China & India Dominate Global Coal As Green Nations Divest
In this newsletter:
1) Power Shift: China And India Dominate Global Coal Industries As Green Nations Divest
Reuters, 16 May 2017
2) China’s Energy Silk Road Based On Building Coal Power Far And Wide
China Dialogue, 12 May 2017
3) Coal To Remain India's Energy Mainstay for Next 30 Years: Policy Paper
Reuters, 16 May 2017
5) Germany’s Grand Coalition Energy Experts Reject Greens’ Coal Exit Plans
Clean Energy Wire, 16 May 2017
6) Forget Price Caps: UK Climate Policies Will Add Nearly £600 To Energy Bills
The Sunday Telegraph, 14 May 2017
7) German Green Party Collapsing In ‘Existential Crisis’
Daily Caller, 16 May 2017
8) Dutch Cabinet Formation Talks Collapse On Renewable Energy, Climate Policy And Refugee Policies
NL Times, 15 May 2017
9) John Constable: How Ed Miliband Neutered UK Energy Regulator
GWPF Energy Comment, 16 May 2017
Reuters, 16 May 2017
2) China’s Energy Silk Road Based On Building Coal Power Far And Wide
China Dialogue, 12 May 2017
3) Coal To Remain India's Energy Mainstay for Next 30 Years: Policy Paper
Reuters, 16 May 2017
5) Germany’s Grand Coalition Energy Experts Reject Greens’ Coal Exit Plans
Clean Energy Wire, 16 May 2017
6) Forget Price Caps: UK Climate Policies Will Add Nearly £600 To Energy Bills
The Sunday Telegraph, 14 May 2017
7) German Green Party Collapsing In ‘Existential Crisis’
Daily Caller, 16 May 2017
8) Dutch Cabinet Formation Talks Collapse On Renewable Energy, Climate Policy And Refugee Policies
NL Times, 15 May 2017
9) John Constable: How Ed Miliband Neutered UK Energy Regulator
GWPF Energy Comment, 16 May 2017
Full details:
1) Power Shift: China And India Dominate Global Coal Industries As Green Nations Divest
Reuters, 16 May 2017
Investors in China and India increasingly dominate ownership of coal reserves amid campaigns for divestment in many rich nations to limit the risks from climate change, a study showed on Tuesday.
The report, by British-based research group InfluenceMap, identified thousands of shareholders in 117 listed companies producing 3 billion tons a year of thermal coal with 150 billion tons of reserves.
It said that ownership of thermal coal, used in power plants, was dominated by "strategic investors in China and India (governments, individuals, power companies, special purpose companies)."
Ownership had shifted towards Asia from Europe and North America in recent years, Dylan Tanner, executive director of InfluenceMap, told Reuters.
"Coal has been pushed into a corner, stigmatized by the divestment community ... the overwhelming majority is held by strategic investors who have an interest in using the asset – the power companies or governments," said Tanner.
Almost 200 governments pledged at a summit in Paris in 2015 to shift this century from fossil fuels towards renewable energies to curb climate change, and more than 500 major investors have pledged to limit coal investments.
China and India say they will need coal for decades to bolster economic growth even as they try to curb emissions blamed for warming the planet.
As part of the divestment in coal, Norway's sovereign wealth fund and California's CalPERS and CalSTRS pension funds, representing about $1.4 trillion in assets, had sharply cut their ownership of coal since 2010, the study said.
Some investors, however, now see opportunities in coal because U.S. President Donald Trump doubts climate change is man-made and wants to promote fossil fuels from the United States as a cheap source of energy.
Even before Trump's election, some mid-size U.S. and other asset managers "have been bulking up on coal in the last five years in anticipation of a resurgence of some of the remnants of the U.S. coal bankruptcies and growth in Asia," the study said.
2) China’s Energy Silk Road Based On Building Coal Power Far And Wide
China Dialogue, 12 May 2017
Feng Hao
China was involved in 240 coal power projects in 65 of the Belt and Road countries between 2001 and 2016.
Officials and leaders from over 110 countries gathered in Beijing on May 14-15 for the first ever Belt and Road Forum. China’s ambitious attempt to boost economic growth across a vast area stretching from its southeast coast all the way to Africa is known as the Belt and Road Initiative (BRI).
