Why do we need Private Energy Companies?

The recent series of price rises announced by our energy companies has been greeted with dismay, shock and anger. Which is not surprising, given the scale of the increases and the importance of energy supplies to all households. However, anger on its own achieves nothing.  The UK government seems to want to use these price rises as an excuse to downgrade our commitment to renewable alternatives.  One expects nothing better from the Tories, but Labour have nothing to offer either.  Their UK leadership is proposing a price freeze, but only if Labour are elected in 2015.  And then what?  No-one seems to know. Calling for a price freeze when you do not know for certain the finances behind the companies strikes me as pretty silly, and pure electioneering.  In Scotland the SNP have at least approached this from the perspective of maintaining the renewable sector.  They have promised, if elected in an independent Scotland, to remove the cost of renewables from energy bills and pay for them out of general taxation.

However this is just a start.  We need to move on to ask why do we need so many energy companies at all? And do they need to be private companies?  The whole rational for privatisation was based on a false premise – that competition would secure investment and bring down prices. Now reality has confirmed that much needed investment, in renewables for example, will only happen with the support of government subsidies.  While there has been precious little in the way of prices coming down. With privatisation tariffs have become ever more opaque and confusing.  It is nearly impossible for anyone to work out the tariff that offers them the best deal.

The reality seems to be clear for all to see – the energy market is not in any meaningful sense a real market. The supply side of gas and electricity is dominated by the Big Six energy companies, which control over 90% of domestic customers. These six companies also control over 70% of UK generating capacity. With the next four largest generating companies, the Big Ten control over 85% of energy generation.

Since privatisation there is precious little evidence of genuine competition. Certainly there appears to be none when it comes to prices. When one company raises prices, the others follow suit very quickly and with more or less the same price rise. Very suspicious. Yet not really surprising at all. After all the supply companies all use the same resource. It doesn’t matter which company you use, the gas and the electricity is exactly the same. So it is not at all clear why there would be significant price differences.

Which begs the question of why we need all these private energy companies in the first place. Previously we did not of course. There was one, very large company for the whole of England and Wales, while Scotland was served by two companies – one for the South of Scotland and another for the North. Privatisation in the 1990s changed all this. The rush to privatisation seems to have been solely undertaken for ideological reasons. For the then Tory government – the Thatcher/Major governments – privatisation was simply a matter of belief. Private was good, public was bad. Which of course flies in the face of reality. It is ironic that one of the major energy companies, EDF, is part owned by the French government.

With ten large generating companies and six very large supply companies it is all but impossible to work out just how much rigging of the market goes on. Or how much excess profits these companies make. When does a profit become excessive anyway? It is not clear why the generation and supply of energy has to be at the mercy of private profit. Just about everywhere it is a monopoly or near monopoly market. We need to look again at forms of public ownership of our key natural resources and utilities.

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