Guest essay by Eric Worrall

h/t John – Faced with mounting voter anger over green policy driven electricity price rises, a precarious, under-resourced energy grid, and with a national election looming June 8th, the British Conservative Government has responded by promising Venezuelan style price caps on domestic electricity bills.

UK Conservatives pledge energy price cap, hitting utility shares

By Kate Holton and Alistair Smout
Mon Apr 24, 2017 | 4:13 PM BST

Britain’s ruling Conservative Party said it would cap domestic energy prices if it retained power in an election in June, targeting an industry it accuses of not working properly and sending shares in the leading providers down sharply.

Shares in British energy suppliers Centrica and SSE fell as much as 5 percent, and were last down around 3 percent, after ministers said the Conservative’s election manifesto would include pledges on controlling energy prices.

Energy bills have doubled in Britain over the past decade to about 1,200 pounds a year, angering consumers who face rising inflation, and drawing the ire of politicians ahead of a June 8 national election. Energy companies say higher prices reflect increased wholesale costs and environmental levies.

…

Centrica condemned the proposal as against consumers’ interests. The proposals made Centrica and SSE the biggest fallers on a FTSE 100 index which was up 2.1 percent.

“Price regulation will result in reduced competition and choice, stifle innovation and potentially impact customer service,” Centrica Chief Executive Iain Conn said in a statement.

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This is a mess of the British Government’s own making. In 2014, analyst Peter Atherton of Liberum Capital described the British energy market as uninvestable.

In 2015, then British Energy Secretary Amber Rudd admitted;

“We now have an electricity system where no form of power generation, not even gas-fired power stations, can be built without government intervention. And a legacy of ageing, often unreliable plant.

“Perversely, even with the huge growth in renewables, our dependence on coal – the dirtiest fossil fuel – hasn’t been reduced. Indeed a higher proportion of our electricity came from coal in 2014 than in 1999.

“So despite intervention we still haven’t found the right balance.”

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The obvious solution to Britain’s problems is deregulation. Remove the obstacles to fast tracked gas fracking, cancel the green mandates, provide financial guarantees against future government intervention, and do everything possible to restore confidence in a level playing field for all energy investors.

But British politicians are not yet ready to abandon their unrealistic dreams of a green energy future.

Price controls are a direct attack on the profitability of British energy utilities, and badly undermine any remaining shreds of confidence in the British energy market.

Price controls expropriate investors of returns they would otherwise have received, and signal that further expropriation, maybe even complete re-nationalisation of the entire industry may be looming.

Price controls do not guarantee that order will be restored – as the long suffering people of socialist Venezuela have discovered, imposing government mandates that the shelves be filled with food and that electricity be supplied to homes does not guarantee either of these things will actually happen.

Perhaps worst of all, these newly proposed price controls are the brainchild of the British Conservatives, what passes for the mainstream right wing of British politics. If the opposition Labour Party wins the June 8th election, even more extreme policies may be imposed – Jeremy Corbyn, leader of the British Labour Party, is one of the most leftwing politicians to ever head a mainstream British political party.

As a former British resident I understand how difficult life can be in Britain. A lot of people are hurting, caught between soaring prices and a moribund jobs market in many regions and sectors of the economy. But price controls are not the solution, they are a wrecking ball which will do even more damage to an already severely dysfunctional British energy market.