Its two parts – a Silk Road Economic Belt and a Maritime Silk Road – are focused on channelling enormous investment in infrastructure to connect the region and to open new markets for Chinese products, services and capital.
But the BRI is also causing concern within China and internationally because Chinese companies are investing heavily in coal power in BRI countries. The fear is that China will help lock developing countries into coal-power assets that will last decades, damage people’s health, and contribute to climate change.
Investments on the up
The Global Environment Institute (GEI) has recently carried out a long term review of China’s involvement in coal power projects in 65 countries that are now participating in the Belt and Road Initiative.
GEI’s figures show that between 2001 and 2016 China was involved in 240 coal power projects in BRI countries, with a total generating capacity of 251 gigawatts. The top five countries for Chinese involvement were India, Indonesia, Mongolia, Vietnam and Turkey.
The GEI research also found that China’s involvement in coal power projects in BRI countries, which often takes the form of contracting and equipment supply, has been increasing overall, despite large year-to-year fluctuations…
Full story
Reuters, 16 May 2017
Investors in China and India increasingly dominate ownership of coal reserves amid campaigns for divestment in many rich nations to limit the risks from climate change, a study showed on Tuesday.
The report, by British-based research group InfluenceMap, identified thousands of shareholders in 117 listed companies producing 3 billion tons a year of thermal coal with 150 billion tons of reserves.
It said that ownership of thermal coal, used in power plants, was dominated by "strategic investors in China and India (governments, individuals, power companies, special purpose companies)."
Ownership had shifted towards Asia from Europe and North America in recent years, Dylan Tanner, executive director of InfluenceMap, told Reuters.
"Coal has been pushed into a corner, stigmatized by the divestment community ... the overwhelming majority is held by strategic investors who have an interest in using the asset – the power companies or governments," said Tanner.
Almost 200 governments pledged at a summit in Paris in 2015 to shift this century from fossil fuels towards renewable energies to curb climate change, and more than 500 major investors have pledged to limit coal investments.
China and India say they will need coal for decades to bolster economic growth even as they try to curb emissions blamed for warming the planet.
As part of the divestment in coal, Norway's sovereign wealth fund and California's CalPERS and CalSTRS pension funds, representing about $1.4 trillion in assets, had sharply cut their ownership of coal since 2010, the study said.
Some investors, however, now see opportunities in coal because U.S. President Donald Trump doubts climate change is man-made and wants to promote fossil fuels from the United States as a cheap source of energy.
Even before Trump's election, some mid-size U.S. and other asset managers "have been bulking up on coal in the last five years in anticipation of a resurgence of some of the remnants of the U.S. coal bankruptcies and growth in Asia," the study said.
2) China’s Energy Silk Road Based On Building Coal Power Far And Wide
China Dialogue, 12 May 2017
Feng Hao
China was involved in 240 coal power projects in 65 of the Belt and Road countries between 2001 and 2016.
Officials and leaders from over 110 countries gathered in Beijing on May 14-15 for the first ever Belt and Road Forum. China’s ambitious attempt to boost economic growth across a vast area stretching from its southeast coast all the way to Africa is known as the Belt and Road Initiative (BRI).
Its two parts – a Silk Road Economic Belt and a Maritime Silk Road – are focused on channelling enormous investment in infrastructure to connect the region and to open new markets for Chinese products, services and capital.
But the BRI is also causing concern within China and internationally because Chinese companies are investing heavily in coal power in BRI countries. The fear is that China will help lock developing countries into coal-power assets that will last decades, damage people’s health, and contribute to climate change.
Investments on the up
The Global Environment Institute (GEI) has recently carried out a long term review of China’s involvement in coal power projects in 65 countries that are now participating in the Belt and Road Initiative.
GEI’s figures show that between 2001 and 2016 China was involved in 240 coal power projects in BRI countries, with a total generating capacity of 251 gigawatts. The top five countries for Chinese involvement were India, Indonesia, Mongolia, Vietnam and Turkey.
The GEI research also found that China’s involvement in coal power projects in BRI countries, which often takes the form of contracting and equipment supply, has been increasing overall, despite large year-to-year fluctuations…
Full story
3) Chinese Firms To Invest $15bn In Pakistani Coal-Fired Power
Power Engineering International, 3 May 2017
Diarmaid Williams
Officials at the Pakistani water and power ministry have said Chinese companies are expected to spend around $15bn over the next 15 years to build close to a dozen coal-fired power plants of varying sizes around the country.
