A state-owned electricity generation company could save Britons £21bn ($24.8bn) a year (or £252 per household) while accelerating the transition to green energy, according to new analysis published by the think tank Common Wealth on 6 March.
In the report, Common Wealth analyses a range of proposals recently set out by other stakeholders including government agencies, industry commentators and think tanks to reform the wholesale electricity market, whose fragmented design and over-exposure to natural gas has led to Britain experiencing disproportionately high energy bills since Russia invaded Ukraine, while renewable generators have reaped windfall profits.
Analysing the pros and cons of a publicly owned generator compared with five other proposals recently tabled by various stakeholders – a wholesale price cap for low-carbon generators; a windfall tax on low-carbon generators; a voluntary shift to contracts for difference; splitting the electricity market; and establishing a single buyer of electricity – Common Wealth finds that the option of a state-owned electricity company comes out on top, both in terms of cost-savings potential and also which is most likely to incentivise greater investment in renewables.
The generator would purchase the portfolio of existing UK low-carbon generation assets, including biomass and nuclear but not natural gas, in order to generate and sell electricity to households and businesses through an integrated public company using a power purchase agreement between the public generator and supplier, and would therefore, unlike many of the other options, “provide a long-term solution” to the wholesale pricing system while passing the savings directly back to households and businesses.
Common Wealth says its proposal is similar to Keir Starmer’s proposal for Great British Energy in that it would be a 100% publicly owned generation company, but the key difference is that Labour’s proposal does not involve bringing existing assets in low-carbon electricity back into public ownership. The Conservative Party opposes public ownership, and responded to an October 2022 petition calling on the government to bring energy companies back into public ownership by saying that “properly regulated markets provide the best outcome for consumers as a driver of efficiency and innovation”.
However, Adrienne Buller, director of research at Common Wealth, notes in a press statement that “a recent government review of the system even admitted it's designed for an era of fossil fuels. We are long overdue an innovative solution, and our research shows a publicly owned generator could transform our energy system by accelerating our transition to a secure, affordable and clean energy future."
Common Wealth’s report notes that the main downside would be that such an entity would require a “large capital outlay” to establish. While the think tank admits it has not fully delineated how to fund such a company (it says it will detail this more fully in a subsequent briefing), it suggests that a traditional compulsory purchase process or government bond issuances could provide a solution.
Growing momentum for British electricity generator
Public support for such a policy is growing, with the latest polling from YouGov, published in November 2022, revealing that two-thirds of Britons support public ownership of utilities – an increase of 12 percentage points compared with two years prior.
On the same day that Common Wealth’s report was published, the Guardian reported that even the workers in the UK’s energy industry are calling for public ownership of energy companies “to ensure that the country’s transition to net zero protects jobs, communities and the environment”.
In a previous briefing paper published last September, Common Wealth reveals that almost half of the UK’s offshore wind capacity is already owned by national governments – just not Britain’s. According to its analysis, just 0.07% of its offshore wind capacity is owned by the British government compared with 20% by Danish government entities, which bolsters the argument that Britain is failing to capitalise on its own natural resources.
In fact, according to research published in July 2022 by the We Own It campaign, which advocates for public ownership in Britain, the UK is the only country among the top ten countries in the world leading the energy transition to renewables that does not have its own state-owned renewable energy generation company.
While conventional wisdom holds that privatisation is often more closely associated with the competitive conditions necessary to incentivise innovation, research published in 2020 by the MIT Center for Energy and Environmental Policy Research suggests the opposite when it comes to renewable energies.
The research shows that in the EU, state-owned utilities clearly dedicate a higher share of investment in non-hydro renewables (33%) compared with private players (11%), concluding that there is “a consistent pattern concerning the role of ownership on renewable energy investment among European utilities”, whereby “state-owned utilities dedicate higher shares of investments to renewables, particularly in countries with stringent climate policies and when the general quality of regulation is high”.
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On pricing also, research published by the World Bank in 2018 finds that while (at the time) there remained “no consensus” on the optimal utility ownership type, with “evidence for both sides”, commercial tariffs are, on average, 8% lower in cities where the distribution utility is public – a trend that holds “across regions and income groups”.
With Labour looking increasingly likely to win the next general election, a British state-owned generation company such as that described by Common Wealth may soon prove to be more than a pipe dream.