Miliband’s U.K. Utility Breakup Plan Threatens Investment
Britain’s business lobby groups said the Labour opposition’s proposal to break up the “Big Six” utilities and cap power prices threatens the investment needed to avoid blackouts by the end of the decade.
Labour leader Ed Miliband said the program would buy time for creating a new energy regulator with the authority to reduce consumer bills. The Confederation of British Industry along with Centrica Plc and utilities and renewable-energy groups said the policy may halt decisions on funding new projects.
“If prices were to be controlled against a background of rising costs it would simply not be economically viable for Centrica, or indeed any other energy supplier, to continue to operate and far less to meet the sizeable investment challenge that the industry is facing,” Centrica said in a statement on its website last night. “The impact of such a policy would be damaging for the country’s long term prosperity.”
The proposal backtracks on Labour’s support for Prime Minister David Cameron’s energy policy, which is designed to lure 110 billion pounds ($175 billion) for replacing older power stations. The electricity regulator Ofgem says that funding is essential to keep the lights on toward the end of this decade.
“The proposed energy price freeze will deter much-needed investment and is at odds with Labour’s pledge to decarbonize the economy and create a million green jobs,” said John Cridland, director general of the CBI, the nation’s main business lobbying group.
The Labour leader said this morning that he’d written to the big energy companies urging them to cooperate with his proposal, which will require legislation if his party wins the election due in 2015. He dismissed their objections to the plans, calling the companies “pretty unreliable witnesses.”
“These are people who are overcharging people so, of course, they’re going to say when someone calls time on it that they’re not very happy,” Miliband said in an interview on ITV’s “Daybreak” program. He told BBC Radio 4 Labour had received legal advice that it could cap prices and that the companies could accommodate that “on any reasonable scenario.”
Miliband’s remarks raise indicate Labour may rip up part of the Conservative energy legislation that’s passed most of its hurdles in Parliament. His proposals suggest a new round of lawmaking to restructure power markets if the opposition wins the next election, which is due in 2015.
“These significant proposed changes may create a whole new level of uncertainty,” said Tony Ward, head of power and utilities at the consulting firm Ernst & Young LLP. “Each of the changes proposed will require massive change in their own right, and collectively will lead to a reassessment of the risks of operating in the energy market.”
The most immediate risk is Electricite de France SA’s talks with the government about building the first new nuclear power plant in two decades. All except one of Britain’s 23 atomic plants is due to retire from service by 2023.
EDF and the government have yet to agree on a strike price for selling power from the plant, and EDF has said the energy rules now in Parliament are essential to underpin the economics of its investment. An EDF official declined to comment.
“Price controls only add greater uncertainty to companies who we need to take the financial risks of energy investment,” said Simon Walker, director general of the Institute of Directors, a group representing company executives.
Miliband’s office said the move would cost energy companies as much as 4.5 billion pounds while helping consumers cope with a squeeze on their finances caused by the recession and slower wage growth.
An average household’s bills for power and gas has risen 68 percent since the beginning of 2008 even though the economy tipped into recession, according to data compiled by Bloomberg. That’s partly because consumer pay for subsidies for wind and solar farms through higher power prices.
“Bills could rise a further 50 percent by 2020, mainly due to the impact of government policies, renewable subsidies and network costs,” Robert Coates, a utilities analyst at Citigroup Global Markets Inc. in London, wrote in a note to clients today. “The outlook for household incomes remains tough. Current policies are simply unaffordable and will need to change.”
Caroline Flint, the Labour member of Parliament in charge of energy policy, said a Labour government would split up Britain’s six largest gas and electricity companies and force them to trade all their power on the open market to drive down prices.
Those proposals aren’t the way to bring greater competition into the market or to provide the range of services which domestic and business customers want, said Angela Knight, chief executive of Energy U.K., whose members generate more than 90 percent of the nation’s electricity.
It sends a “clear message” to overseas investors that the U.K. is “closed for business,” she said. The lobby group estimates that halting the funds for power stations threatens the jobs and livelihoods of 600,000 people.
“We are concerned about the impact that Ed Miliband’s proposal would have on investment in Britain’s ramshackle energy Infrastructure,” said John Longworth, director general of the British Chambers of Commerce.
The six largest energy companies are Centrica Plc (CNA), EDF Energy Plc, EON SE, SSE Plc, Scottish Power Ltd., a unit of Iberdrola SA (IBE), and RWE Ag (RWE)’s nPower unit. They each have different divisions generating, trading and supplying electricity and natural gas to households.
Instead of freezing tariffs, the government should recoup the cost of promoting energy efficiency and renewables through general taxation rather than by adding them to household energy Bills, SSE said.
“This would wipe 110 pounds off the average persons’ bill and shift the cost away from those who can’t afford to pay and on to those who can,” said Brian Lironi, head of media at SSE.
Clean energy developments currently support 110,000 jobs, with the potential for 400,000 in 2020, according to estimates from the U.K.’s Renewable Energy Association. Labour’s proposals may slow investment in low-carbon plants such as wind and solar installations, the industry’s lobby group said.
“The big question is: how can Labour square a major reform of the consumer energy market and a freeze on energy bills with the urgent need for investment in low-carbon generation?” asked Nina Skorupska, chief executive officer of the REA. “We cannot afford another investment hiatus.”
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