UK Energy Policy and the End of Market Fundamentalism

February 16, 2011 | 00:00

UK Energy Policy and the End of Market Fundamentalism

For the past 25 years the UK has been very influential worldwide in how governments should manage their energy industries and it is therefore important that a shop window should be opened onto the granular reality of UK experience, as opposed to its complacent ideological projection. The consequences of an energy policy dominated almost entirely by “the market” are now becoming increasingly evident, to the detriment of both business and household consumers. Domestic and industrial energy prices continue to rise, fuel poverty is once again on the increase and concern grows over the UK’s future energy security.

In this book 16 contributors expose and analyse the legacy of market fundamentalism in the UK energy sector, exposing the difficult challenges which it has left in need of serious attention.

In the upstream, these include the depletion of UKCS (United Kingdom Continental Shelf) oil and gas resources, a petroleum fiscal regime which favours the corporate interest, and continuing coal consumption on a large scale, but little remaining UK production.

In the midstream and downstream, serious questions are raised about:

The adequacy of gas storage in the face of the UK’s rapidly-growing dependence on gas imports

The way in which the gas wholesale market’s response to supply-side shocks increases costs for consumers

The lack of transparency and liquidity in the electricity wholesale market

The manner in which the industrial structure of the gas and electricity markets has created ‘portfolio power’ over consumers rather than competition and effective choice.

To this legacy the contributors also assess the future challenges directed at avoiding further environmental damage at global and local level and which pose the following strategic problems:

Whether to replace ageing coal-fired power stations?

How to replace and possibly expand nuclear capacity?

How to meet a remarkably tough renewables target (implying, by 2020, a sevenfold increase in renewable energy consumption over 2008 levels) now mandated by Brussels?

How to meet the UK’s own heroic statutory requirements for carbon dioxide reductions?

How to take more effective actions to reduce energy consumption, and last, but not least, how to prevent fuel poverty from growing while doing all of these things?

The authors argue that responding to both these future challenges and the legacy of market fundamentalism requires an eight-point programme:

1. to change the relationship between resource owner (the UK people) and resource operators (international companies) in the UKCS, including changing the distribution of revenues between state and companies;

2. to arrest the rate of the decline in UKCS oil and gas production;

3. to ensure that the right kind of electricity generation capacity is built at the right time;

4. to ensure that renewables targets are delivered (noting that these are not just confined to electricity);

5. to ensure that the transaction costs of wholesale markets are minimised;

6. to protect retail consumers from company portfolio power;

7. to reduce energy consumption by way of much enhanced energy conservation and energy efficiency measures;

8. to reduce fuel poverty during a period which is likely to see rising energy prices.

These in turn require both additions to state responsibilities (current government policy gives no significant prominence to five of these points) and qualitative changes in the forms of state participation required to achieve them. For example, in this his last publication of a 50-year career in Energy Studies, Professor Peter Odell argues that in order to rescue UK oil and gas production a new state company needs to formed to work in partnership with the private sector.

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