Thursday, 18 October 2012

Cheap energy is not always best

It's disappointing that David Cameron has jumped onto the bandwagon and committed the Government to forcing energy utility companies to move customers onto their lowest price tariff. During Prime Minister's Questions on Wednesday, Mr Cameron made a surprise announcement promising to legislate "so that energy companies have to give the lowest tariff to their customers". Although this might sound like a no-brainer at first, by focusing just on price and not on the need to incentivise companies to invest in truly green (renewable) supplies, the Government is sending the wrong signal.

One side effect of a move to force consumers onto a single (lowest price) tariff is that the fledgling green tariffs, whether those offered by the Big 6 under Ofgem's Green Energy Supply Certification Scheme1 or ones from independent suppliers will become less attractive to consumers. In particular those who have signed up to certified Green tariffs from the Big 6 will find they are moved back onto a brown tariff periodically, and will have to take positive action to reconfirm their greenness - and it's likely that simple inertia will stop many from doing so.

Moreover, I'm not totally convinced that profits in the sector are actually excessive, given the need to de-carbonise the UK's electricity supply (not to mention the Rest of the World...). Cheap electricity may be available today from gas - whether imported from Russia or obtained by environmentally dubious fracking techniques from shale - but this is not low-carbon, unless compared to coal. And if the US fracks all their shale, then global CO2 emissions are most unlikely to start falling in the near future. Of course, the consequences of this are hard to sure about, but as an inherently cautious observer, I would like to see proof that the US droughts this summer were not caused by the jet stream being further South than normal, and that in turn this was not caused by higher than normal melt water from a rapidly warming Arctic Ocean.

But to come back to the UK, politically motivated pressure on prices (from all parties, not just the Conservatives) will lead to short-termism and poor investment decisions about cleaner (and more secure) energy resources. And the Prime Minister's statement was opportunistic as neither the Energy Secretary nor Ofgem, who are about to issue the latest version of their Retail Market Review into how the consumer energy markets work, appear to have known anything about it. The last thing that the UK (and the environment) needs is an energy policy made up on the hoof in order to get a favourable sound-bite and the approval of the Daily Mail.

1 Disclosure of interest I am professionally connected with this Scheme