“Higher prices mean cheaper electricity for everyone”

My favourite ever Private Eye cover shows Cecil Parkinson, as Secretary of State for Energy in March 1988, waving papers claiming that raising electricity prices as part of the industry restructuring process would really be to the customers’ benefit.  The argument went that initially prices would have to rise to make future revenue streams attractive to the private purchasers of the state-owned electricity industry.  The ensuing competition  in the privatised electricity market would reduce prices.

Only a decade earlier Nigel Lawson had announced that the Central Electricity Generating Board (CEGB) was about to embark on a programme of building ten new nuclear power stations at the rate of one a year.  Another saving for the consumer – if you were still taken with the idea that “nuclear power was too cheap to meter”.

The CEGB’s announcement illustrated  the industry’s continuing ability to delude itself on the subject of nuclear power.  First, obtaining planning permission would probably take years before any plant could be built.  Second, it implied that buying ten nuclear power stations was something that the nation could afford.  The lengthy build delays and cost over-runs of the earlier nuclear power station programme belied that. And thirdly, the industry persistently ignored the cost of reprocessing the spent fuel and storing nuclear waste, which is a liability on the taxpayer rather than electricity consumers.

The privatisation programme put paid to that.  Because no amount of proposed increased prices made the purchase of nuclear power stations – with their back-end liabilities – attractive to the private sector.  So Thatcher pulled nuclear power from the sale – some might consider it one of the most positive aspects of her time in power!

Yet here we are, come full circle…..  Twenty years on the true costs of nuclear power continue to haunt the government’s energy policy.  The cost of cleaning up the Sellafield nuclear waste site has reached £67.5bn with no sign of when the cost will stop rising, according to a report from the Public Accounts Committee published in February 2013.

And now, having insisted that there would be no public subsidy for new nuclear power, government appears to be succumbing to arguments from EdF, that funding two new 1.6 GW reactors at Hinckley Point in Somerset will have to be underwritten with a Contract for Difference set at 10p/kWh  – a cost of between £150bn and £250bn over 30 or 40 years.  And who will pay for this high cost electricity?  Electricity consumers, but not all of them.  Industrial customers will be excluded from paying the subsidy, making the burden on households higher.

Compare these costs to those of the Energy Company Obligation which is designed to subsidise elements of carbon saving and energy efficiency works in hard-to-heat homes, and through the Green Deal.  £1.3 bn a year for three years – a minuscule proportion of what will be spent on energy generation.

Imagine the Treasury agreeing to spending nuclear-sized subsidy on measures to reduce electricity consumption.   Rather than expensive private sector money to fund the Green Deal at interest rates of 8%, low-cost public sector funding.  A training programme for the buildings industry on how to improve whole building energy performance – when doing energy retrofits but also when building extensions or installing kitchen and bathroom improvements.  A significant investment in building performance evaluation and benchmarking so that we can establish how little energy buildings could use if they are designed, built and operated well.  The introduction of minimum performance of all types of consumer product. And a public education programme to make us an energy and carbon-literate nation.

Outgoing energy regulator Alistair Buchanan warned this week that we are entering a period of unprecedented potential energy shortages and high prices.  “The big unknown is over the demand side”, said Mr Buchanan.  “It has a direct benefit on security of supply.  Can the Government get a revolution going on consumer habits to force through energy efficiency?  Can they do it in three years?”

If they could, perhaps it might finally prove real that higher prices would mean cheaper electricity for all.