Reuters reports that Mohammed Younus Dagha, the former federal secretary for water and power, who became commerce secretary at the end of March, is emphasising that the coal plants are part of a larger plan.
That is the $54bn China-Pakistan Economic Corridor (CPEC), which includes spending of about $33bn on a total of 19 energy projects, including coal-fired and renewable power plants, transmission lines, and other infrastructure.
“Hefty investment under the CPEC project has held out hopes of significantly spiking domestic power generation (by) around 6,000 MW by the end of 2018,” Dagha said.
Combined, the projects will eventually generate 16,000 MW of electricity, which the government says is urgently needed.
Coal power will, according to these projections, account for 75 per cent of the newly generated power, which the government says will be installed with the latest in pollution-minimizing equipment.
Power Engineering International, 3 May 2017
Diarmaid Williams
Officials at the Pakistani water and power ministry have said Chinese companies are expected to spend around $15bn over the next 15 years to build close to a dozen coal-fired power plants of varying sizes around the country.
Reuters reports that Mohammed Younus Dagha, the former federal secretary for water and power, who became commerce secretary at the end of March, is emphasising that the coal plants are part of a larger plan.
That is the $54bn China-Pakistan Economic Corridor (CPEC), which includes spending of about $33bn on a total of 19 energy projects, including coal-fired and renewable power plants, transmission lines, and other infrastructure.
“Hefty investment under the CPEC project has held out hopes of significantly spiking domestic power generation (by) around 6,000 MW by the end of 2018,” Dagha said.
Combined, the projects will eventually generate 16,000 MW of electricity, which the government says is urgently needed.
Coal power will, according to these projections, account for 75 per cent of the newly generated power, which the government says will be installed with the latest in pollution-minimizing equipment.
4) Coal To Remain India's Energy Mainstay for Next 30 Years: Policy Paper
Reuters, 16 May 2017
Coal will remain India's main energy source for the next three decades although its share will gradually fall as the country pushes renewable power generation, according to a government report seen by Reuters.
The country is the world's third-largest coal producer and the third-biggest greenhouse gas emitter. It depends on coal for about three-fifths of its energy needs and aims to double its output to 1.5 billion tonnes by 2020.
By 2047, however, coal's share of India's energy mix would shrink to 42-48 percent, from about 58 percent in 2015, the report, which has yet to be made public, showed.
"India would like to use its abundant coal reserves as it provides a cheap source of energy and ensures energy security as well," the report said.
It was written by Indian think tank NITI Aayog, which advises the government on policy issues and is chaired by Prime Minister Narendra Modi, and the Institute for Energy Economics Japan (IEEJ).
Full post
5) Germany’s Grand Coalition Energy Experts Reject Greens’ Coal Exit Plans
Clean Energy Wire, 16 May 2017
Energy experts of Germany’s grand coalition of conservatives (CDU/CSU) and Social Democrats (SPD) have rebuffed the Green Party’s plans for an accelerated coal exit.
“We cannot phase out both nuclear and coal-fired power production within 15 or 20 years,” conservative Thomas Bareiß said at a party debate hosted by utilities RWE and innogy. Bareiß argued that exiting coal “with a sledgehammer-approach” would “massively damage” Germany’s industrial capacity and undermine the “basis of our prosperity”.
The SPD’s Bernd Westphal said his party would put “no signature” under a hypothetical coalition treaty with the Greens that included an accelerated coal exit. Westphal said the energy transition affected “a very diverse array of interests” and limiting debate to climate protection was “wrong”.
The Green Party’s Julia Verlinden said accelerating Germany’s coal exit was “a red line” for her party as “there is simply no other way to meet our climate goals”. She rejected the other parties’ insistence on a market-based approach for exiting coal as “there is no market because carbon emission costs are not internalised”.
Verlinden added that a coal exit was inevitable and taking action now would “increase our flexibility and allow for better adaptation” by affected industries. In their draft election programme, the Greens envisage a coal exit by 2030.
