Broken energy market needs more than a quick fix

There is no let up for the energy companies this week with Ofgem publishing their latest analysis of company profits, Labour launching a new plan and the Tories playing catch up.

The Ofgem report is a useful resource and shows that the profits of the big six energy companies increased from £221m in 2009 to £1.19bn in 2012. In the current climate Ofgem also want to be seen to be tough on the companies, so the decision to send back network business plans has to be viewed in that light.

TUC General Secretary Frances O’Grady said:

“Ofgem shows excess profits are the real source of soaring energy bills. With the government prepared to cap pension charges and pay-day loan interest, they should do the same for energy bills, and stop suggesting that anyone who supports a price cap lives in a Maoist commune. We also need to ask hard questions about why some ministers have been prepared to go along with energy company bosses in blaming green levies and help for the less well-off, when what has gone wrong is profit grabbing in a bust market.”

Then we had the ‘did they, didn’t they’ ping pong, with No.10 denying reports that they had asked the Big Six companies not to raise prices until 2015 as ‘utterly misleading’. However, today’s Guardian says, “It is understood there has not been a ministerial letter to this effect but officials are putting pressure on the companies not to announce any more price rises for another 18 months.”

The Prime Minister is clearly trying to play catch up with Ed Miliband’s pledge on energy prices and we can expect announcements in the Chancellor’s Autumn Statement next week. Sadly, this is likely to focus on green levies, a distraction strategy from the big issues. The "green crap" as the PM is alleged to have described it, includes ECO – the energy companies obligation to insulate housing.  Polly Toynbee identifies many of the faults with the badly designed scheme, but as she says, “A more damaging quick-fix electoral sweetener is hard to imagine.”

The Labour leader kept up the pressure this week with the launch of their energy green paper that sets out how Labour will reset the market during the price freeze. The plan includes the establishment of an Energy Security Board to delivery new capacity and a new regulator, “with real teeth to prevent overcharging”. Ed Miliband said, “In the past three years it has become clear to everyone but this government that the energy market is broken. Prices are rising year on year without justification. And Britain is not getting the investment in energy we need to secure supplies for the future.”

I think the Labour plan is a definite move the right direction, but it still relies too heavily on fixing the broken market. What we need is a more radical plan that recognises the need for different ownership models, including public ownership, to break the dominance of the big energy companies.

Cross posted at Utilities Scotland