The Green Transition: Price cap in hand
Weekly analysis of the shift towards a new economy.
Dear Reader,
Happy Friday. Jonny Ball here, associate editor of Spotlight, the New Statesman’s policy section. As ever, all our loyal policy wonks and white paper-loving readership can find our coverage here.
Welcome to the latest edition of the Green Transition. You can find all the back issues of our analysis of the moves towards a new, green economy on our Substack hub.
We’ve only got a couple of weeks until parliament is back, which I’m sure our readers are all very excited about. I certainly am. But before that, it’s price cap day in the UK! And we’ve got Unite general secretary Sharon Graham writing for us on why politicians need to get serious about long-term solutions to sky-high energy prices (see In Brief, below).
Anyway, please do hit like, comment, share and share again. And, of course, subscribe… if you haven’t done that already.
Thanks a lot and enjoy.
Price cap in hand
Today, the UK’s energy regulator Ofgem has announced its new price cap. It has come down, somewhat, but it’s not time to crack open that Friday Prosecco just yet. The reduction is a modest £151-per year, standing at a £1,923 annual payment for an average household, down from the previous £2,074. The average household is still paying a lot more to keep the lights on than we were a couple of years ago – double, in fact. Especially since this winter, households won’t be receiving the £400 support payments from government (which were paid out in instalments last year).
The government’s Energy Price Guarantee (which subsidised high energy bills – and energy providers’ dividends – to protect consumer pockets when rising costs threatened to blow the price cap out of the water) currently stands at £3,000 and is still in place. But wholesale energy costs have come down considerably from the dizzying heights we saw at last year’s peak, which prompted the Guarantee subsidy. The first spike came as demand shot up when the world came out of lockdown. That was compounded by the invasion of Ukraine and much of Europe being cut off from trading links with the belligerent Russia, which just so happens to be one of the world’s biggest energy exporters. If prices kick back above £3,000 this winter, the Price Guarantee will be reactivated, and the government will have to start subsidising households to the tune of billions, again. (Since all this talk of price caps and guarantees is pretty confusing, for those that missed it we have this handy Research Brief from last week, looking into proposals from the free-market Centre for Policy Studies to abolish the price cap entirely.)
So what does this all have to do with the green transition?
Well, Cornwall Insight, an energy market consultancy with a strong record on price predictions, has forecast that energy costs won’t come back down to their 2021 levels – £69 per MWh – until the late 2030s. That’s years of long-term inflationary pressure, because energy costs indirectly feed into the price of more-or-less everything in the world. Cornwall’s GB Power Market Outlook says that along with global geopolitical standoffs, the move towards electrification in heating and transportation – that’s heat pumps and electric vehicles – will keep demand for electricity high for a while, and our expensive foreign gas dependence is set to continue for a bit, too. So, transitioning away from combustion engines and gas boilers – part and parcel of the green transition, of course – is adding pressure to a stretched grid and contributing to higher demand and therefore, while we’re relying on pricey fossil fuel imports, higher prices.
There are different schools of thought about how to mitigate this. The government line seems to be, “drill, baby, drill!” Well, not quite. But they’re approving new oil and gas licenses, even though this will have extremely negligible/no effect on household energy prices, which are set at world market rates.
Keir Starmer has got in a bit of trouble in some quarters for saying Labour would honour existing licenses to drill in the North Sea. But the opposition does also say that they would stop new licensing once they entered office, and that going hell for leather on renewables is the best way forward. An aide tells the Green Transition this “proves the central dividing line between Labour and the Tories”. Namely, “do we make ourselves more dependent on fossil fuels as a country, or do we move away from fossil fuels?” They say the Office for Budget Responsibility recognises oil and gas dependency as a key factor in upping our exposure to global market volatility.
Labour wants to make the UK a “clean energy superpower” with “shovels in the ground and cranes in the sky”. The “Green Prosperity Plan” will, they say, take up to £1,400 off household bills and create “over a million jobs” in those industrial heartlands we hear so much about. Part of that will involve a publicly owned GB Energy company, and a National Wealth Fund to invest in “gigafactories, clean steel plants, renewable-ready ports, green hydrogen and energy storage”. It all sounds great, and you can read more here, and we can all sit back and relax.
There is a very large “but”, however. All of this needs to be done within Labour’s fiscal rules – which long-time readers will know, means a Labour government will not borrow for day-to-day spending, and that they must see debt fall as a percentage of GDP by the end of a 5-year parliament. That’s no mean feat. About 10 per cent of government spending is currently going on servicing and paying off the national debt, one of the highest repayments in the developed world. But reducing it will require growth beyond the averages we’ve seen in recent years. That’s why many are sceptical of Labour’s ability to actually deliver on a British version of the Inflation Reduction Act, or “securonomics”, as Rachel Reeves prefers.
Whether the transformative agenda promised by the opposition can be delivered within the self-imposed straightjacket remains in doubt. The staffer says they’re confident: “Setting up GB Energy, investing in local power projects across the country, clean power by 2030, the warm homes plan – we can do all of those things, even with having to phase in the implementation of the £28bn”.
For the planet’s sake, and for our household bills’ sake, let’s hope that good ol’ boost to GDP materialises, and we can “phase in” and ramp up investment quickly.
In Brief
Growing Green: Linking nicely with the above, the Institute for Public Policy Research has this excellent report on a proposed National Investment Fund, which sounds suspiciously like Labour’s National Wealth Fund… Anyway, authors Simone Gasperin and George Dibb say: the move to net zero/a proper green industrial plan will “address the UK economy’s three malaises of de-industrialisation, low levels of investment, and regional disparities”. The report proposes “inclusive and sustainable re-industrialisation” through “strategic investment targeted at green manufacturing activities in more disadvantaged areas of the country”. It’s like it was written specifically for your author. My weekend is sorted.
The great energy rip-off: As mentioned, we’ve got trade union bigwig, Sharon Graham writing for Spotlight on today’s energy price cap announcement, and why sky-high costs are just a symptom of a much wider, broken system. Linking to a big bit of research done by the union, she claims that “if our domestic energy sector had been under public control, we could have used the cash expected to be counted as profits to save every household £1,800 per year”. Let’s see if the opposition get the message…
Anarchy Unbound: Geopolitical bigwig and international relations legend, Robert D. Kaplan, has penned this sobering piece for the New Statesman on the political implications of climate change in the Sahel region of Africa. Coups, Islamists, drought – it’s a tough, but necessary read.
Steeling a Living: Last but not least, the Green Alliance think tank is hosting this online event at 12pm on 30th August on the future of UK steel manufacturing – a notoriously tricky industry that’s difficult to decarbonise. This coincides with a new report they’re publishing, A brighter future for UK steel.
Thank you for reading, and please send any news or comments to: jonathan.Ball@newstatesman.co.uk
See you next week.
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