Government must step back from energy markets to lower prices
- For a short period, around the turn of the millennium, the UK energy market was highly competitive, offering choice to consumers and keeping prices in check. Since then, governments have reverted to centralised action, importing many of the defects of discredited Soviet-style planning. In particular, they effectively control the types of power stations that are built, even though they lack relevant knowledge.
- Government energy planning represents a move back towards the market that existed under nationalisation. It is central control, without (so far) state ownership. The tendency to revert to centralised planning probably results from the power of pressure groups, including energy producers and the scientific establishment.
- Government policy provides a complicated network of administrative actions and subsidies intended to promote non-fossil sources of energy and energy ‘conservation’. It hands out favours to producers of ‘renewable’ energy (wind and biomass) and nuclear power which consumers pay for in their bills.
- The recent nuclear deal with EdF is symptomatic of what happens in a market where government support is known to be available. EdF was able to hold out for a price for its electricity twice the present level for thirty five years.
- The coalition, like its predecessor, claims that supporting non-fossil energy will make energy supplies more secure and will help avoid damaging climate change.
- The security argument has no substance, in theory or in practice. Government action to enhance security has, in the past, always reduced it.
- Prospective climate change might require some action but, in a situation of great uncertainty, centralised planning is misguided. Its inflexibility means that it sets communities on courses that are very difficult to change as circumstances change.
- The government’s interventionist approach is also encouraging inappropriate proposals (such as price freezes and windfall taxes) that would have perverse effects and are another step along the road to central control. Less government action and more competition to protect consumers are required.
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2013, Discussion Paper No. 49.