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Profits put energy supply under threat

Thousands more families will be forced into fuel poverty, and Britain’s energy supply is under threat, according to a shock report published yesterday by the energy regulator Ofgem.

Their “Project Discovery” review of the state of the energy market, warns: “The unprecedented combination of the global financial crisis, tough environmental targets, increasing gas import dependency and the closure of ageing power stations has combined to cast reasonable doubt over whether the current energy arrangements will deliver secure and sustainable energy supplies.”

The report goes as far as to suggest that a new kind of government-run supply company might be the only way to secure future supplies and affordability and highlights five key issues:

  1. Only a tiny percentage of the £200bn investment needed over the next 10 years is committed from the energy corporations.
  2. The falling carbon “price” means there is no incentive to investment in low carbon fuel generation.
  3. There are no price incentives for energy companies to store gas to meet peak capacity or to keep prices down.
  4. Relying on global markets creates risks to Britain’s security of supply.
  5. The rising cost of gas and electricity may mean that increasing numbers of consumers can’t afford to heat their homes, and that industry and business will be less competitive.

This clear statement of the abject failure of the profit-driven energy market was underlined this week as a series of profit collapses were announced in this most volatile global market.

French energy giant EDF – profits down 40% over the year to February. Royal Dutch Shell – sacking another 1,000 people this year in addition to the 5,000 in 2008, as profits fell by 69%. BP – a 45% fall in profits for 2009. Exxon Mobil, the world's largest private oil company – a profit slump from $45bn in 2008 to $19bn in 2009.

While the profits, pricing cartels, and environmental destruction wrought by the energy giants remains an obscene blight on human society – they can’t even deliver a secure, affordable energy supply. Following privatisation in the UK, gas prices fell in real terms between 1995 to 2000 as competition developed. But since 2001, prices have risen continuously.

An average direct debit gas bill increased by £123 to £648 between 2008 and 2009. Electricity prices fell in real terms between 1992 to 2003, but since then have risen consistently. An average direct debit bill increased by £45 to £421 between 2008 and 2009. Overall, domestic energy prices have risen by 80% between 2004 and 2008, driving up fuel poverty.

In 2007, there were around 4 million fuel poor households in the UK, up from 3.5 million in 2006. Figures for 2008 and 2009 are not available yet, but the prediction is 3.6 million fuel poor households in 2008 and 4.6 million in 2009.

Energy and Climate Change Secretary Ed Miliband’s response to the Ofgem report was the equivalent of sticking his fingers in his ears and singing “la, la, la”. “The government is confident that Britain will meet its security of supply needs in the years ahead. Our Low Carbon Transition Plan has put in place a programme of action to deliver secure and increasingly low carbon energy supplies in the medium term through to 2020,” he said.

But as the BP boss Tony Hayward admitted in an interview today on Radio 4’s Today programme, the private sector is not going to invest in low-carbon energy generation. BP itself has pulled out of offshore wind power because the profits are not short-term enough.

It doesn’t have to be like this. In our draft Manifesto of Revolutionary Solutions, we set out detailed proposals that can deliver secure affordable energy and reduce emissions. But first and foremost, we must take control of energy supply out of the hands of profit-driven corporations – and now even Ofgem knows it makes sense!

Penny Cole
Environment editor
4 February 2010

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