Energy – Let’s regulate to suit us and not the Big Six

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By Alex Robertson
 
Watching the Big Six bigwigs (only one CEO bothered to attend) appearing before the House of Commons Energy Select Committee in Portcullis House was a salutary experience. 
 
Given that the situation is fairly complicated, the members of the Committee were clearly not able to ask the forensic questions which they ought to have been on our behalf.

Add to that the fact that the bigwigs were all clearly very clever, well prepared, and determined to hold the group line and expel all boarders, and it was frustrating and maddening to watch.

But although the topic can be made excruciatingly complex and impenetrable, it doesn’t take a genius to boil the issue down to a fairly basic model.  There are energy generators who make the power, then there are the retailers who buy energy wholesale from the generators and sell it on to us, the consumers.  The market is regulated by the OFGEM outfit, but it has no control over prices, (thanks to the last Labour government). 

The profit margins of the Generators are typically in the high twenty percents, whilst the retailers can boast modest profit margins of some 5 percent typically.  And yet while oil prices have only risen by about 1.5% over the past year, retail prices are set to rise by around 11%. 

Nobody could offer a plausible explanation where the extra profit margin was being taken.  And the duffer MPs on the Committee seemed reluctant or unable to ask the right questions to find the answer.  And surprise, surprise, the Big Six own both generators and retailers, choosing where to take their profit.

As the hearings closed I was left with a feeling frustration and anger at how we Scots who are awash with energy are paying through the nose for heating and lighting.  Many old folk are faced with the anguish of having to decide over eating or heating as the days shorten and winter extends its freezing grasp.

It surely doesn’t have to be this way.  So I began to devise a model for the Energy sector in a Scotland able to frame and regulate its own markets.

As Alex Salmond pointed out in FMQ last week, one of the two basics for a rational and fair energy market is an excess of energy supply over demand, so that suppliers have to really compete to sell their product to consumers.  The second essential is the power to regulate the market.

Scotland produces energy far in excess of our needs, so the first condition is met.  But it stops there.

We have no power to regulate market participants, and certainly not the pricing.  And it gets worse.  We have to ‘sell’ our electricity to the National Grid.  And the National Grid charges generators according to how far they are from London.  It is insane. 

And it is an indefensible model.  Instead of charging, why doesn’t the National Grid buy energy from Generators, and deliver it and sell it to retailers? Who made up this demented market? Well it was the Labour Party, then the Tory/LibDem coalition in Westminster.  They reduced the number of generators from 22 to just 6.  Thanks guys!

And given the massive growth in sustainable energy generation, why should an independent Scotland not regulate to sell energy domestically cheaply whilst exporting excess energy at global market prices? That should make fuel poverty in Scotland a thing of the past.  The same thing could easily be done to petrol and diesel prices, making life extremely pleasant, and affordable in the new Scotland.

And before anyone says it is impossible, just let them remember the USA and their historically lower fuel prices over many decades.  And, yes, before the Green faction gets over-excited, there are other ways of regulating the supply of motor vehicles on our roads.  For an example look at the rules in Singapore for importing cars for sale.

A properly regulated market in an independent Scotland, in the interests of the Scots nation, would reduce fuel and energy costs massively.  Just imagine! Anyone for Independence?

Alex Robertson is a retired entrepreneur and is now a writer and columnist.