Labour’s energy manifesto isn’t about nationalisation, so what does it really say?

Guest Blog from: Stephen Hall, Research Fellow in energy economics and policy, University of Leeds

Headlines claiming that the Labour manifesto means a re-nationalisation of the energy sector are wrong. So what does it really say, and what would it change?

First of all, forget the tariff cap on standard household energy bills. Both main parties are promising it, so that’s a zero sum game. Instead, let’s take Labour’s manifesto statements in the direction that energy flows, from power plant to light switch. And that means starting with generation.

The manifesto makes a strong commitment to nuclear, but it is silent on the need for more gas power plants. These “flexible” gas plants will be essential to make sure the lights stay on when the sun isn’t shining and the wind isn’t blowing (coal is too dirty, and nuclear power can’t easily be switched on and off).

It’s important to realise there isn’t a single generating technology being built in the UK that is not getting some government subsidy, either in the form of “feed-in tariffs” for renewables, or the “capacity market” for traditional power plants.

Since the wind and solar generation boom, flexible plants run less often and make less money, so private companies don’t build enough new ones and are shutting old ones down.

Europe’s largest gas-fired power station is found near Pembroke, in Wales. Reading Tom, CC BY-SA

To counter this problem, the capacity market was set up in 2014, and was designed to subsidise gas power plants. The then coalition government asked the market for the cheapest flexible capacity, believing it would be gas. However, the answer from the market was that “cheap” also included old coal plants and diesel generation which is about as dirty as electricity gets.

Labour’s manifesto doesn’t give any detail, but some state-owned gas plants might be the only way to solve this problem without even more subsidy. This is probably more ideologically palatable to a Labour government than it is to Liberals, Conservatives or even Greens.

The grid will be publicly-owned

Next the infrastructure, the wires and pipes that move electricity and gas around. Because these systems are natural monopolies run by private companies the government regulates these companies’ revenues.

Regulated infrastructure revenues do not exactly scream “innovation”, and because of this grid, companies have needed hundreds of millions in public subsidy to invest in smart grids. This is why cities from Germany to the US are buying back these networks to accelerate investment. This is called re-municipalisation because it is the cities, not states, which are buying the networks back.

In Hamburg, Germany’s second largest city, the local government is buying back its energy grid. Heiko S, CC BY-SA

Labour’s manifesto says it will legislate to “permit publicly owned local companies to purchase the regional grid infrastructure, and to ensure that national and regional grid infrastructure is brought into public ownership over time”.

To understand why this is Labour policy, it’s important to know that many of these networks are owned by companies like Macquarie, an Australian capital fund which has been criticised for its arguably ruthless model of global infrastructure investing. The same is true for the smaller distribution companies; for example, the company that services Yorkshire is ultimately owned by Warren Buffett, the world’s second richest man.

Macquarie, Warren Buffett and similar interests own many UK infrastructure networks, and it is no surprise that this does not sit well with the current Labour leadership. Some point out that if energy sector regulation were to work as intended ownership would not matter, but others argue these companies are extracting what amounts to a privatised tax.

Allowing cities and other public companies to buy back these grids costs money, but it also makes money. The choice for Labour would be whether they use those new revenues to fund social programmes, cut energy bills, or reinvest to make grids smarter.

Public utilities will join the market

Next the retail market, the place where we choose a supplier. Labour’s manifesto promises at least one publicly-owned energy company in every region of the UK. We already have some: Robin Hood Energy (Nottingham), Bristol Energy and White Rose Energy (Leeds) are all owned by the city councils.

I have argued municipal energy suppliers are a good idea if you want to deliver smart, decentralised systems that tackle fuel poverty and promote local green energy. This is not nationalisation. In fact, setting up these new public utilities relies on them having a market to enter.

City utilities are among a group of new energy suppliers which are signing customers up fast by offering a meaningful choice on the mix of green vs traditional energy, new price deals, and for some, an opportunity to buy from a locally-owned company – public or otherwise.

Investment in insulation

At the demand, or “energy efficiency”, end of the market, the Labour manifesto promises to insulate 4m homes. This is an extremely welcome move as current policy is nonexistent and previous efforts were a dismal failure. Serious action is possible, is good for public health, and is a huge economic opportunity. Homeowners will be offered interest-free loans and measures for private rents are to be introduced. There isn’t any detail on how the 4m homes will be targeted but it reads as though households in fuel poverty will be first.

The Labour manifesto signifies the most substantial intervention in the market in 20 years. It is not a full nationalisation though. It is a series of interventions designed to tackle profiteering, and take an active stake in the system.

This blog first appeared on The Conversation:

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