Dan Byles MP: UK Politicians Fuel the Myth that Government Can Control Energy Market

Energy policy is once again dominating the news this week with debate over rising prices, the interventions from Ed Miliband and John Major, and the welcome announcement of the strike price for the new nuclear power station at Hinckley.

The nub of the problem with energy policy is that we face ongoing upward pressure on prices for multiple reasons, and for too long politicians of all shades have not been willing to have an honest debate about why that is and what the implications are.

In particular politicians have persistently fuelled the myth through their rhetoric that governments can control the cost of energy.

Coalition MPs blame the previous Labour Government for energy price rises pre-2010; Labour blame the coalition for for rises post-2010; both strongly feeding the expectation that Government can control these things.

It is hardly surprising then that the ultimate conclusion of this sort of rhetoric is Miliband's economically incoherent conference pledge to freeze energy bills.

Energy Price Rise Problems

Neither Miliband's price freeze nor Major's windfall tax would do anything to address the root causes of energy price rises.

Both would be short term sticking plasters addressing the symptoms.

Prices are rising predominately due to rising international wholesale prices. The UK is now a net importer of gas for example, and therefore a price taker - we have to pay the going rate for Liquified Natural Gas (LNG) and pipeline gas.

Prices are also rising due to rising network and transmission costs, something you rarely discuss in the media.

It is also true that some of the price rises are a result Government levies to fund both environmental and social policies.

The 'Big Six'

The Big Six energy companies are not blameless - they have allowed their complicated structures and lack of competition and transparency to make it very difficult for them to counter accusations of profiteering.

But it is dishonest and simplistic of politicians to blame all upward price pressures on the nasty energy companies - the situation is much more complex than that.

By 2018 to 2019 the Levy Control Framework - the cap on renewable energy subsidies - will have risen to almost £6.5bn.

All six of the 'Big Six' energy companies only made a total of £3.7bn earnings before interest and taxes (EBIT) year. They may well be part of the problem, but they are not the entirety of the problem.

Prices are going to continue rising in the future, and I fear we are not being honest enough with consumers about that.

Successive governments have had a deliberate policy of switching off the cheapest forms of generating electricity and replacing them with more expensive forms.

Most of this is still to come, and once our remaining coal fired plants and legacy nuclear plants come to the end of their lives and are replaced with new generating capacity, we will start to see the effects of structurally higher energy costs feeding their way into bills.

I regularly find myself sitting around a table with government officials, industry, academics and politicians all discussing energy policy, and the person usually missing from the table is the consumer, those who will actually have to pay for all of this.

A Low Carbon Economy

This is not an argument against moving to a low carbon economy.

I firmly believe that we must do so. This is a plea for an honest debate about how we do that, and what it will cost.

Governments cannot simply wish a low carbon future into existence, nor can we create one while maintaining energy prices at the levels we have enjoyed over the last decade or two while we've been sweating old assets and burning unabated coal.

We need a credible, affordable and investable road map to get where we want to go.

That includes a sensible energy mix that includes new nuclear and isn't frightened of moving from coal to gas in the medium term, moving ahead with exploration of domestic shale gas resources, and with a stronger focus on developing CCS.

There is an argument for moving some or all energy bill levies into general taxation which is less regressive than putting them on energy bills, although I haven't done the sums and I would like to see some figures for how that might work. We need a greater emphasis on energy efficiency, more competition, more transparency.

Above all we need more honesty.

Energy policy is too important to become a political football.

We have had a broad political consensus on energy policy until recently. I am not uncritical of UK energy policy or the Energy Bill - indeed I have criticised both on many occasions.

They are far from perfect.

But the enormous infrastructure challenge we face to attract the hundreds of billions of pounds of investment we need in the coming decades requires a coherent energy policy that doesn't wobble with every general election.

The next few months will be critical to see whether the current debate over energy policy ends with that consensus being broken.

With international investors watching very closely, I sincerely hope that it isn't.

Dan Byles is a Conservative MP for North Warwickshire and Bedworth and sits on the Energy & Climate Change Select Committee, and chairs both the All Party Environment Group and and the All Party Parliamentary Group for Unconventional Oil & Gas.