Alistair Darling is concerned about an energy price hike in the UK – npower is hiking its domestic gas prices by 17% and electricity prices by 12%, and other firms are set to follow npower’s lead. His solution? He has publicly stated how he is approaching Ofgem about the matter. Fat lot of good that is going to do. Darling should know the energy sector well enough – he was responsible for energy markets while Secretary of State at the DTI between May 2006 and June 2007. Hence he should know that solving these issues is complex, and that these are 2 better solutions:
(1) Sort out EU gas markets
Liberalisation of gas markets in the EU is only partially complete, and implementation of the 2003 Gas Directive is still inching forward. If the market for gas were working properly, gas would be flowing through the interconnector pipe between Zeebrugge (Belgium) and Bacton (Norfolk) to satisfy greater demand in the UK. But no, inadequate gas is made available for sale and hence the interconnector has been running at no more than 25% capacity in the last month. As the UK is an overall net gas importer, it is dependent on mainland European gas markets functioning properly – hence Darling would be better to be on the phone to Andris Piebalgs (Energy Commissioner) and his ministerial counterparts in other EU member states about a strong new package of energy market liberalisation and a proper EU energy market regulator. But, oh, hang on, that would be the Alistair Darling who dislikes Brussels meetings at the Council of Ministers and has a lousy attendance record… On the other hand Sir John Mogg, Chairman of Ofgem, is also President of CEER – the Council of European Energy Regulators, so maybe he might be able to point Darling in the right direction.
(2) Sort out British homes
Even harder to achieve than EU energy market liberalisation, Darling should improve tax incentives to make Britons invest in energy saving measures at home – UK homes are terribly inefficient. If investments could be recouped in a couple of years, householders would be quite inclined to invest in loft insulation and other equivalent measures. In point 6 of this Guardian article they suggest putting a Â£20 note in every roll of loft insulation. OK, maybe not a Â£20 note, but no VAT on insulation, and other incentives? Tax rebates on installation perhaps? Customers would have lower bills, and lower CO2 emissions too.
The Zeebrugge NDP is 54.75 pence per therm – I don’t have a spot price for Bacton, and it’s volatile, but the year-ahead price in the UK closed yesterday at 55.2 pence per therm.
Indeed the Bacton interconnector is mainly piping gas out of the relatively competitive UK market, into higher priced EU markets, pushing domestic prices up. It’s flowing into the UK at the moment, net, but that’s unusual – this link may or may not work
So there’s an argument about relative advantage and what happens as our production declines, but right now that’s not bringing prices down.