Keep the central planners away from energy policy

Today, the government publishes its consultation proposals for reform of the electricity generation market. The key debate over the next few months will be whether Britain continues to have a competitive market, or reverts to central planning of the power generation sector.

New Labour paid lip-service to a competitive electricity market, while chipping away at its ability to operate effectively – through a constant accretion of new policies, typically promoting renewables. The effect has been to salami-slice the market into technology-specific segments, to increase political and regulatory uncertainty, to encourage lobbying and rent-seeking, and to increase financing costs. Instead of competing by taking investment decisions and innovating, market players wait for government to say what they want. There is a gradual reversion from market decisions to ‘monopoly’ decisions by government.

The Committee on Climate Change (CCC) said last week that the government should, in future, specify and tender long-term fixed price contracts for its desired generation mix. This