Full post
6) Forget Price Caps: UK Climate Policies Will Add Nearly £600 To Energy Bills
The Sunday Telegraph, 14 May 2017
Christopher Booker
Theresa May’s “cap” on energy saves £1.4 billion a year; this will be dwarfed by the additional £7.4 billion a year due to be added to our energy bills under the Climate Change Act.
I would defy anyone unfortunate enough to hear the Today programme at 8.10 last Tuesday morning to have made head or tail of an interview in which our Business Secretary, Greg Clark, droned on for 10 minutes with Justin Webb about the Tories’ promise of a “cap” on energy bills. The essence of this flood of deathly jargon was that, thanks to something called the Competition and Markets Authority, this could save 17 million households a total of £1.4 billion a year.
What Clark and Webb never mentioned, of course, were the figures recently published by the Office for Budget Responsibility, showing the soaring cost of those green subsidies and taxes we all pay for through our energy bills. These are officially projected to more than double by the end of this Parliament, from £7.3 billion last year to £14.7 billion, or from £292 a year for each household to £565.
In other words, even if Theresa May’s “cap” on energy saves £1.4 billion a year, this will be dwarfed by the additional £7.4 billion a year due to be added to our bills under the Climate Change Act.
But if you ask any candidates in this make-believe election what they think of those figures, almost certainly they will never have heard of them. If they come to your door, try it.
Full post
7) German Green Party Collapsing In ‘Existential Crisis’
Daily Caller, 16 May 2017
Andrew Follett
Germany’s Green Party is collapsing and the party could lose all its seats in the national legislature, according to a Monday article in the magazine Der Spiegel.
The Greens are polling very poorly in upcoming national elections scheduled for September, and the party doesn’t seem to have a plan to solve the problem, according to Der Spiegel. The magazine notes the party is in ‘existential crisis.’
The Greens currently control 63 of the 630 seats in Germany’s national legislative body, but this is almost certain to decline during the elections. If the party doesn’t receive at least 5 percent of the vote, it will not have a representative at the federal level.
“The Greens are dying in entire regions,” writes Der Spiegel. “Their ten-nation-wide governmental participation is an illusion because the Greens are often needed as majority-makers to be an alternative to the Grand Coalition at all. But there is no sustainable electoral commitment.”
Full story
8) Dutch Cabinet Formation Talks Collapse On Renewable Energy, Climate Policy And Refugee Policies
NL Times, 15 May 2017
After 61 days of negotiations, talks to form a new Dutch ruling cabinet fell apart on Monday, according to a press release from Edith Schippers. "It has not worked out; the talks have ended," Schippers said at the beginning of a press conference announcing the news.
Nearly nine weeks after the election, the parties differences were simply too great, she added. Attempts at forming a policy to handle migrants to the Netherlands proved to be the last straw. The parties were also far apart on issues related to climate change, energy sustainability and income she said.
Full post
9) John Constable: How Ed Miliband Neutered UK Energy Regulator
GWPF Energy Comment, 16 May 2017
Dr John Constable: GWPF Energy Editor
There is likely to be increasing pressure to reform the gas and electricity regulator, Ofgem, which is widely held to have failed in the protection of consumers. This accusation is to a large degree both misguided and unjust. Ofgem is constrained by its Statutory Duties, which were revised by Ed Milliband in 2010 to put climate policy costs beyond criticism. It is this, as much as institutional lassitude, that accounts for it being so ineffective a consumer champion.
In the wake of concern about rising electricity retail prices to domestic households, the Conservative Party has suggested a price cap on Standard Variable Tariffs. It is fair to say that this policy has not been well received by commentators and economists, who with very good reason believe it likely to be counterproductive. Whether the voting public will be persuaded that a price cap is in their long-term interest remains to be seen, but it could well prove popular. – With a maladroit sense of timing that is typical of the hapless energy industry my own electricity and gas supplier has just sent me a letter explaining that due to price rises next year’s annual dual fuel bill is likely to be about 8% higher.
Doubtless many other households are receiving similar news, and perhaps thinking positively about Mrs May’s offer to stamp on rip-off tariffs.
