Nationalising The Energy Industry Is Not The Answer

By Paul Homewood



Nearly half of Conservative voters support the renationalisation of Britain’s energy industry, a poll has found, putting pressure on the incoming prime minister to embrace radical solutions to the cost of living crisis.

Forty-seven per cent of Tory voters favour returning the energy companies to public ownership, with 28 per cent opposed to such a move and 25 per cent unsure. Among those who voted for the Conservatives in 2019, including many in the red wall seats of the northeast and the Midlands, the figure rises to 53 per cent in favour of renationalisation.

The broken energy market has led to demands for windfall taxes on energy companies, and even their nationalisation. Many blame them for being greedy and profiteering.

Such demands, however, are oversimplistic and ignore the complexities of the market.

The first question to address is just who these “energy companies” are. The general answer is the Big Six:




However these are essentially Energy Supply companies, and the supply side of the industry is not making exorbitant profits. Instead it is the electricity generators who are making hay.

Of course, all of these Big Six also have generating operations; but much of the UK’s generating capacity, particularly renewable, is not owned by the Big Six.

A classic example is the London Array, the 630 MW offshore wind located off the Thames Estuary. Built in 2012, it is owned by a consortium, made up of:

RWE – 30%

Caisse de dépôt et placement du Québec (CDPQ) – 25%

Orsted – 25%

Masdar – 20%

RWE is German owned, CDPQ is a Canadian institutional investor, Orsted is the Danish state-owned energy company, and Masdar is wholly owned by Mubadala Investment Company, the strategic investment company of the Government of Abu Dhabi.

In short, none of these are in the Big Six, but all share in the massive profits now being generated by the London Array.

Each participant in the consortium has its own company set up to share the proceeds; the Annual Accounts, for example, for Orsted are below, listed as Orsted London Array II Ltd:



Bearing in mind that this represents Orsted’s 25% share, “Government Grants”, which are ROCs, totted up to £66 million in 2020; the total ROC revenue for the London Array would therefore have been £265 million.

But that is just the start. Each participant sells its share of the electricity generated; in Orsted’s case it is sold at about £32/MWh to its shareholders, Orsted Power (UK) Ltd, under a power purchase agreement. This means that Orsted Power (UK) is the company making most of the profit, given current market prices.

London Array in total typically produces about 2.5 TWh a year. At wholesale prices of, say, £300/MWh, revenue from electricity sales are around £750 million a year, on top of the £265 million in subsidies. Two years ago, before the price spike, this figure would have been about £390 million. That means a windfall profit of £360 million this year alone.

And there are hundreds of other wind and solar farms owned by banks, private equity and non UK energy companies making much more besides. A conservative assessment would suggest a figure of £13 billion for all of the renewable generators covered by ROCs.

Slapping a windfall tax on the Big Six, or nationalising them, would not alter this situation one iota. The only solution is to radically reform the energy market, as I have already laid out here.


August 29, 2022 at 08:20AM

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