Ofgem, the energy regulator, is reported to be under threat from an incoming Tory government – if indeed such a phenomenon occurs by June of next year.
The Tories see a soft target in an organisation which employs almost 400 people, most of them very comfortably billeted in the old ICI building on Millbank, across the road from the Houses of Parliament.
One “senior Tory” is reported as saying, “It should be the responsibility of ministers to set national energy policy, not the regulator”, and within the narrow confines of that statement, I find myself in full agreement with that unnamed person.
However, setting energy policy was never meant to be Ofgem’s job. It was supposed to regulate markets, ensure competition and hold the energy companies to their obligations. Ofgem should be judged against the job it was given rather than something that was not its responsibility and for which Government itself should be held accountable.
That does not mean that Ofgem would be off the hook. As I have argued in recent months, it has done a lamentable job in constraining the naked greed of the utilities, as evidenced by the current levels of gas and electricity prices. The charge sheet may also include excessive toleration of market abuses and under-investment in infrastructure.
But when it comes to the fundamental issues of energy policy – that is, keeping the lights on – ministers should not be given a hiding place behind the skirts of Ofgem. And with or without Ofgem, incoming Tory ministers would face exactly the same challenges.
Ironically, just as it is com ing under threat, Ofgem has produced one its better pieces of work – a lengthy report called Project Discovery, a detailed study of Britain’s energy security prospects over the next decade. Even the Tory energy spokesman, Charles Hendry, had to concede that it “addresses pretty fundamental issues of energy policy”.
Project Discovery looks at various scenarios over the coming decade with a view to deciding whether or not security of supply will be maintained. Its general conclusion is that if everyone responds as they should to market signals, then things should just about be all right – though consumers are likely to face a hefty bill.
That is not a particularly encouraging conclusion and there are so many “ifs” and “buts” that the value of the exercise is limited. But at least it does signal the huge risks that exist over the coming years – largely because it has taken us so long to address them in any rational and orderly way.
Britain’s energy prospects still turn, to a very high degree, on whether or not we are willing to become dependent on imported gas and the vagaries of price and security that attend it. If we are prepared to suspend our doubts, particularly about Russia’s future behaviour, then we should be piling investment into gas storage facilities and hoping for the best.
And that, indeed, is what the market would probably do if left to its own devices. It is the politicians, of whatever colour, who have to decide whether or not it is a policy which best serves Britain’s interests. And the current, belated view is that it does not.
As late as the Energy White Paper in 2003, it was the view of the current Government (of which I was a dissenting member) that, by 2020, 70% of Britain’s electricity should come from gas and that 90% of that gas would be imported. It was only the shock waves that flowed from Russia’s behaviour towards Ukraine that finally caused warning red lights to flash around the implications of such dependency.
At that point, the attitude towards nuclear changed almost overnight. The great folly (which had been a matter of party political consensus) of ruling out nuclear new-build was suddenly deeply unfashionable. And, within another couple of years, most of the people who had been prepared to die in a ditch to stop nuclear new-build were proclaiming its necessity on both environmental and security-of-supply grounds.
Britain has paid a high price for the tardiness of this conversion. There is still an insufficient sense of urgency about moving forward plans for nuclear new-build (and in Scotland, the ostriches are still in control). In the meantime, the market does not stand still. The political mood may have turned against imported gas but, de facto, it is still the quickest road to goal and profits.
And where do renewables fit in? Of course, we need to press ahead with them – though again, the endless rhetoric has not been matched by actions in either Edinburgh or Whitehall. But, equally, there has to be a reality check – which the Ofgem document helps to provide – on both costs and the implications of intermittency for security of supply. Simply setting targets achieves nothing.
So our “senior Tory” friend is absolutely right. Ministers will have to take urgent decisions, and the role of Ofgem is to regulate and advise. But if I were an opposition politician at the present time, I would be going for the political jugular about how we got into our current uncertain position rather than wasting time on threatening to wind up a quango.
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