One, more sophisticated, reaction to this sort of news is to blame the regulator, Ofgem. If the government needs to wade in to protect consumers, surely the regulator must have failed in its job. This is an understandable conclusion, but to a very significant degree it is unjust to Ofgem, which is itself tightly regulated by the legal definition of its Statutory Duties and powers. These are defined in the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002, the Business Protection from Misleading Marketing Regulations 2008 and the Unfair Terms in Consumer Contracts Regulations 1999, and, crucially, in amendments to these acts. Perhaps the most important of these amendments occurred in the Energy Act of 2010, which originated under Ed Miliband when he was Secretary of State at the Department of Energy and Climate Change. Though a small change, it drew the regulator’s teeth.
The Utilities Act 2000 had described the overarching principal objective for energy regulation as the protection of the interests of existing and future consumers, wherever appropriate by promoting competition (for further details see this DECC analysis). This was a lucid and unconstricting brief. A determined regulator could range far and free in the pursuit of consumer welfare.
The Energy Act of 2010 amended this principal objective by defining “interests” thus in two separate paragraphs (16 (3) 1A and 17 (3) 1A referring to gas and electricity:
Those interests of existing and future consumers are their interests taken as a whole, including—
(a) their interests in the reduction of gas-supply/electricity supply emissions of targeted greenhouse gases; and
(b) their interests in the security of the supply of gas/electricity to them.
This change was of enormous importance, since an increasingly large part of the charges on the consumer were (and still are) the result of policy. In effect, the revision to Ofgem’s principal purpose made them unable to comment on the imposition of cost increases resulting from measures to mitigate climate change.
Since these coercive cost increases are invisible to the market and cannot be reduced by competition, there was no means other than the regulator, or the slow and uncertain cycles of electoral democracy, to expose them to criticism.
This is no trivial matter. Policies now account for about 17% of the price to domestic households, in other words about £26/MWh of a total price to household consumers of £154/MWh (see the Committee on Climate Change Energy Prices and Bills). Median annual domestic electricity consumption in the UK is approximately 3.5 MWhs per household, so this amounted to about £91 per household per year, or roughly £2.4 billion a year, assuming 26 million households, a sum that greatly exceeds the £1.5 billion a year rip-off that prompted Mrs May to suggest a price cap.
According to the government’s estimates, in the now discontinued Estimated Impacts, we can see that this problem is set to grow dramatically. In 2020 the domestic price impact will have in all probability doubled, to £52/MWh, or about £180 a year on the electricity bill, a nationwide cost of about £5 billion per year.
Constrained by its remit, as set out by Ed Milibands Energy Act of 2010, Ofgem is powerless to comment on these enormous impositions. In essence, by being compelled to have regard to the interests of future consumers in the light of climate change the regulator has been absorbed by government and, like the Committee on Climate Change, made a mere cog wheel in the policy delivery mechanism. Consequently, and with the sole exception of the National Audit Office, there is no statutory body that has any interest in holding the government to account on climate policy costs, and none that is exclusively focused on the energy sector.
Restoring Ofgem’s Statutory Duties to their earlier free-ranging state could yield enormous benefits for the consumer. Such a reform should also be supported by electricity retailers, who, for all their faults, are carrying the can for climate policy related price increases over which they have no control. By contrast, a ‘reform’ of Ofgem that further weakened an already crippled body would be a disaster for all concerned.
Reuters, 16 May 2017
Coal will remain India's main energy source for the next three decades although its share will gradually fall as the country pushes renewable power generation, according to a government report seen by Reuters.
The country is the world's third-largest coal producer and the third-biggest greenhouse gas emitter. It depends on coal for about three-fifths of its energy needs and aims to double its output to 1.5 billion tonnes by 2020.
By 2047, however, coal's share of India's energy mix would shrink to 42-48 percent, from about 58 percent in 2015, the report, which has yet to be made public, showed.
"India would like to use its abundant coal reserves as it provides a cheap source of energy and ensures energy security as well," the report said.
It was written by Indian think tank NITI Aayog, which advises the government on policy issues and is chaired by Prime Minister Narendra Modi, and the Institute for Energy Economics Japan (IEEJ).
Full post
5) Germany’s Grand Coalition Energy Experts Reject Greens’ Coal Exit Plans
Clean Energy Wire, 16 May 2017
Energy experts of Germany’s grand coalition of conservatives (CDU/CSU) and Social Democrats (SPD) have rebuffed the Green Party’s plans for an accelerated coal exit.
