Labour’s big six plans are a surprise – but not unprecedented

The punch has landed. Last week’s release of the Labour manifesto confirmed the party’s expected pledge to renationalise swathes of the utilities industry. And it’s no minor part of Corbyn’s campaign for Number 10. This weekend, his renationalisation plans featured early in a BBC Question Time election special when he tarred the water sector as wasteful and “asset stripped within an inch of its life”.

While individual company leaders are keeping their heads down during this nail-biting election race, industry trade bodies are hitting back to defend the benefits of private investment in utilities – especially in light of the climate emergency.

Water UK responded to Labour’s manifesto with a frank denouncement, calling it “bad for the environment, bad for customers, and bad for the economy.”

Meanwhile, the Energy Networks Association is relying in on its Securing a Green Future Campaign to push out a message about the importance of private investment to meeting the net-zero target and the scope for renationalisation to derail this agenda.

And Energy UK has been in action too, responding to the less well-trailed pledge from Labour to extend its public utilities territory into the energy retail space too via renationalisation of the “big six” – whatever that is now understood to mean.

After release of Labour’s manifesto the trade association warned that its plans for suppliers risked reversing recent progress in making the retail market more competitive and driving up switching,

The body’s head of policy and regulation, Audrey Gallagher said renationalisation could “block innovation and create a situation where new and growing suppliers – who have been gaining an ever increasing share of the market – would be competing against incumbent state-backed companies”.

Such a situation would certainly have its risks for mid-tier and smaller suppliers. But it is worth noting that the situation is not unprecedented. Northern Ireland’s (NI) Utility Regulator today presides over a hybrid energy supply market in which publicly-owned Power NI is price regulated while an admittedly small collection of private retailers vie to erode its market share and out-do their contemporaries.

According to the Utility Regulator’s most recent transparency report, Power NI currently holds around 55 per cent of Northern Ireland’s total connections with the biggest private sector rival being SSE Airtricity with just over 20 per cent. The average unit cost of electricity in NI is a smidge higher than in GB, at 15.6p/Kwh, but equally the market has not seen swathes of suppliers with unsustainable low pricing models going to the hilt.

At Utility Week’s October Congress event, Utility Regulator chief executive Jenny Pyper said that the Northern Ireland arrangement works because customers have certainty that they can always access a solid baseline for price and service with Power NI, but they also have the choice to seek out other value in the competitive market.

Other industry sources have observed to Utility Week that the model has its merits as a way of providing a safety blanket to vulnerable customers without imposing price caps – which GB retail market players widely lambast as deeply damaging to profitability and innovation.

Of course, we don’t know yet if an emulation of NI is what Corbyn has in mind for the GB supply market should he gain power. Meanwhile, we do know that leaders in the monopoly utilities space genuinely fear for the impact that renationalisation would have on their ability to invest for decarbonisation. Their investors are irate at the undervaluation of their asset bases and are unlikely to let them go at a bargain basement price without a fight.

With no ability to pick and choose parts of Labour’s plans – there are plenty who would not oppose public ownership of the Electricity System Operator for example – it’s still safe to say that utilities are keeping their fingers crossed that the Tories don’t do anything to eviscerate their position in the polls.