
But anyway, as I see it, there are four possible consequences to the government capping domestic energy prices and I think they're worth considering:
1) Energy company revenues fall, meaning they invest less in infrastructure, make smaller profits and pay less tax. Yet another hole appears in the government finances which is made up by yet more borrowing and maybe a bit of extra printing too.
2) To make up for the shortfall, energy prices for businesses rise. It becomes more expensive to make stuff, exports become less competitive, the balance of trade drops yet a-bleedin'-gain, and the difference in tax revenues is made up by more borrowing and printing.
3) Anticipating a shortfall, energy companies rack up prices more than they were planning to now and then generously offer to cap their prices until 2017, rendering the policy effectively meaningless.
4) A magic fairy unicorn skips down a rainbow and gives everyone lots of free money and we all live happily ever after.
I'm not holding my breath on 4, by the way.
Anyway, as noted, Ed's plan has been popular in some quarters, and it has given impetus to campaigners to demand he go further. To summarise, the very left-wing position on energy appears to be this:
The mostly foreign-owned energy companies charge far too much for energy, make huge profits at the expense of normal people, and should be renationalised to ensure British ownership.
Perhaps you think that sounds like a pretty fair position, but as I see it this statement has three things wrong with it. Those being:
1) "Mainly foreign-owned". 57% of UK energy supply is provided by two companies; British Gas and Scottish & Southern Energy. These are listed on the LSE and registered for corporation tax in the UK under EU single company control laws. The remaining four of the 'big six' are French, German and Spanish, of which more below.
2) "Charge too much". The UK has the second lowest energy prices in western Europe at E0.17kW/h. Only France gets cheaper energy, and that's because they've got a whole shedload of nuclear power stations (80% of their electricity is nuclear). other countries like Germany (E0.26kW/h), Denmark (E0.29kW/h) and Spain (E0.18kW/h) all pay more.
Something I didn't know before I looked into this is that in Germany the domestic price of energy is higher than the business price meaning domestic users subsidise companies. You know, Germany. That country with a huge manufacturing sector, great export levels and loads of people employed in factories? That Germany. Can you imagine what the reaction from Labour or the Greens would be if a similar system were proposed here? I'm willing to bet it would involve the phrase "Subsidising millionaire chums" somewhere down the line.
3) Nationalisation. It's educational to look at what happened the last time a country nationalised foreign-owned energy assets, and that would be Argentina which nationalised YPF from Repsol last year. Since then, predictably, traditional investment routes have completely dried up meaning YPF can't afford to build infrastructure. As a result, the Argentine government recently started threatening to imprison their own people if they didn't buy bonds to finance the company.*
Moreover, it's also worth pointing out that as the other energy companies operating in the UK are German, French and Spanish, their nationalisation would necessitate an immediate withdrawal from the EU. It's odd, because the pro-nationalising crowd I've spoken to tend to be quite pro EU and think the UK should stay in (without explaining how exactly that would work once we've appropriated stuff from the French and Germans (the Spanish don't really count) in contravention of pretty much every treaty in the single market), whilst I'm anti-nationalisation and think leaving the Eu would be a great idea. Funny how these things work out, innit?
Anyway, to summarise. The energy campaigners seem, as a rule, to want three things. Cheaper energy, more renewables and less in the way of fossil fuels and nuclear. The evidence suggests having all three isn't currently mathematically possible. So you can have two. I'd have more respect if they would just choose which ones.
*Amongst many other imprisonable offenses introduced by the Argentinians, you can now be sent to prison for reporting inflation figures which differ from the official government rate of 6.6%. Most estimates suggest the real rate is closer to 40%.
