Freshwater Public Affairs’ Andy Williams asks how likely it is that the Government would reduce its involvement in the energy sector.
At a recent discussion evening at the Social Market Foundation (SMF), Oxford University’s Professor Dieter Helm CBE outlined his views on the current state of the UK energy market and what the future could hold.
Helm began by expressing his concern at how the different agendas driving the UK’s energy policy, such as the ‘cost of living debate’ and fears over climate change and future capacity, has led to an unnecessarily complicated energy policy. While energy policy should just be about “a few wires” and meeting demand, it has instead become almost incomprehensible and he challenged anybody in DECC and OFGEM to explain it.
Helm went on to argue that a system where the government plays a prominent role in setting contracts and supporting particular forms of energy through subsidies, as well as relying on market-led investment, has created a situation where much needed investment in the UK’s energy infrastructure is becoming almost impossible. Essentially, the UK is effectively creating two systems: a market-led one that involves low prices from exploiting existing assets, and a state-led one that offers higher prices for new investment.
His remedy for this dangerous situation was for government to considerably withdraw itself from an industry that is supposed to be privatised, and introduce a simple two-stage auction system, whereby we identify the capacity we need to meet demand, with capacity slots going to bidders who can produce the energy required most efficiently whilst also satisfying the various environment and climate change obligations.
But how likely is it that any UK government in the near future will step back from energy policy?
It currently seems unfathomable that any government will want to withdraw itself from an area which is arguably as politicised as it has been since the blackouts of the winter of discontent. Through their promise of an energy price freeze, Labour has sent a strong message to the industry of their intentions, and both the Conservatives and Liberal Democrats look unlikely to radically change course if either are in government post-2015.
It’s no wonder, then, that Helm admitted his remedy will probably never be implemented, and why he believed UK energy policy would continue to move further towards complexity and, effectively, state control.