Miliband’s proposed energy freeze could be disastrous

Posted on 3 Oct 2013 by The Manufacturer

Ed Miliband was right to highlight the problem of spiraling energy costs but his plan to freeze prices could be disastrous, says Julian Morgan, managing director of the Energy Advice Line.

He certainly set the hares running.

Labour Leader Ed Miliband, who has proposed a capping of energy tariffs if elected in 2015.

Ed Miliband’s plans to freeze consumers’ energy bills if he wins office have garnered the kind of headlines political leaders dream of. On the cusp of winter, he’s played into the hands of voters struggling to afford to heat their homes. And if energy suppliers who claim his plans are a dangerous political ploy attack him, what’s the harm? The voting public doesn’t like or trust them much anyway.

On the one hand, I welcome Mr Miliband’s voice to the debate about reform of the UK’s energy market. But it’s been a long time hearing from him. Our organization, along with others that deal day-to-day with consumers, has long complained that energy prices are too high. This is partly due to the rising cost of gas and the cost of green energy reforms. But lack of competition in the UK’s energy market is also a significant factor.

The UK’s complex regulatory system, onerous financial requirements and the domination of the Big Six energy companies (that both produce and supply energy) deter new players from entering the market. And when a market isn’t amenable to competition, the select few that trade in it can get away with giving customers a raw deal in the form of bad service and high prices.

Mr Miliband’s plan to cap prices just doesn’t address these issues. Moreover, he’s dangerously dismissive of the potential ramifications. Energy companies say that if they can’t increase customers’ bills and the cost of wholesale energy rises they will face a shortfall of billions of pounds. Mr Miliband, who doesn’t dispute these figures, believes energy companies are large enough to absorb such losses. But what if they’re not?

Energy companies form part of the bedrock of the UK economy, inextricably linked to its trade and investment performance (particularly pensions). A financially fragile energy sector could be disastrous for the UK’s economic growth. The UK also needs a thriving utility sector to make the essential investments needed to renew its crumbling energy infrastructure.

If Mr Miliband is determined to persist with his plan, he needs to think beyond the headlines and provide fully costed and thought-out details of the energy price cap plan. How will it be rolled out? Will there be subsidies for energy companies that suffer financial shortfalls, and if so, who pays? What happens after the 20-month freeze? Will energy prices suddenly skyrocket? What’s to stop energy companies ramping up prices over the next 18-months in advance of the cap? I’m not convinced Ed Miliband has the answers to any of these questions.

If he is genuinely interested in delivering lower energy prices to consumers, he should consult with stakeholders to reform the UK’s energy market and install a regulator that does its job properly. A truly competitive and properly regulated energy market will help to keep energy prices under control. Capping prices is nothing more than a populist gesture that could in fact risk making prices higher. The headlines won’t be so pleasing then, Mr Miliband.