“We cannot phase out both nuclear and coal-fired power production within 15 or 20 years,” conservative Thomas Bareiß said at a party debate hosted by utilities RWE and innogy. Bareiß argued that exiting coal “with a sledgehammer-approach” would “massively damage” Germany’s industrial capacity and undermine the “basis of our prosperity”.
The SPD’s Bernd Westphal said his party would put “no signature” under a hypothetical coalition treaty with the Greens that included an accelerated coal exit. Westphal said the energy transition affected “a very diverse array of interests” and limiting debate to climate protection was “wrong”.
The Green Party’s Julia Verlinden said accelerating Germany’s coal exit was “a red line” for her party as “there is simply no other way to meet our climate goals”. She rejected the other parties’ insistence on a market-based approach for exiting coal as “there is no market because carbon emission costs are not internalised”.
Verlinden added that a coal exit was inevitable and taking action now would “increase our flexibility and allow for better adaptation” by affected industries. In their draft election programme, the Greens envisage a coal exit by 2030.
Full post
6) Forget Price Caps: UK Climate Policies Will Add Nearly £600 To Energy Bills
The Sunday Telegraph, 14 May 2017
Christopher Booker
Theresa May’s “cap” on energy saves £1.4 billion a year; this will be dwarfed by the additional £7.4 billion a year due to be added to our energy bills under the Climate Change Act.
I would defy anyone unfortunate enough to hear the Today programme at 8.10 last Tuesday morning to have made head or tail of an interview in which our Business Secretary, Greg Clark, droned on for 10 minutes with Justin Webb about the Tories’ promise of a “cap” on energy bills. The essence of this flood of deathly jargon was that, thanks to something called the Competition and Markets Authority, this could save 17 million households a total of £1.4 billion a year.
What Clark and Webb never mentioned, of course, were the figures recently published by the Office for Budget Responsibility, showing the soaring cost of those green subsidies and taxes we all pay for through our energy bills. These are officially projected to more than double by the end of this Parliament, from £7.3 billion last year to £14.7 billion, or from £292 a year for each household to £565.
In other words, even if Theresa May’s “cap” on energy saves £1.4 billion a year, this will be dwarfed by the additional £7.4 billion a year due to be added to our bills under the Climate Change Act.
But if you ask any candidates in this make-believe election what they think of those figures, almost certainly they will never have heard of them. If they come to your door, try it.
Full post
7) German Green Party Collapsing In ‘Existential Crisis’
Daily Caller, 16 May 2017
Andrew Follett
Germany’s Green Party is collapsing and the party could lose all its seats in the national legislature, according to a Monday article in the magazine Der Spiegel.
The Greens are polling very poorly in upcoming national elections scheduled for September, and the party doesn’t seem to have a plan to solve the problem, according to Der Spiegel. The magazine notes the party is in ‘existential crisis.’
The Greens currently control 63 of the 630 seats in Germany’s national legislative body, but this is almost certain to decline during the elections. If the party doesn’t receive at least 5 percent of the vote, it will not have a representative at the federal level.
“The Greens are dying in entire regions,” writes Der Spiegel. “Their ten-nation-wide governmental participation is an illusion because the Greens are often needed as majority-makers to be an alternative to the Grand Coalition at all. But there is no sustainable electoral commitment.”
Full story
8) Dutch Cabinet Formation Talks Collapse On Renewable Energy, Climate Policy And Refugee Policies
NL Times, 15 May 2017
After 61 days of negotiations, talks to form a new Dutch ruling cabinet fell apart on Monday, according to a press release from Edith Schippers. "It has not worked out; the talks have ended," Schippers said at the beginning of a press conference announcing the news.
Nearly nine weeks after the election, the parties differences were simply too great, she added. Attempts at forming a policy to handle migrants to the Netherlands proved to be the last straw. The parties were also far apart on issues related to climate change, energy sustainability and income she said.
Full post
9) John Constable: How Ed Miliband Neutered UK Energy Regulator
GWPF Energy Comment, 16 May 2017
Dr John Constable: GWPF Energy Editor
There is likely to be increasing pressure to reform the gas and electricity regulator, Ofgem, which is widely held to have failed in the protection of consumers. This accusation is to a large degree both misguided and unjust. Ofgem is constrained by its Statutory Duties, which were revised by Ed Milliband in 2010 to put climate policy costs beyond criticism. It is this, as much as institutional lassitude, that accounts for it being so ineffective a consumer champion.
