The energy industry has become a convenient bogeyman for politicians despite making meagre profits. Ed Miliband, a former Labour leader, threatened nationalisation and Theresa May, Boris Johnson’s predecessor, introduced a price cap on energy bills in 2018.
But really energy companies aren’t making much money. The average profit margin for the big six suppliers, as they were known in 2019, fell from 2.74 per cent to -1.48 per cent that year. Only British Gas had a positive profit margin, while the companies that manage our pensions make close to 40 per cent.
The business of supplying energy to homes is not working for consumers or suppliers. We have a system where suppliers are going bust due to ever-changing and poorly considered regulation while consumers have to stay on guard or end up paying more than they need to. Suppliers offer cheap deals to attract new customers, then hike prices after a year or so, relying on the people who don’t switch to subsidise the cheap deals that are taken advantage of by those who do.
The shambolic introduction of smart meters, which was beset by delays, will cost the industry, and ultimately customers, about £13 billion. Meanwhile, government green energy levies have pushed some suppliers, including those run by local authorities, into bankruptcy.
All of this leads to the somewhat reluctant conclusion that the only way out of this is nationalisation, which would allow us to focus on ways to encourage a greener future and end the nuisance of having to switch every year to ensure a reasonable sized bill.
The hope of privatisation was to increase the efficiency and profitability of the energy industry, but this has clearly not happened. Nationalising would be an enormous step towards simplifying our lives and promoting innovation in the industries of the future while ensuring that everyone has a reliable source of energy at a fair price.
British Gas was privatised in 1986 under Margaret Thatcher’s government, while the first parts of the electricity sector were privatised in 1990, when the regional electricity companies in England and Wales were sold.
While this has improved efficiency, it has not translated into cheaper bills. Nationalising now would enable a more joined-up approach to meeting our carbon reduction targets.
It is time to stop pretending that we can make profitable businesses out of essential services like energy, and perhaps water, given the effects of climate change.
Assuming that the minister in charge of energy, Kwasi Kwarteng, operates a business as usual approach this year, something rather unexpected is going to drive the market: car companies. Keen to increase take-up of electric vehicles, they are also offering to pay for your electricity — or at least some of it. Volkswagen has established an energy supply company, Elli. Nissan and BMW have similar schemes. “Car companies already are edging toward becoming utilities of the future”, according to the consultants Charles River Associates.
Comparing energy deals is difficult enough without having to also consider if you would be better off buying a new car or a deal from British Gas that includes a boiler service.
@AlihussainST