TIME TO COME CLEAN ON ENERGY SUBSIDIES

The recent self generated row over the green levies is a classic attempt to distract people’s attention away from the realities of energy subsidies.  As the Con Dem government denounces proposals for a two-year price freeze as "socialism" the Westminster government has guaranteed EDF and Chinese state investors in the nuclear sector fixed above average prices for energy the next 35 years.

The small print of the deal for the new nuclear power station at Hinkley guarantees the French-owned EDF and Chinese state investors a strike price of £92.50 per MegaWatt Hour (or £89.50 if a second plant is built), this is around twice the current market rate for wholesale energy. This price per unit will rise in line with inflation and is being guaranteed for 35 years – so much of the ‘free market’.

The real irony is that in the event of wholesale prices falling or rising at a slower rate than expected, then it is we, the public who will pick up the tab in the form of higher taxes or higher bills. The Energy Institute at University College London has estimated that the annual public subsidy will be around £ 800 million to - £ 1 billion pounds. This is on-top of the current £ 2.3 billion pound annual subsidy most of which ends up as a form of funding to deal with legacy nuclear waste.

The problem is that we all face is significantly down to the cumulative effect of an almost unregulated energy market and the unscrupulous activities of the ‘Big 6’ energy cartel members who will continue to maximise their profits at our expense because they simply can get away with it. The three Westminster based political parties have dropped any pretence of trying to regulate the energy market, to curb excessive profiteering or even to attempt any long term energy planning.

There is no quick fix, as energy efficiency schemes install insulation help to reduce carbon emissions and reduce fuel energy bills over the long term rather than the short term. If green levies are to be reduced, and I don’t think that they should be, then energy efficiency and fuel poverty reduction schemes should be paid for out of (progressive) general taxation - with the burden placed on higher end of the income bracket.

EXIT STAGE LEFT PURSUED BY SUBSIDY!

A member of the Big 6

If you are searching for material to build the character of a pantomime villain then perhaps you need look no further than the members of the big six energy cartel, who are busy squeezing every ounce of profit out of their customers (most of us) when not flogging off free low energy light bulbs, etc. With that in mind the news that Centrica, who own British Gas owner reported a rise in half-yearly profits, following the unusually cold winter boosted gas consumption should come as no surprise. Centrica's adjusted operating profit increased by 9% to £ 1.58 billion pounds in the six months up to the 30th June, rising from £ 1.45 billion pounds for the same period in 2012.

Amidst the statistical wizardry and smoke and mirrors that passes for energy profit related statistics, the  residential arm (of British Gas) saw its profits rise 3% to £ 356 million pounds, up from £ 345 million pounds one year ago. Like all the other cartel members last November (2012) British Gas upped its energy prices by 6% - basically because - in their largely unregulated farce that passes itself off as the ‘free energy market’ – they could. The news of Centrica's results came a day after EDF (the French energy company) announced that its UK pre-tax profits were some of £ 903 million pounds.

Interestingly enough, just before the profits were announced, House of Commons, Energy and Climate Change Committee (ECCC) realised a report which said that Ofgem (the Energy regulator) is not doing enough to make sure that energy company profits are transparent. MPs stated that the watchdog was "failing consumers by not taking all possible steps to improve openness". The committee also noted that "working out exactly how their profits are made requires forensic accountants".

Energy Profits before People?

The ECCC believes that Ofgem should force energy companies to standardise their bills to make it easier for consumers to compare the value for money of different energy providers. They also believe that it should be possible to break down the total cost of the bill into its components, i.e. wholesale energy prices, supply costs, the cost of implementing government energy policies, operating costs, and profit. And that consumers should be given details of price changes in pounds and pence, and not just in percentages

At the same time EDF stated that it was pulling out of the US nuclear power market because of the widespread availability of shale gas. This later announcement should come as no surprise, as at the end of the day it comes down to chasing easy money (and making excessive profits) when faced with a complicated and pretty much free energy market (one literally awash with resources) the cartel members will tend to back off seeking permanent subsidies (easy money) which make farcical any suggestion that the UK energy market is neither free or open for completion.   

LET THE GOOD TIMES ROLL...