In the wake of concern about rising electricity retail prices to domestic households, the Conservative Party has suggested a price cap on Standard Variable Tariffs. It is fair to say that this policy has not been well received by commentators and economists, who with very good reason believe it likely to be counterproductive. Whether the voting public will be persuaded that a price cap is in their long-term interest remains to be seen, but it could well prove popular. – With a maladroit sense of timing that is typical of the hapless energy industry my own electricity and gas supplier has just sent me a letter explaining that due to price rises next year’s annual dual fuel bill is likely to be about 8% higher.
Doubtless many other households are receiving similar news, and perhaps thinking positively about Mrs May’s offer to stamp on rip-off tariffs.
One, more sophisticated, reaction to this sort of news is to blame the regulator, Ofgem. If the government needs to wade in to protect consumers, surely the regulator must have failed in its job. This is an understandable conclusion, but to a very significant degree it is unjust to Ofgem, which is itself tightly regulated by the legal definition of its Statutory Duties and powers. These are defined in the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002, the Business Protection from Misleading Marketing Regulations 2008 and the Unfair Terms in Consumer Contracts Regulations 1999, and, crucially, in amendments to these acts. Perhaps the most important of these amendments occurred in the Energy Act of 2010, which originated under Ed Miliband when he was Secretary of State at the Department of Energy and Climate Change. Though a small change, it drew the regulator’s teeth.
The Utilities Act 2000 had described the overarching principal objective for energy regulation as the protection of the interests of existing and future consumers, wherever appropriate by promoting competition (for further details see this DECC analysis). This was a lucid and unconstricting brief. A determined regulator could range far and free in the pursuit of consumer welfare.
The Energy Act of 2010 amended this principal objective by defining “interests” thus in two separate paragraphs (16 (3) 1A and 17 (3) 1A referring to gas and electricity:
Those interests of existing and future consumers are their interests taken as a whole, including—
(a) their interests in the reduction of gas-supply/electricity supply emissions of targeted greenhouse gases; and
(b) their interests in the security of the supply of gas/electricity to them.
This change was of enormous importance, since an increasingly large part of the charges on the consumer were (and still are) the result of policy. In effect, the revision to Ofgem’s principal purpose made them unable to comment on the imposition of cost increases resulting from measures to mitigate climate change.
Since these coercive cost increases are invisible to the market and cannot be reduced by competition, there was no means other than the regulator, or the slow and uncertain cycles of electoral democracy, to expose them to criticism.
This is no trivial matter. Policies now account for about 17% of the price to domestic households, in other words about £26/MWh of a total price to household consumers of £154/MWh (see the Committee on Climate Change Energy Prices and Bills). Median annual domestic electricity consumption in the UK is approximately 3.5 MWhs per household, so this amounted to about £91 per household per year, or roughly £2.4 billion a year, assuming 26 million households, a sum that greatly exceeds the £1.5 billion a year rip-off that prompted Mrs May to suggest a price cap.
According to the government’s estimates, in the now discontinued Estimated Impacts, we can see that this problem is set to grow dramatically. In 2020 the domestic price impact will have in all probability doubled, to £52/MWh, or about £180 a year on the electricity bill, a nationwide cost of about £5 billion per year.
Constrained by its remit, as set out by Ed Milibands Energy Act of 2010, Ofgem is powerless to comment on these enormous impositions. In essence, by being compelled to have regard to the interests of future consumers in the light of climate change the regulator has been absorbed by government and, like the Committee on Climate Change, made a mere cog wheel in the policy delivery mechanism. Consequently, and with the sole exception of the National Audit Office, there is no statutory body that has any interest in holding the government to account on climate policy costs, and none that is exclusively focused on the energy sector.
Restoring Ofgem’s Statutory Duties to their earlier free-ranging state could yield enormous benefits for the consumer. Such a reform should also be supported by electricity retailers, who, for all their faults, are carrying the can for climate policy related price increases over which they have no control. By contrast, a ‘reform’ of Ofgem that further weakened an already crippled body would be a disaster for all concerned.
The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.thegwpf.com.
No comments:
Post a Comment