The Brighton blog 3 – Energy Prices & Labour policy in more detail #lab13
The paragraph immediately below is extracted from Nick Palmer – Labour PPC for Broxtowe – e mail to around 3000 members of the public in the constituency. To contact Nick Palmer – NickMP1@aol.com
…..What follows is from Ed Miliband’s office. Adding a brief personal comment (Nick Palmer) what the proposals are effectively trying to do is trade off less price-gouging in the short term with a longer-term guaranteed market for clean energy, which will improve the standard of living in 2015-2020 but give companies a basis for a profitable longer term. Because it links into the clean energy targets, it also shifts the push for solar and other renewable technologies into a higher gear, which is part of the general effort to make the British economy more competitive in the medium term. What is doesn’t do is guarantee long-term low prices – I don’t think that’s a guarantee that could honestly be given by anyone in today’s world. But in the realm of the feasible the plan should work well.
Competition: the Big 6 supply energy to 98% of homes and run 70% of Britain’s power stations. Lack of competition means people can’t shop around to get a fair deal and so get overcharged.
Transparency: A lack of transparency with firms generating and selling electricity to themselves means that the Big 6 can get away with putting up bills when energy prices rise and not reducing them when they drop. When energy prices went up in 2008, bills went up. But when energy prices fell by 45% in 2009, household bills only fell by 5%. This overcharging is unfair and undermines trust in the market.
We will reset the market by doing 3 things:
· Getting energy companies to separate the parts of their businesses that generate energy from the parts that supply to the public with different licenses and separate operations.
· Requiring all energy companies to trade their energy in an open market by selling into a pool; and
· Introducing a simple new tariff structure so people can compare prices.
* Create a tough new energy watchdog
Despite repeatedly finding that the energy market is letting down customers, Ofgem has failed to start putting things right. In 2008, it identified 16 things that it thought needed to be improved for the market to work properly. In 2011 it admitted that 12 of these had got worse or stayed the same, but still took no real action.
We will create a tough new energy watchdog with new powers to police the market, including the power and remit to force energy companies to cut their prices when there is evidence of overcharging, for example when wholesale costs fall and the market fails to respond. Our reforms to make the market more transparent (‘the pool’, and separation of generation and supply) will allow the regulator to assess when action is necessary.
3. Freeze bills
Our market reforms will reintroduce proper competition and create a system based on fairness and public trust. But these measures will take time to kick in and we need to put an immediate stop to unfair rises in bills. It is estimated that by January 2017 the new regulator and market structure could be in place.
We will take immediate action upon entering office to freeze prices until January 2017 when our reforms start kicking in. This will save the typical household £120 and the average business £1,800.
We will introduce legislation immediately on entering office to give the Secretary of State the power to modify energy suppliers’ licences to require energy companies to freeze their prices.
The freeze would stop prices rising, but they could still fall and consumers could still switch tariffs to cheaper products.
4. Energy Save
To ensure that bills are affordable in the long run, we need to reduce the amount of energy we use. But the Government’s schemes are wasteful and not making enough difference.
The Government Green Deal has failed to have any impact. Since its launch only 384 households have signed up for a package and of those just 12 have been installed. That’s less than one for £1 million the Government has spent on its £16m marketing budget.
The government’s ECO scheme for the fuel poor is badly targeted and inefficient. Up to 60% of the funding available under ECO could end up going to people who don’t need it, and the cost of ECO is coming in well above the Government’s estimate of £1.3bn/year.
Labour will scrap the Green Deal and replace it with a new ‘Energy Save’ scheme. We will look at how we can offer cheaper loans for homes and SMEs.
We will do our part to reduce the cost of energy efficiency on bills by scrapping ECO and using the £1.3bn to tackle fuel poverty through an area based scheme. This will bring down costs by installing measures in multiple properties at once, reducing the upward pressure on bills.
We need to attract up to £110bn in clean electricity generation and transmission in the next decade. Yet under David Cameron, large scale investment has slumped from an all-time high of £7.2bn in 2009 to £3bn in 2012. Commentators from the CBI to industry and green groups have blamed this on the Government’s failure to provide the policy certainty needed to de-risk investment.
To support investment we will provide policy certainty by setting a 2030 power sector decarbonisation target and sticking with the new system of contract for difference in the Energy Bill.
To further bolster investment we will establish a new Energy Security Board to plan for Britain’s energy needs for the future.
And to deliver large scale investment in the green sector we will give the Green Investment Bank borrowing powers.
Won’t your reforms reduce investment?
No, by rebuilding trust in the market and providing greater investor certainty they will support investment. What any investor needs isn’t short term returns based on overcharging but long term certainty on returns. That is why we will commit to the 2030 power sector decarbonisation target which the industry has been calling for and we will stick with the system of contracts for difference which guarantees investors a return on their investment.
But don’t the Big 6 need profits to invest?
53% of investment in clean energy is coming from a whole range of sources outside of the Big 6. And profits aren’t being linked to investment – in fact the energy companies that have been making the highest profits are actually investing the least in new plants and paying the highest dividends. Centrica, for example, has had the largest profit margins over the last few years but has invested the least.
How will you actually freeze prices?
We will introduce legislation immediately on entering office to give the Secretary of State the power to modify energy suppliers’ licences to make them freeze their prices.
Why does the price freeze end in January 2017?
This is the amount of time that we think we need for our reforms to start kicking in. 20 months gives us enough time to bring forward legislation, create a new regulator and begin implementing are reforms to reset the market.
Isn’t this illegal under EU law?
No, this is a temporary freeze while the market is put on a genuinely competitive footing. European law allows price intervention to prevent consumers losing out. Many European countries have much more heavily regulated energy prices.
How will you stop companies just increasing their prices once the freeze ends?
The freeze will run until January 2017. At that point our market reforms will start kicking in and the new energy watchdog will be up and running. With its new remit and powers, it will be the job of the regulator to police the market and make sure that companies are charging consumers a fair price.
If you announce it now, what would stop the energy companies just increasing their prices beforehand?
Most energy companies realise that they have lost the trust of the public. These reforms and the price freeze are a chance to draw a line under this and restore trust. If energy companies opt to hike their prices in advance, the public would take a dim view of this. And we would hope that if this happens next year, David Cameron would stand up for people and put a stop to it. If he doesn’t, an incoming Labour Government would take action to deal with this as we implement the freeze.
Isn’t government policy to tackle climate change to blame for rising bills?
No, we’ve analysed what proportion of the increase in people’s bills is accounted for by investment in clean energy and it’s only a small amount of the price increases. The vast majority of increase in consumers’ bills has nothing to do with investment in clean energy.
Ed Miliband was Energy Secretary in the last government – isn’t he to blame for rising bills?
No, energy bills fell £100 when Ed Miliband was Energy Secretary, they’ve gone up £300 under the present government. And it’s because of the changes that happened when Ed was Energy Secretary that energy companies are now required to report on how much money they’re making, which has made more transparent how this market is leaving consumers being overcharged.
Aren’t bills going to go up whatever you do?
Growing demand and the cost of investing in new energy sources will put pressure on bills. But this is why it is all the more essential that people have a market that they can trust. So if bills go up they can see why and they know it’s fair. This is why we need to reset the market to end overcharging and deliver a fairer deal for consumers.