Wednesday, September 25, 2013

Ed Milibands hypocrisy

It is breathtaking hypocrisy for the architect of expensive renewables to call for a price freeze Hypocrisy can be a beautiful thing when done well. To go, as Ed Miliband has done, within four years, from being the minister insisting that energy prices must rise — so uncompetitive green energy producers can be enticed to supply power — to being the opposition leader calling for energy prices to be frozen is a breathtaking double axel that would make Torvill and Dean envious. Remember this is the very architect of our current energy policy, the man who steered the suicidally expensive Climate Change Act through Parliament; the man who even this week pledged to decarbonise the entire British economy (not just the electricity sector) by 2030, meaning that nobody will be permitted to heat their house with gas. Has he checked the price of electric heating versus gas recently?

The gap is due to grow greater. By 2030 much of the electricity will, in theory, come from offshore wind, which is being promised three times the price that gas-fired power stations get for making electricity. So Mr Miliband is telling us to treble, and freeze, our heating bills at the same time. “There is not a low-cost energy future out there,” Mr Miliband the Energy Secretary said in July 2009, insisting that we learn to live with higher energy prices. “We can work together on the basis of this price freeze to make the market work in the future.

 Or you can reinforce in the public mind that you are part of the problem not the solution,” Miliband the Opposition Leader threatened energy companies yesterday. In a prescient paragraph entitled “And guess who gets shot?”, a Liberum Capital report in April suggested that when the energy-price crisis came, the government of the day would heap most of the financial pain on to investors by insisting that they cut profits. That day has arrived early. Mr Miliband has effectively admitted that he will try to delete investors’ return on equity rather than take any blame for the huge bills that will drive people into fuel poverty.

 Liberum estimated that to deliver the current Government’s low-carbon energy policy, which Labour thinks is too wet, would require £161 billion to be spent by 2020 and up to £376 billion by 2030. That will be passed to consumers. Much of the discussion on the Energy Bill in the House of Lords this summer was about how to make sure the subsidies were generous enough to entice such large investment. Liberum calculated that “if the investment does take place we see electricity bills rising by at least 30 per cent by 2020 and 100 per cent by 2030 in real terms”.

 Mr Miliband may have ensured that it does not take place. There has never been a price control that did not crimp supply. America’s controls on natural gas prices, instituted in the 1950s on the assumption that supplies were limited, and meant to protect consumers from monopoly pricing, ended up causing shortages and high prices. Nobody wanted to look for gas if the price was fixed by the government. After controls ended in 1989, America became awash with natural gas and prices plummeted. Imagine you are a big energy company wondering whether to spend millions pouring cement into the Dogger Bank to bear the weight of wind turbines. You reckon there’s a 50 per cent chance of a Miliband government in 2015 when the turbines come on stream. But you’ve just heard that Prime Minister Miliband will not let you make a profit. You will scale back your plans now. “If Centrica and SSE cannot make any money supplying electricity to the retail market then they won’t supply it. The lights will go off,” said Neil Woodford, the head of equities at Invesco Perpetual, one of Centrica’s biggest shareholders. And he has the power to make it so.

 Shed no tears for the energy firms. They went along with the crony-capitalist plan for driving up costs, mouthing green platitudes that gave them cover for price rises. Meanwhile, the rising cost of oil and gas gave the Government the excuse to argue that they would have risen anyway. They are counting on further rises to come, but may not be so lucky as the shale revolution gathers pace. In a subsidised system, the politician becomes the customer. The companies thought all they had to do to make profits was to pick up the phone to the Energy Minister, sigh and tell him that they would not build a wind farm unless he raised the “strike price”. That’s how it got to an unbelievable £150 per MWh. As the closure of Britain’s nuclear and coal plants is ahead of schedule, and the opening of green and nuclear replacements is about three years behind, the minister was at their beck and call. Now suddenly they will be realising that they should have been listening to their real customers all along and championing cheap energy.

Maybe even ministers will think the same thing. If so, there is a silver lining. This just might tear up the cosy consensus on energy policy that has driven the current Energy Bill through Parliament so far. After all, the public will get the impression that Mr Miliband is standing up for consumers, albeit against the wrong enemy. David Cameron needs to outflank him or risk looking like a friend of crony capitalists. Around the world, government after government is walking away from the expensive fiasco that is energy decarbonisation. Stephen Harper, of Canada, led the way. Tony Abbott, of Australia, is hurtling down the same path. Spain reneged on its promises to green investors. Even Angela Merkel, now leading a largely Green-free parliament, is being told by leading economic adviser that the gigantic expense of the green “Energiewende” cannot be afforded. She’s already building new coal-fired power stations.

(In passing, I declare a commercial interest in coal.) When he came to power, Mr Cameron thought energy policy didn’t matter much and could be safely contracted out to Lib Dem wishful thinking to guard his Islington flank. In fact, affordable energy is crucial to economic recovery. It deserved a Gove or Duncan Smith to challenge producers and champion consumers. Maybe, by mistake, Mr Miliband will trigger such a rethink.

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