Profits before people

One of the real long lasting legacies from the blighted wasted years of Conservative and New Labour rule in the 1980's, 1990's and 2000's is the fact that the members of the 'Big 6' energy (cartel) companies can continue unchecked to fleece their customers with little or non existent regulation. Ofgem (which nominally regulates the energy industry) has produced statistics that show that members of the 'Big 6' have more than doubled their retail profit margins over the last 18 months and are earning an average of £95 pound profit per household on those who hold dual fuel bills (a 7% profit on previous figures). Ofgem estimates that profits per household will reach or pass the £100 pound mark within the next 12 months. Recently acquired statistics from EDF, British Gas and the rest of the cartel members show that their profit margins from power generation, which is run as a separate operation form the business of energy sale to customers, came in at around 24% in 2011 and has risen since. Ofgem revealed that the average profit margins for energy generation within the cartel rose from 18.4% in 2010 to 24.4% in 2011. All of the 'Big 6' cartel members ramped up their energy charges between October 2012 and January 2013 to squeeze as much as they can from their customers. Even the members of the 'Big 6 ' energy cartel are perhaps getting a little embarrassed by their own blatant profiteering and their own management bonus culture as save for via Ofgem and the press it is becoming increasingly difficult to find just how much they are squeezing from us.

TIBERIAN LOGIC OR SYMANTICS AND DIVIDENDS

The Roman Emperor Tiberius, discussing the raising of tax revenue from the imperial provinces said "It is the duty of a good shepherd to shear his sheep, not to skin them." Certainly when it comes to the current unscrupulous activities of the energy cartel members, it is pretty clear that we are all being skinned if not properly fleeced.

By now most people should be aware that British Gas owner Centrica has reported operating profits of £1.3bn in the six months to 30 June, down 19% on the same period last year. The Centrica results also include a 54% fall in operating profits at its residential energy division, British Gas, to £270m.

British Gas not surprisingly says that higher wholesale gas prices are responsible for the fall in profits. By coincidence British Gas is prepares to raise gas prices by 18% and electricity prices by 16% in August. The BBC suggests that this increase will push up the average bill for around nine million customers by £190 a year.

British Gas getting its retaliation in early has said that it has been selling gas at a loss since April due to the rising cost of gas on the wholesale markets. They also say that the core business of home gas supply British Gas has lost customers and lost market share when compared with the same period last year.

Customer accounts for gas were down 0.7% from last year and market share down 0.5%, though it picked up customers for electricity supply. Oddly though British Gas did record an increase in total customers in the same period up 159,000 to 16.1 million accounts.

Centrica (British Gas's parent company) is a major gas producer and sells gas on the wholesale market and reports increased profits from operations, which include production in the North Sea and Trinidad, which increased by 14% to £414m. British Gas is one of the 'big six' energy companies (basically an energy cartel) which control 99% of the UK energy market leaving scant opportunities for any new small energy producers - so much for the free market?

Any chance of regulation on unsavoury business practices and cartel like behaviour from the Con Dem Government - I suspect that hell might freeze over first!

PROFITS BEFORE (FUEL) POVERTY?

Perhaps they thought is was a good day to bury bad news, what with the News of the World / News Corp scandal raging to quietly announce yet another rise their prices and boost their profits. News that British Gas have decided to increase their profits by increasing their domestic customers bills should not shock us. The members of the energy cartel have long put the dividend and their profit in advance of any fears of putting people into fuel poverty. That's the price we all pay for the alleged 'free market' in energy supply.

For the record:

• Scottish Power will raise their gas prices from August 2011 by 19% (electricity prices will rise by 10%
• EDF (who incidentally owe the French Government some 44 billion euros) raised their gas prices by 6.5% and their electricity prices by 7.5% in March 2011
• NPower raised their gas prices by 6.5%  and their electricity prices by 5.1% in January 2011
• Scottish and Southern raised their gas prices by 9.4% in December 2010

Some 9 million British Gas customers will see their gas bills rise by some 18% next month - they will also face a 16% (on average) rise in the cost of their electricity. They (British Gas) even admitted that there was little point in people trying to change suppliers as the other members of the energy cartel are likely to raise their prices as well.

With some customers facing a 24% rise in their gas prices, many will face a rise of nearly £190 in their annual dual fuel bills. With according to uSwitch.com some 6.3 million households across the UK in fuel poverty this is not good news. With a painfully weak Con Dem Government on Westminster who dropped any ideas of investigating the energy market last year what hope have the ordinary energy consumers have of fair energy prices? None as far as I can see...

