“Energy is political” – stated the UK Shadow Secretary of State for Energy & Climate Change, Caroline Flint MP, in her speech to the Economist Energy Conference 2014. While it is impossible to disagree with this statement, it is the assumptions that politicians seem to make based on it, that lead to many of the problems we have in the UK energy sector today. I’ve worked in energy communications for years and have always argued that when thinking about lowering UK retail energy prices it’s best to try and think like an investor.
Instead from politicians we tend to get populist pledges, like Mr Miliband’s current plans for a 2 year price freeze, or snap policy changes based on the current economic or political weather, like Energy Minister, Michael Fallon’s recent announcement that the Tories will not subsidise new onshore wind farms if they win the 2015 general election.
The reality is that for consumers to really get a consistently better deal in the long term, the private sector needs to come up with over £100bn of investment in the UK energy infrastructure by 2020. That’s the equivalent of 20 Olympic stadiums built every year for the next 10 years. This is exactly why in order to protect consumers and keep the lights on, we need to persuade investors they are also getting a good deal. Not just over the next few years, but over the entire lifecycle of a given energy project, which is likely to be closer to 15-20 years.
This fact is rarely heard, and even more rarely well communicated to consumers. Instead policy uncertainty is pushing risk premiums on energy investments up for utilities and other businesses, making it more expensive to either invest or raise funds for energy investment altogether. With the UK general election on the horizon, Caroline Flint MP can actually spook or encourage the much-needed investment in a single speech!
Of course, everyone wants cheaper energy bills – but Britain would still be building coal fired power stations if that was the only consideration. It may well be difficult, very difficult to sell an investment argument to the public, especially considering the reality of election cycles and the inherent inability of the political system to prioritise longer-term needs of the country over shorter-term political gains. However, unless politicians and the industry start having the courage to show consumers a bigger picture, they’ll be left with an even trickier task of explaining blackouts in just a few years’ time. The responsibility to start communicating with consumers in an open and transparent way rests with both the politicians and energy companies alike. This is also key to restoring consumer trust in their energy providers.
On the bright side, the UK is currently the 4th most energy secure country in the world, and is ahead of the US and all the EU countries. The importance and value of this security is immense – for jobs, trade, sovereignty – but barely anyone outside the industry appreciates it. It’s time for politicians and industry to start explaining this, start educating the public on this issue. Britain is the 5th cheapest market for electricity and 2nd cheapest for gas in Europe – again a major fact rarely heard in UK energy debates.
Whilst political strategists are drafting and refining their campaign war books for the coming 12 months, energy will be one of the main issues that could decide the outcome of the 2015 general election. Could more transparent and open communications ensure that consumers are getting a better deal? Not necessarily – it won’t provide a short term price freeze or suddenly make people happy about price rises. However, better communication might just help people understand that “a better deal today” may end up being a more costly solution for all stakeholders in the future.
Perhaps, what should be more openly and transparently discussed – and what will help solidify the energy policies currently in place and help make energy both more secure, more green and more affordable in the longer run – is how we as a society shield the most vulnerable against the rising energy prices, ensuring there are comprehensive social policies and mechanisms in place to eradicate fuel poverty. I don’t dispute these are difficult problems to solve and the current market is not functioning for the most vulnerable.
Energy is indeed “political”. However, if we are going to have a national political debate it doesn’t help to ignore the most salient of facts: investors need a return, and the UK desperately needs a long-term policy to sustain and encourage the vital energy infrastructure investment.
Chris Abell, Ketchum UK Public Affairs, also contributed to the story