Comment: Should the government bail out failing energy companies?

Andy Mayer

September 22, 2021

Connor Tomlinson, Policy Director at the British Conservation Alliance

Without a baseline backup, and no nuclear plans on the horizon, Britain is facing a second winter of discontent with depleted global gas reserves.

Government got the country into this energy deficit by firing taxpayer cash like confetti out a cannon at over-reliance on weather-dependent renewables with lacking storage capacity and low grind inertia. Wind power dropped from a 22 per cent contribution to the grid in 2020 to 9 per cent in 2021. 

We ignored warnings from Germany: who abandoned both gas and nuclear simultaneously and plunged their country into brownouts as a result. They ran back to Russia with €9.5 billion for Nordstrom; despite paying €356 million annually to NATO. President Biden shutting Keystone XL placed additional strain on already unsavoury energy alliances with President Putin. 

More bailouts won’t save Britain’s ailing energy industry. Scrapping the price cap to allow market forces to rebalance rates, and following France’s example in investing more in profitable carbon-neutral nuclear, will ensure Britain is a cost-effective sustainable energy producer and exporter. Boris must also use international pressure—through his new Foreign Secretary—to leverage Biden into reversing his fracking ban; and ensuring Britain is first in the queue to buy.

Danielle Boxall, Media Campaign Manager at the Taxpayers’ Alliance

The highest tax burden in 70 years could be set to increase. With the energy crisis reaching breaking point, companies are now calling on the government for support in the form of cash handouts. Taxpayers, already facing the prospect of a NI hike and rising prices, are unlikely to take kindly to this idea.

The current situation stems from the introduction of the Miliband-esque price cap during Theresa May’s premiership. Energy is a very capital intensive industry, so restricting revenue by law allows less leeway for companies to stockpile or ensure more accessible supply when circumstances like our present one arise. Simply handing money over now gives them no incentive to fix these issues before the next spike in global gas prices.

The price cap also left many of these companies on the brink of collapse even before the latest troubles set in. Bailing them out now could prove incredibly costly when many of these firms do eventually fail.

Worst of all, there have been calls for renationalisation of the sector. Giving power to the state (or rather to Whitehall bureaucrats) isn’t suddenly going to improve the industry. As explored in our Restate the Case series, privatisation has been a massive boon compared to what came before. Private ownership results in more efficient companies and investment in the long run – their profit motive pushes them to be as productive as possible.

If ministers want lower prices for consumers they should power ahead with eliminating ineffective green subsidies that push up the cost of stretched families’ domestic energy bills. Lurking in the background amongst this is the spiralling level of national debt after Covid wiped out the public finances. Taxpayers are already on the hook for hundreds of billions – they can’t be made to shoulder a single penny more.

Andy Mayer, Chief Operating Officer at the Institute of Economic Affairs

British climate policy is now so mad that one part of Government is bribing a solvent private company to produce CO2, while hosting a global conference on CO2 reduction.

They are forcing some energy companies out of business by capping prices, then bribing other energy companies to take their stranded customers.

The UK is wholly reliant on gas for generation, heating, and as back up to intermittent expensive renewables, yet it has banned domestic production of gas from fracking while discouraging investment in the North Sea with high taxes and complex regulations.

This shambles is self-imposed. The low carbon transition is important, but it is a transition, and cannot be forced or rushed when the alternatives are not ready or affordable. Yet the only thing the Government seems interested in is repeating the same mistakes over and over again for fear of upsetting lunatics who throw themselves in front of lorries on motorways.

If this continues there will be more bailouts and eventually nationalisation of energy industries. All at the public’s expense. This will solve nothing, only increasing costs while reducing accountability.

It’s time the Government stopped pretending it can solve climate change through diktat and virtue signalling and allowed energy markets to work.

Authors

Written by Andy Mayer

Andy Mayer is Chief Operating Officer at the Institute of Economic Affairs.

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