COME CLEAN ON NUCLEAR COSTS

The Con Dem Government has claimed that our taxes won't be used to subsidise nuclear power. Yet the new Energy Bill that's being debated opens the way for public bailouts if the cost of dealing with nuclear waste spirals. Instead of risking a nuclear bailout, the Government should set this money aside for nationwide energy saving and investment in renewable power.

Now MPs have called for ministers to come clean and admit they are tacitly subsidising nuclear power despite promising that the industry would not receive such support. MP's on the Energy and Climate Change Select Committee have reported that Ministers are attempting to disguise the Nuclear subsidy and are distorting reforms of the energy market. They have also warned that unless the issue was resolved, the UK would fail to get the low-carbon energy system it needs.

The Select Committee's report focuses on the Con Dem government's plans to shake up the energy market.The shake up is needed to ensure the provision of affordable electricity without compromising the UK's climate change targets.

At the present, the current energy market exists to supply plentiful (allegedly) cheap electricity, but makes little provision for ensuring that any energy supplied has lower carbon emissions. MP's and some energy experts have complained that the UK Government is failing to attract enough investment in the infrastructure needed to meet energy needs.

The Con Dem coalition agreement allows the construction of new nuclear power stations "provided that they receive no public subsidy". At the moment the nuclear industry is refusing to build new power stations unless their are further inducements, Con Dem ministers have proposed threat the energy companies that build nuclear power plants get long-term contracts at a guaranteed price for energy produced by their nuclear power.

To make life even more complicated there is the problem of the low price of carbon credits in the EU emissions trading market. UK ministers now plan to introduce a minimum price below which carbon permits will not be allowed to sink with any shortfall will be covered by revenue raised by taxation.

This is intervention in the free market (such as it is) to an amazing degree from a Conservative dominated government. The Con Dems have said that both these policies will benefit renewables too, yet, this ensure that electricity prices remain higher than they would have been without this blatant intervention to favour nuclear industry. This "one size fits all" policy barely disguises what is a subsidy to the nuclear industry, as has rightly been noted by MPs.

For many years, the UK nuclear industry has lived quite happily off massive subsidies from UK taxpayers, at the same time cleaner renewable forms of energy have been starved of cash and investment. Potential sustainable energy suppliers and developers have had to face a less than subtle pro nuclear bias from UK Government departments and agencies, something that has seriously slowed the development of secure and sustainable energy supplies in the UK.

Back in 2002 British Energy (BE) became virtually bankrupt, so the European Commission quietly approved the UK Government's decision to bailout the private nuclear power generator. Under the restructuring plan drawn up to save the company, the UK government agreed to indemnify the company against any shortfall in the nuclear liabilities fund which meets its clean up costs.

BE in return contributes 65% of its net cash flow to the fund, the National Audit Office says this uncertainty "places a significant risk in the hands of the taxpayer", effectively leaving the taxpayer according to NAO facing "a large and uncertain liability". It gets better, BE’s liabilities, all taxpayer subsidised, have risen to £5.1 billion, an increase of more than 30%, since 2003. The amount the taxpayer has to pay will depend on the company's future financial performance.

Now the UK Government plans to build new reactors in the UK (something initiated by Tony Blair and supported by Gordon Brown) and runs the risk of fatally binding the UK to nuclear power for decades, something that will continue to divert vital investment away from clean, renewable energy. It's time for the UK Government to finally come clean about the costs (financial and environmental) of the UK nuclear industry.

Back in 2008, Gordon Brown’s cabinet rubber stamped Tony Blair’s decision to back the nuclear option to solve the UK energy needs was both disappointing and short-sighted, but, was not unexpected. By making nuclear power its priority the failing Brown Government effectively abandoned any serious attempts to conserve energy, and significantly undermined its own commitments to tackling climate change. So far the Con Dems have brought little to the debate...

When it comes to power generation there are real job opportunities that need to be fully grasped; the renewable energy sector can play an immensely important role in creating more green energy jobs. We need to create a decentralised power generation system which can include a community owned and community beneficial sector which will create sustainable long-term jobs for local people, not damage the environment and contribute to providing our local communities with a long-term viable economic energy future.

Now is definitely the time for control of energy policy to be devolved to the National Assembly and time for some original non nuclear thinking and a fundamental sea change in attitude from all levels of government in Wales towards energy policy.