Tony Lodge: At last, the penny drops over power struggle

Twenty years ago, Britain's electricity industry was privatised. At the time, the policy was billed as a sure-fire way to deliver lower bills in the short to medium term and remove the monopoly of the Central Electricity Generating Board (CEGB) which owned and managed England and Wales's power stations, thus controlling energy prices.

Electricity privatisation was well intended in the breaking up of the monolithic CEGB so to increase competition in the energy sector. This initially led to much lower bills and new privately-owned power companies such as Powergen and National Power, alongside the 12 regional electricity companies such as the Yorkshire Electricity Board who themselves invested in their own power plants. The monopoly was over.

Trade unions had wreaked havoc with the old CEGB system by exploiting their monopoly collective bargaining position, resulting in gross overstaffing and poor labour efficiency, with the ethos of working to rule.

Importantly, the industry maintained world-beating engineering and research departments but insisted on being the overall project manager for any large construction project, resulting in over-specification and high capital cost of new equipment.

To be fair to the CEGB, their terms of reference in those days were to keep the lights on no matter what the cost. They did this successfully, notably throughout the 1973 oil crisis and the 1984/85 miners' strike. To much Tory fanfare, CEGB chairman Walter Marshall boasted in January 1985 that the CEGB had met its highest ever level of electricity demand after nearly a year of the miners' strike. It had planned ahead and built up huge coal and oil stocks.

Ofgem has often prevaricated and danced on the head of a pin as regards security of supply and energy prices but yesterday's report was spot on. Last March, writing in this newspaper, I demanded that Ofgem speaks up for the consumer and looks into why consumers' bill were rising. What were the reasons for rising bills? Why are there genuine security of supply concerns? What should the UK do?

Politicians can argue forever about policy but what we are lacking is an energy strategy. As a country which has allowed monopolies to reappear in the energy sector and to become increasingly over-dependent on imported gas for the generation of electricity, our leaders must now ask themselves why we are in such a mess 20 years after we sought to end high prices and over-dependence on any one fuel. In the CEGB days, it was over-dependence on coal and today it is becoming gas. We must embrace diversity and be realistic about the scope and role for intermittent renewables.

Coupled with a headlong rush to spend billions and support 10,000 new wind turbines which cannot supply baseload energy, unless we store and reuse the energy they produce, then we face exposure to factors which could overwhelm us very soon. A global upturn with a rising oil price will affect the gas price and thus increase electricity bills.

This is not a clarion call for a return to the CEGB model, but it is a call for policymakers to address a problem which has been looming for 10 years and is at last being tackled by Ofgem. Through energy

diversity there is energy security.

There are encouraging but piecemeal projects in the region, but they demand a strategy. The leadership displayed by Powerfuel with its reopened colliery and plans for a clean coal plant at Stainforth is unrivalled. The boost provided by potential new mining projects in the UK, such as at Harworth, near Doncaster, should be encouraged as carbon capture and storage gives the region's old and new coal fired power stations a long-term and viable future.

But this is part of a long-term strategy on top of an immediate policy; not one of government subsidies and handouts, as in the CEGB era. Government may be cash strapped and broke but it retains huge enabling power through its legal authority and control of the planning system.

If we are to avoid the looming major problems, a new Conservative government will be watched closely if David Cameron wins in May. The

party has pledged to approve five gigawatts of new carbon capture-ready clean coal plant. To put this in perspective, the huge Drax plant near Selby is four gigawatts and produces seven per cent of UK electricity. Coal is a reliable, abundant and comparatively cheap fuel.

A new government should look again at emerging monopolies, supporting market reforms in the sector and move to combat price fixing and over-dependence developments which undermine our security of supply.

Throughout the last 13 years, Britain's energy sector has gone from an initial dash for gas to a stampede for gas. Being over-dependent on anything usually leads to serious complications and energy is no exception. At last the penny has dropped with Ofgem – and it still

isn't too late.

Tony Lodge is a Research Fellow at the Centre for Policy Studies.