Marvelous Piece from Electrical Review / Gossage column – electricity privatisation and Ofgem

Truth of the matter  – from the marvelous Electrical Review Gossage Column.

There has been much ribald laughter at the expense of the energy regulator, from the moment it published its grandiose ‘Discovery’ set of five scenarios for the next decade. Each of which admits the existing electricity system simply isn’t working.

Ever since electricity privatisation over 20 years ago, the regulator (then Offer, now Ofgem) has been the official cheerleader for the joys of total liberalisation. The philosophy was always that the untrammelled marketplace would deliver the most efficient services for everybody. Instead the converse is now admitted to be true.

Of course, Ofgem doesn’t quite put it like that in the commentary it provides. Allow me to provide the true interpretation:

Ofgem; “There is a need for unprecedented levels of investment to be sustained over many years in difficult financial conditions, and against a background of increased risk and uncertainty.”

Gossage: “We have let the fat cats and their shareholders take far too many dividend rises and bonuses, rather than investing in the infrastructure required to handle North Sea depletion”

Ofgem: “Short term price signals at times of system stress do not fully reflect the value that customers place on supply security, which may mean the incentives to make additional peak energy supplies available and to invest in peaking capacity are not enough”.

Gossage: “We have been using completely foolish regulatory criteria, sending precisely the wrong signals to the energy companies.”

Ofgem: “The higher costs of gas and electricity mean increasing numbers of customers are not able to afford adequate levels of energy.”

Gossage: “Our doctrinaire policies have been the cause of record numbers of households in fuel poverty. We’re panicking – the public will realise this, and want to string us all up from the nearest (unlit) street light”.

New breed of traders

My more devoted readers will have realised, on the whole, I think being part of the European Union is rather a good thing. I am therefore congenitally disinclined to pay much attention to the ranting of Europhobe organisations like Open Europe. However when they provide some useful insights which play to another of my prejudices, I am prepared to give them house room.

They have issued a study which analyses the impact of the EU emissions trading scheme. Courtesy of the trenchant words of the powerful House of Commons environmental audit committee, we all know the price of the permits has fallen through the floor – partly due to recession, mostly the over-generous supply of permits by European governments. This has been of very little benefit to the environment, as electricity companies aren’t motivated to switch to low carbon generation. And other participants in heavy industry aren’t motivated to use the electricity they buy even more efficiently.

But there is one sector benefiting from the trading scheme in a big way, says Open Europe. And those are the emission trading exchanges, through which all the permit trading goes. The two largest are called Bluenext and the European Climate Exchange.  Never heard of them? Think they are just entrepreneurial start-ups? Think again.

These entities include members like Barclays, JP Morgan and Merrill Lynch. The very breed of banking folk who brought us the present recession. Who between them last year earned a combined average of €250,000 a day, just in transaction fees from the trading of carbon permits.

“Instead of producing a firm carbon price to encourage investment in greener technologies, the emissions trading scheme has become a subsidy to some of the biggest polluters, and has simply created a new breed of carbon traders, which are cashing in on a policy that is failing to achieve its core objective”, thunder Open Europe.  I have to admit. I couldn’t have put it better myself.

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