Policymakers are addressing the symptoms of a dysfunctional energy market but patently failing to get to grips with the reason for failure: a lack of genuine competition.
A new paper, From Nationalisation to State Control – The Return of Centralised Energy Planning, charts the failure of state interventions in the UK energy market and looks at how powerful interest groups have led governments to fall back on centralised planning, at the expense of consumers nationwide.
The report debunks arguments for government intervention in the energy market and warns against statist solutions such as a price freeze or windfall tax. Not only would these policies seriously undermine the incentives to invest in the UK energy sector, they would also have the perverse effect of increasing demand whilst restricting supply.
The failures of intervention:
- Interventions push up prices for consumers. For a very short period around the turn of the millennium, the UK energy market was highly competitive and offered consumers choice and low prices. Interventions in both the 1970s and 1980s, and in the past ten years have continuously failed to provide consumers with the best outcomes.
- Government promotes wasteful investment. Centralised planning has created a complicated network of administrative subsidies to promote renewables and nuclear power, at a significant cost to the consumer. This has played a large part in spiralling living costs, rising fuel poverty and decreasing disposable income for families across the country.
- Energy security is best provided by the market. Taking responsibility for energy security away from suppliers and to government is more likely to reduce security than to increase it. A liberalised market would provide strong incentives for producers to diversify supply and respond to consumer dema