Labour’s nationalisation plans pose serious questions

Writing exclusively for Utility Week David Smith chief executive of the Energy Networks Association suggests Labour's details on proposals to renationalise the industry creates more questions than answers.

This week has seen further details of Labour’s proposals to bring the energy networks into state ownership.There is a little more detail but there are still a considerable number of gaps and unrealistic ideas about how they will implement what they are proposing. There are questions around how you define value for money, how new complex multi-tiered structures would work and most importantly of all who will pay.

We strongly support the trajectory for a zero carbon future as set out by Labour. However these proposals are in danger of undermining their very own decarbonisation objectives. They could also cost the British public a lot of money.

Decarbonisation targets are getting more ambitious and through innovation the energy networks are transforming the energy landscape. From work like the ENA Open Networks Project and on gas decarbonisation, the network companies are intrinsic to meeting these policy objectives. To introduce this complex change will not only jeopardise this journey but bring it to a stop.

At the heart of these proposals there is a void on where the investment in the future will come from. In the last six years alone, companies have invested over £22 billion in their gas and electricity grids across the country which is 2 per cent of annual UK investment.

Without this investment going forward decarbonisation will be seriously undermined. State assets will be in competition with other public spending priorities. How will the need to deliver a decarbonised future compete with schools and hospitals? It seems irresponsible to put this vital energy investment in a queue with funding for children’s education and the public’s health.

Looking back to the days of state ownership the energy networks were more expensive and less reliable. Since privatisation in 1990 network costs to the bill-payer have fallen by 17 per cent. At the same time that costs have fallen, reliability has improved: the public have experienced 60 per cent fewer power cuts while their length has been reduced by 84 per cent.

An average customer would have a power cut less than every two years which will last for 35 minutes. Gas networks are so reliable that customers would have an unplanned interruption to their supply once every 140 years. The UK is now ranked globally seventh by the World Bank for ease of getting electricity. This vital investment could all be jeopardised with these plans.

Energy networks have responded quickly to the rapid growth of the low carbon transformation. Renewables’ share of total generation was at a record high level of 33.3 per cent in 2018, up from 29.3 per cent in 2017. Over 30GW of generation has been connected to the distribution network. Britain is decarbonising gas with 100 sites producing green gas now connected to the network. Also thanks to the work of the gas networks, hydrogen has been named by the government as a plausible pathway towards UK decarbonisation.

Labour proposes bureaucratic complexity that will stifle innovation and not encourage it. It is unclear how the proposed new structures will work together and how they will deliver. Our Open Networks Project and work on gas decarbonisation has reinforced how vital it is for there to be effective coordination and clear lines of responsibility.

A very important question is where this leaves the industry’s pensioners, and shareholders, particularly former energy utility workers. According to the Global Infrastructure Investor Association nearly eight million pension pots in the UK invest in the businesses Labour wants to bring into state ownership. These pension pots which are sustaining the lives of millions of UK pensioners are at risk with these proposals. If, as Labour propose, they were compensated at below market value it would be seriously reducing the weekly incomes of many pensioners.

The attractiveness of the UK to encourage inward investment would be undermined by these proposals. The net result would be to reduce investment and increase the cost of that finance. Unstable regulatory frameworks and arbitrary acts by governments do not encourage investors. This will mean that energy bills for consumers will go up and we have been striving to reduce them. So some people will be disadvantaged now and then in old age.

A future Labour government could also find difficulties through existing international agreements and human rights legislation when they come to purchase these assets on the basis they propose. This is another area where the policy document remains silent.

The energy networks have put £100 billion of private investment into our vital energy infrastructure since privatisation. At the same time they also provide jobs for 36,000 people. They continue to develop cutting edge innovation that serves the communities they operate in across the UK. They are there 24 hours a day for the cost of 35p per day and people in the UK rarely experience a power cut and practically never a loss of gas supply.

We will continue to make the case for a sector that is delivering on cost, on reliability, on decarbonisation and on serving our communities. Turning the clock back to state ownership would only cause massive cost and disruption and mean that the British public would miss out on the smarter, cleaner, more efficient energy system that we all agree is needed to keep our lights on, our homes warm and our carbon emissions down.