Ed Miliband minds the energy gap

We are learning more every day about how Ed Miliband's Labour Party will approach the 2015 general election.

In his conference speech two days ago he set out plans for a 20-month domestic energy price freeze. What populist larks!  I too would like lower prices.  What about a petrol price freeze while we're at it?

Of course it's more complicated than that.  The time to announce a price freeze is the day you impose it. Otherwise suppliers will just put prices up beforehand.  Moreover, suppliers will try and protect their positions by buying more gas in advance.  This increased forward buying will push wholesale prices up. Miliband's announcement might actually have an effect the reverse of what's intended: we could be paying higher energy prices long before his freeze comes into force.

The Labour leader's critics suggested yesterday the policy might lead to blackouts.  If this seems fanciful, it did happen in California in 2000. There the freeze coincided with a drastic increase in wholesale prices, which energy companies couldn't pass on to consumers.  As a result the Pacific Gas and Electric company went bust and blackouts ensued.

But short-term blackouts are the least of our worries.  As Britain's ageing power stations have to be taken offline this country desperately needs new energy investment.  How can energy companies be expected to take the long-term decisions needed to secure future supply if there is a reasonable prospect of a government in 2015 which is hostile to their interests?  At a stroke Miliband's announcement will depress power companies' share prices and make it harder and more expensive for those companies to raise capital.  Guess who will end up paying for that?  

Even if there are no power cuts in 2015, Labour's announcement has made them more likely in future.  The Torygraph quotes one Peter Atherton, an energy industry analyst, as saying, "Labour would be naive in the extreme to think that industry can absorb the cost of a price freeze while at the same time making significant new investments.  Even if Labour don't win the election, it will stop anyone making any decisions.  It kills investment stone dead."

To be clear, the energy industry is a shambolic mess.  The domestic industry lacks proper mechanisms for fair competition - degree qualifications in statistics and probability are required to determine which is the cheapest tariff for your usage - and energy companies concentrate on returning maximum value for their shareholders rather than equipping the UK for the 21st century (you can't blame them for this - it's what they're supposed to do).

How has this come about?  The consequences of the Tory privatisation are becoming more and more apparent, as what requires a national strategy is left to the self-interested tactics of the market. And Labour hasn't helped.  Its energy review in 2002 (five years after returning to power!) concluded, "The immediate priorities of energy policy are likely to be most cost-effectively served by promoting energy efficiency and expanding the role of renewables. However, the options of new investment in nuclear power and in clean coal (through carbon sequestration) need to be kept open, and practical measures taken to do this."

The review went on, "Because nuclear is a mature technology within a well established global industry, there is no current case for further government support . . . the decision whether to bring forward proposals for new nuclear build is a matter for the private sector."

It's that last statement which is the most astonishing. The Government, with a duty to make sure Britain's energy needs are met, had no plans to do anything at all in respect of nuclear power. 

I vividly remember how hopping mad this review made me. Not because I am a nuclear enthusiast, but because it was evident even then we were going to have to have more of it, and, above all, because it is the Government's responsibility to plan, not just to leave it to the markets and hope something will turn up.

An energy white paper the following year concluded, "This white paper does not contain specific proposals for building new nuclear power stations . . . we do not rule out the possibility that at some point in the future new nuclear build might be necessary if we are to meet our carbon targets". 

Not ruling it out, not ruling it in. In fact, doing nothing.

Another review in 2006, making more favourable noises towards nuclear power, was challenged by Greenpeace in the High Court in 2007. The High Court ruled that the review was "unlawful". The Government tried again. In its Review that year it expressed the 'preliminary view is that it is in the public interest to give the private sector the option of investing in new nuclear power stations'. The words "luke" and "warm" spring to mind; not to mention "dither", "indecision", "lack of leadership", and "you have been in power now for ten years, you wallies."

The cherry on this cake of indecision was placed there by Gordon Brown in 2008, with the appointment to the newly created post of Secretary of State of the Department of Energy and Climate Change of one of Labour's rising stars.  Step forward Ed Miliband.  

His only contribution to Britain's energy industry was to raise the target for emissions cuts.

Successive governments have fiddled while homes burn Britain's dwindling gas supplies, and Vladimir Putin's finger twitches next to the Trans-Siberia pipeline's "off" button.  Labour hated the idea of nuclear power.  The Tories are hamstrung by the dog's-breakfast of a system they created. Meanwhile the former Energy and Climate Change Secretary (2008 to 2010) Ed Miliband comes up with populist gems such as a price freeze, counterproductive tinkering when the whole system needs reform. 

It's the kind of policy which might just get him elected though.