Is this the end of energy market liberalisation?

Prime minister David Cameron gave a breathless welcome to Hitachi's purchase of the Horizon nuclear venture abandoned by Eon and RWE, declaring it a "decades-long, multi-billion pound vote of confidence in the UK". The reality is that it is a punt based on an anticipation that the government will come up with the goods when it decides what nuclear generators will be able to charge for their power. That means that the nuclear operators will be able to charge for their output at rates that outstrip current wholesale electricity prices and will be protected for decades.

Clearly, Hitachi president Hiroaki Nakanishi is pretty confident the government will make it worth the Japanese company’s while – it paid double what most analysts were expecting Horizon to fetch. And that confidence is arguably the latest demonstration of the extent to which investment in UK energy is rapidly ceasing to be driven by market opportunities and more by non-market considerations.

The march against market forces is bearing down everywhere. The government is growing ever more inclined to pick winners in generation rather than leave it to the market. The Treasury is clear in its preference for gas over renewables. And the climate change minister says suppliers need to be tethered by law in what they can charge.

Are we seeing the beginning of the end of the UK liberalised energy market experiment? It can come as no surprise if we are. The trilemma of affordability, low carbon and security has always been at least one challenge too many for an energy market model that was never designed to deliver reductions in emissions. The arrival of political expediency to the fray looks set to topple it.

Trevor Loveday

This article first appeared in Utility Week’s print edition of 9th November 2012.

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