Cameron rolls back, rolls over – what will be his next trick?

 

October 25, 2013
David Cameron’s call for a “roll back” of green energy surcharges shows that the Government is now making up energy policy as it goes along.
He was quick to lambast Ed Miliband for announcing an energy price cap if Labour wins the next election – rightly pointing out that this would have a catastrophic impact on confidence in plans for energy infrastructure investment. Yet, almost without pausing for breath, he turns round and announces a review of the system for raising funds to pay for…energy infrastructure investment.
This is not only breathtaking hypocrisy and politicking of the worst kind; it shows a complete failure to understand our energy market and our country’s needs. Even his coalition partners the Lib Dems say he is panicking. His language at the despatch box betrayed his lack of poise on this issue. He might believe that Ed Miliband is a ‘con man’, but he was ill advised to voice that out loud.
He also conveniently forgets that the Climate Change Act of 2008 went through with support from both sides of the House – and green surcharges are a direct result of that Act.
Mortgaging the future
The Hinkley Point nuclear deal in the same week should give him further pause for thought. To get the nuclear deal over the line, he had to guarantee investors double the current price of electricity – in other words, he has mortgaged future domestic energy bills.
Green surcharges are not the whole reason our energy bills are rising – and it is hard to believe that Cameron doesn’t know that. The real reason is that we cannot control the wholesale market. Pension funds, who for so long saw utilities as core investments, no longer consider them the stable deliverers of returns and have disinvested. You would have expected the Tories to understand these pretty basic economic facts.
The big energy companies and investors didn’t like the look of the risk profile surrounding UK nuclear infrastructure so would only invest if the Government agreed to pay a high price.
According to the Climate Change Committee, the independent body advising the Government on how to meet our carbon reduction targets, household energy bills rose by an average of £520 between 2004 and 2012. Of that increase, £35 went towards supporting renewable power and £45 was invested in energy efficiency measures. Mr Cameron told the Commons that green charges had added £112 to the average annual energy bill.
Collapse
Even if his sums are right (and his own advisers are wrong); the addition of less than £10 a month to bills is hardly life changing – the collapse of our future energy infrastructure definitely would be.
Our industry has continually reminded the Government that you will only solve the problem of dwindling energy supplies with long-term policy decisions – yet both the Labour administration and the current coalition have flip flopped over this issue more than any other.
They managed to stick to their guns on petrol, though. Taxes account for more than 80% of what we pay at the pump and there were huge, violent protests in 2000 when we were paying around 80p per litre. Now, as we move towards £2.50 the protestors have melted away and there is much greater focus on the efficiency and reliability of vehicles to ensure they consume less fuel.
How about applying the same principle to buildings? Investment now in sustainable energy supplies will keep prices down in the future; but the most valuable energy is the energy we don’t use – so the big investment should be in energy efficiency. The Government has a perfectly good scheme in place for retrofitting every home in the country, but it is going nowhere.
Forgotten flagship
The Green Deal is rapidly becoming the forgotten ‘flagship’ policy because the “greenest government ever” has failed to invest in it. Not only has it not publicised it properly, it has allowed the loan repayments to be saddled with a 7% interest charge that is putting households off.
If the Government is prepared to mortgage future energy bills against nuclear energy and act as lender of last resort through Help to Buy, why can’t it make much more modest investments in energy saving? Underwriting the Green Deal so that it is cost neutral to homeowners, would turn the 80,000+ assessments that have been carried out into projects – currently only around 500 families have registered to convert their Green Deal assessment into an actual project.
Cameron should go further and incentivise the scheme by introducing lower council tax rates and stamp duty for energy efficient homes. This would lead to the nationwide rollout of energy efficient measures that would ensure households use less energy and, therefore, pay less now and in the future. The results would be visible long before Hinkley Point comes on stream.
It is pretty basic economics, but it does mean you have to stop making things up as you go along and playing party politics with our future.
Oh, and you have to believe there is a future beyond the next election.