The conversation about nationalisation of energy has spiked in recent months, for obvious reasons. Politicians, think tanks, campaign organisations, cost of living experts and the mainstream media are all debating the merits and pitfalls of public ownership, but a key contributor to that debate seems strangely absent; the energy sector itself.
Within the industry, nuanced and informed debate on this topic is rare – almost a taboo subject. Opinion polls regularly show the majority of the public support nationalising energy, and a recent poll even showed that a majority of Conservative voters back temporary nationalisation. Whatever opinions are on the subject, even the best ostrich impersonators will struggle to avoid this debate forever.
Avoidance of this topic by the experts compounds the misinformation used to support both sides of the public ownership debate – the energy system is complex and your average pundit weighing into this debate is bound to overgeneralise or misconstrue the complex reality. Examples include; blurring retail, generation and fossil fuel production; misunderstanding the market system; or the ‘wind doesn’t always blow and sun doesn’t always shine’ brigade.
Whether the UK is to nationalise parts of the energy system or not, we’ll need to have a genuine open debate about the benefits and pitfalls from within the energy sector, allowing politicians and the public to make genuinely informed decisions. Below is a starter for ten, outlining some of the debate surrounding potential public buy-out, including impact on cost of living and net zero. Security of supply is not mentioned below, but it is another key factor to consider. These will no doubt provoke reaction from many, but I hope it sparks a wider conversation.
Network infrastructure
The energy networks are often a target for nationalisation; natural monopolies, and therefore hard to regulate, and asset rich. They have come under fire in recent years for making large profits for their multinational owners and shareholders, and despite a significant effort to embrace net zero, network companies have also been criticised for moving too slowly. Regen, one of the industry’s most experienced voices on energy networks, has recently stated that delays in connection of up to a decade for generation could significantly affect net zero targets.
The rate of infrastructure build-out desperately needs to match decarbonisation targets, but the current ownership and regulatory regime are hindering progress. With the financial benefit of bringing UK assets under UK ownership and significant net zero impact, network infrastructure should be the first candidate for a public ownership debate, but will make little impact on the immediate cost of living crisis.
Effects of nationalisation:
- Priority for nationalisation: high
- Net zero impact: high
- Immediate cost of living crisis impact: low
- Longer term cost impact: medium
System operation
Public ownership of the Electricity System Operator is an easy case to make – particularly as even the Conservative Government has put the wheels in motion for nationalisation. As another monopoly service, unprofitable for private enterprise, and an absolutely vital actor in decarbonisation, the case for public ownership is clear and has been made successfully.
A central planning or system architect role is sorely lacking from any part of the energy sector right now, and clearly sits squarely in the public sphere. It could be argued that a nationalised system operator is the ideal actor to perform that role and could potentially progress infrastructure much more quickly if the publicly-owned central planners could direct build-out of publicly-owned infrastructure. As for easing the cost of living crisis – this won’t have an immediate effect, but there could be financial benefits further down the line.
Effects of nationalisation:
- Priority for nationalisation: high
- Net zero impact: high
- Immediate cost of living crisis impact: low
- Longer term cost impact: medium
Network support
Flexibility is an undoubtably big challenge which will need a lot of supporting services like energy storage, demand-side response, interconnectors and several more niche system support services (inertia, voltage control etc). The Electricity System Operator is already contracting some of these services from the market, but some are very difficult to monetise and the roll-out of some types of long duration electricity storage, for example, is moving much more slowly than we need and will arguably never be viable for private investment.
Allowing a publicly-owned system operator to direct, and networks to invest in, these system services will ensure they happen at the optimum pace, scale and location. The cost of these assets is not being felt at scale by the consumer right now, but is likely to be a significant increased cost in future – state control could keep those costs at the right level.
Effects of nationalisation:
- Priority for nationalisation: medium
- Net zero impact: high
- Immediate cost of living crisis impact: low
- Longer term cost impact: high
Retail/supply
Supply companies are the most conspicuous part of the energy system and are therefore often pilloried for price increases and made the first target for nationalisation. But their role is often misunderstood by those outside the energy sector, as are the challenges these companies currently face. Simple buy-out and nationalisation of supply companies is not a straightforward argument for many reasons and is unlikely to make a difference to the current cost of living crisis – sensible arguments that explain these nuances will be vital in the coming months.
There is a large retail market review ongoing and many people are better placed to comment on the best way forward, but it will be no simple task for a government to bring suppliers into public ownership.
One point to make in favour of public ownership: suppliers do provide a number of essential public services like targeting customers with support like the Energy Company Obligation and Warm Homes Discount, and working with vulnerable customers who get into debt and face getting cut off. These types of services would surely be much better dealt with by a public entity – as is often the case with local authorities who do it well.
Effects of nationalisation:
- Priority for nationalisation: medium
- Net zero impact: medium
- Immediate cost of living crisis impact: low
- Longer term cost impact: medium
These are just a few areas for consideration and a common theme is their lack of impact on the current cost of living crisis. Some other areas that could be discussed and would have a more immediate impact include:
Renewable generation – these are UK-based assets producing the cheapest forms of energy, but consumers currently pay prices at the same rate of fossil fuel producers. Nationalising all these (and future) assets is a very difficult conversation, but certainly it feels at the very least changes could be made to allow for this energy to be paid for at the true cost of production – currently being explored as part of the Reform of Energy Market Arrangements and in Europe. Several UK renewable developers are owned by foreign governments, so the argument for UK-owned renewable assets will be increasingly picked up on by nationalisation proponents.
Fossil fuel generation/oil and gas production – O&G production is clearly where the price crisis lies (for multiple, complex reasons) and where the bumper profits are being made at the expense of the consumer. Unfortunately this is one of the most difficult areas to control with most production taking place outside the UK. One angle that may be considered is the nationalisation of UK fossil fuel production and potentially fossil fuel generators – what effect that would have on the current crisis is unclear, but having control over these assets could certainly be beneficial for net zero.
Zero carbon heating and building insulation/retrofit – nationalisation is not straightforward here due to the fragmented nature of this sector, but this is clearly one area which could have a real impact on bills this winter through a quickly-implemented, government-led, publicly-funded programme. However, the energy sector has been shouting loudly about this for several years now, and government has still not listened or delivered.
Personally, I believe nationalisation of at least part of the sector is essential if we are going to reach net zero electricity by 2035. However, it’s clear that energy nationalisation is nuanced and complex and will have little impact on the current cost of living crisis, not least because of the timescales needed for nationalisation – the energy sector should engage fully in this debate and ensure that the right direct support is given in the immediate term.
In the longer term, the question is not going away, no matter how much shareholders and free marketeers might like it to – the energy sector should be on the frontline of this debate, not hiding in the shadows.
