How to fix a broken energy market

The Conservative government has failed to end fuel poverty but Labour won’t, according to Rebecca Long-Bailey, Shadow Secretary for Business, Energy and Industrial Strategy.

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The world is changing and we need to evolve within it or risk being left behind. Nowhere is this more obvious than in energy, where a significant transformation has been taking place. When Theresa May first spoke of the need for an industrial strategy, it seemed like the Conservative government had finally seen the light, had listened to businesses, the trade union movement and indeed the Labour Party. But it soon became clear that while demonstrating a positive commitment to the notion of an industrial strategy, the reality is that, thus far, the government has provided very little detail to show how the so-called strategy will be enacted.

The government’s industrial strategy green paper, advertised against an exciting pretext of “renewed vigour” and “fresh thinking”, was viewed as a disappointment by many when it appeared to contain seemingly watered down, lacklustre proposals. This can be seen clearly in its energy and climate change policy. The sparse energy pages of the paper are testament to this government’s inability to act seriously on this issue and to really get to grips with the oversight of energy markets. 

This is further illustrated by the delays in the publication of the Emissions Reduction Plan, another important document which would seek to provide certainty to energy investors. In terms of energy prices, the government’s position is even more worrying. Ofgem now confirm that energy bills account for 10 per cent of spending in the poorest households, compared with just 5.5 per cent in 2004, and since December 2016 five of the ‘Big Six’ have announced that they are increasing their energy prices even further. Worryingly, the Institute for Fiscal Studies stated following this year’s Spring budget, that: “On current forecasts average earnings will be no higher in 2022 than they were in 2007.” So, it appears that without significant intervention from government in relation to energy prices, the picture looks bleak for many families in the years to come.

Moreover, the Competition and Markets Authority recently found that customers had paid £1.4bn a year in “excessive prices” between 2012 and 2015, with those on standard variable tariffs paying 11 per cent more for their electricity and 15 per cent more for their gas than customers on other tariffs. One major bone of contention is the issue of customers being switched automatically onto more expensive tariffs.

If the government had real resolve and determination to tackle these issues and stop those countless families up and down the country from suffering extreme hardship, then they would have acted upon calls from Labour as far back as 2013 to cap energy prices and embark on a programme of reform in relation to the broken energy market. Of course as we know, they declined to take action and the results of this are plain to see. In relation to the impact on energy prices by the renewable energy sector specifically, energy from the sun and wind is getting cheaper every day and is predicted to be less than gas in 2020. It remains important that we build a clean energy system as cheaply as possible, and to this end the Committee on Climate Change published a “lowest cost pathway”, but the government again failed to heed good advice. But it is not just energy policy where the government is letting us down, it is also on the fundamental principles of economic policy. One of the underlying problems of the UK economy has been poor productivity performance. 

Our productivity is low relative to many of our counterparts, trailing significantly behind the United States, France and Germany. Output per hour in the UK was 16 per cent below the average of the G7 advanced economies in 2015, which is partly a result of our low levels of investment relative to other industrial economies. Labour would take a very different approach. Our industrial strategy aims to place energy at its heart. Sustaining and increasing growth, but making sure that such growth is fairly shared, balanced across sectors and regions as well as being environmentally sustainable. Labour has drawn upon the work of leading economists such as Mariana Mazzucato in placing great emphasis on the importance of “missions” to drive forward key technological and scientific advances. Such missions sit alongside sector-based plans, providing a blueprint of the support industries and businesses need to develop, manufacture and sell such goods and services.

Our first mission is to source 60 per cent of our heat and power from low-carbon and renewable sources by 2030. We will work to make Britain a world leader in low-carbon and fuel-efficient technologies, creating new industries, UK-based supply chains and ultimately highly paid, highly skilled jobs where our expertise and goods will be exported across the world. To achieve such a mission Labour would seek to fill the skills gap that might impede cutting edge industries. For example, while our nuclear industry is world class in some sectors, it is slowed down by a chronic shortage in skills. Similarly, as we develop and manufacture exciting new forms of energy we will need to re-train and re-skill our workforce to export into growing global markets. 

New sources of energy like tidal power have yet to receive a green light from this government, despite the potential increase in energy security and the UK having some of the best tidal resources in the world. Building tidal lagoons which use new multi-directional turbines requires precision engineering, a highly skilled work force and thousands of tonnes of steel. Much of this material and labour can be locally sourced creating new supply chains which capture value in the UK. 

The Labour Party is also testing alternative forms of ownership  and learning lessons from the past. Energy used to be sold by city and regional councils which helped them capture value and reinvest in the local area. We’re beginning to see a revival of local energy co-ops in places like Bristol which provide both cheaper and cleaner energy to local residents. With new technologies come new possibilities. Rather than just buying energy from the grid, consumers can now become “prosumers”, interacting with the market, selling to it as well as buying from it and even balancing the grid. The spread of smart meters across the country means even more understanding of energy patterns which lead to efficiencies, increased energy security and savings for the bill payer.

We must also ensure our homes are properly insulated. The Conservatives broke their promise to end fuel poverty by 2016.  In fact, there are still 4 million cold homes and over the last decade help to insulate them has fallen a startling 88 per cent . Labour would make insulating homes an infrastructure priority – if we can spend millions on generating energy, why don’t we stop it being wasted through thin windows and bare lofts? These measures would not only help tackle climate change but would also lead to public health improvements. Insulating homes will lower bills, keep families warm and prevent illness. The NHS spends £1.4bn on treating illness from cold homes each year. Similarly, thousands die in our towns and cities each year from air pollution. Advancing new energy and transport solutions will bring down emissions and dramatically reduce these risks.

Finally, it is important to note that for years a portion of our energy has been imported cheaply from the continent. Theresa May appears to be hurtling towards the hardest possible Brexit deal but the simple fact is that if she plays fast and loose with energy market access, we risk being barred from cheap power from Europe without an adequate domestic energy infrastructure plan to plug the gap.

So focused is she on the hardest of all Brexits that for no discernible reason we’re also leaving Euratom, the European Partnership on Nuclear Trade and Research. The UK nuclear industry is quite rightly raising serious concerns, and industry insiders have warned that nuclear power stations that are operating today may have to be shut down as a result. Who knows what that means for keeping the lights on or our bills down? The government must protect our interests in terms of present energy market access within Europe but more importantly we need a progressive industrial policy for the energy sector. One which will support balanced growth, skilled jobs and decarbonisation. But rather than use the words “industrial strategy” as a rhetorical device as the Conservatives have, we must enact it. Only the Labour Party will do this.

Rebecca Long Bailey is shadow exchequer secretary and Labour MP for Salford and Eccles.