August 13, 2014
A switch in energy
Our relationship as consumers in the energy market, and in particular the ‘Big Six’ power companies is probably second only to that of our relationship to the banking industry when it comes to the levels of mistrust and frustration at the opaque nature of its pricing, profits generated etc. Despite all the utterances of disapproval from politicians and regulators nothing substantive seems to happen to improve the situation. Perhaps we need to turn the whole market on its head and take a leaf out of Germany’s book.
For a copy of full report click here
Our energy market is at a turning point. Trust in suppliers is at an all-time low, wholesale trading is opaque, and a comprehensive strategy to combat fuel poverty and boost energy efficiency is missing. Rarely have we seen energy on the front pages of our newspapers for such an extended period of time, and rarely have the revolving issues resonated so deeply with the general public.
Everyone is calling for change, but we have so far been presented with tweaks rather than reforms, and disparate policy rather than a strategy. In order to transform the market, and to really appreciate energy for what it is – a public good – we need a much more ambitious and innovative response.
This response must emerge from an understanding that markets are fundamentally embedded in the relationships between people, institutions and businesses, and are driven by the desire for our society and economy to flourish. For the traditions underpinning the British Left, this appeals to the motivation to re-embed markets in social relations and enable access to a public good. For the British Right, this resonates with the Burkean tradition with its emphasis on participation in institutions, alongside the importance of competition, innovation, diversity and decentralisation. For Liberals, the crucial role of widespread ownership and local democracy, facilitated by intermediary associations, is key.
We need to appeal again to our roots and remind ourselves of the purpose that energy provision serves. In light of this we need to adjust our vision, present a strategy, and as new innovations, discoveries and technologies arise, discern how we can welcome them and take corresponding action.
How can we begin to do this? One way is to think analogously about what we want our energy market to look like and be. What incremental measures do we need to implement now that will take us closer toward the market we all need? For this, it is often helpful to learn from innovations overseas and apply the learning to the UK.
This is in part what inspired me to undertake a Winston Churchill Memorial Trust travel fellowship to Germany in August 2013, which forms the basis to this essay. I set out in particular to explore the innovative partnerships forged between communities, public and private organisations, which have enabled localities to take ownership of or participate in the governance of their local energy systems and utilities – a phenomenon that has grown significantly in recent years. By the end of 2012, 190 German communities had been successful in bidding to run their local electricity distribution grid, with at least nine of these being wholly community-owned ventures. Almost 900 local energy co-operatives are now established across the country, and this number is growing rapidly. And almost half of all electricity supply companies are owned by local government, communities and small businesses, with many increasingly competing privately-owned utilities out of the market.
These communities had a vision for their local energy market: a vision that saw the eradication of power sourced from nuclear and non-renewable sources, an end to fuel poverty, an end to waste, and a vision that saw their community flourish and grow. The desire to own and run local energy services is not a move toward re-nationalisation or even re-municipalisation, but toward a much more constructive, locally-governed infrastructure in which communities can ensure that their vision is realised. Many of these emerging community-owned grid operators and suppliers are not only offering cheaper tariffs than their competitors, but are seeking and fuelling the prosperity of their locality.
Our concentrated market economy and centralised model of power production and supply has so far precluded communities from applying such principles to our public utilities: The UK’s distribution networks are operated by private companies alone, our larger six energy companies occupy almost 95% of the retail market, and communities own less than 1% of our renewable energy capacity.
But this ‘German phenomenon’ is not entirely alien to the UK. It is not far from the principles that have underpinned our desire to co-create, own and run our public services. Just as communities in the UK can now challenge and bid to run their public services, communities in Germany can challenge and bid to run their local supply companies and distribution grids. We are also seeing a rapid growth in community energy in the UK, and an ever-growing ambition from such groups to also supply the energy they produce.
As we seek the innovation and infrastructural framework needed to move from “the ‘big 6’ to the ‘big and facilitate a more competitive, diverse and innovative energy market, pioneering examples 60,000’”,from overseas are needed. A substantial part of this essay therefore comprises a succinct and accessible qualitative account of my site visits and experiences in order to provide a unique and helpful resource for UK communities and policy makers to help them think analogously about the shape and constitution of our energy market. For those who wish to delve deeper, more detailed case studies can be found in the accompanying report, which is also publicly available.
I conclude this essay by drawing together some initial reflections on the application of these examples to the UK, and close with three brief recommendations for Government, communities and the energy industry that outline a new way forward. This essay maintains throughout that our policies are still oiling the cog wheels of an existing and failing centralised system, rather than implementing a new vision that has a much more transformative end goal in mind. Ironically, in an attempt to ‘fix’ the market for the benefit of consumers, we are re-enforcing a model that will always exclude them. We need to set ourselves on a path that recognises such participation as integral to the way in which our markets should work.