Nationalisation risks UK missing its Net Zero Target
Plans for nationalising energy networks would put at risk the UK’s efforts to tackle dangerous climate change, leading to a delay in meeting the Government’s own legally binding commitment for net zero carbon emissions by 2050, according to a report released today. The research, which is the first major review of the Labour Party’s plans to nationalise and completely restructure the UK’s energy networks, concluded such wholesale changes would divert resources and investment, with the uncertainty leading to a potential drain of talent at a critical time for tackling the climate emergency.
Commissioned by Energy Networks Association (ENA) and carried out byindependent firm Frontier Economics, the report assessed in detail the polices laid out in Labour’s ‘Bringing Energy Home’ paper and concluded that a newly restructured, nationalised energy body would have a detrimental impact on the UK’s progress towards net zero and would likely fail to achieve the stated outcomes for consumers.
The main concerns highlighted included:
- The risk of delays: a complete overhaul of the ownership and structure of energy networks would take significant time to create and establish. Such a wide ranging reform would divert resources and slow progress towards the transition to net zero
- Reduced accountability: Labour’s plans would see the National Energy Agency setting its own policy and regulating itself and others, in addition to being directly responsible for delivery. The report points out the incentive problems and conflicts of interest this system would bring, with no checks and balances and general lack of scrutiny, concluding that this is likely to lead to delivery errors to the detriment of consumers
- Disruption to innovation: uncertainty leads to a slowdown in investment, and a temporary slowdown could result in skilled staff moving elsewhere. Fragmentation of the market would have a detrimental impact on the creation of innovation hubs and reduce the scope for economies of scale. Overall there is a real risk of a brain drain and an erosion of the UK’s world leading expertise in this area
- Increase costs to customers: In addition to the high costs associated with implementing such a major change, once established it is unclear how the new energy agencies will fund the level of investment needed to deliver net zero and will likely seek subsidies from Government, leading to higher taxes or higher borrowing
Mike Huggins, Director of Energy at Frontier Economics, said:
“Our appraisal of the policy proposals set out in Bringing Energy Home is based on the available evidence: drawing on historical performance of utility infrastructure in the UK under different ownership and governance models, together with academic and other evidence on what circumstances are likely to drive better outcomes for consumers.
“Based on our review of this evidence, the conclusion is clear. There is nothing in these proposals that suggests we should have confidence that they will meet the enormous challenge of achieving net zero on time and at reasonable cost. These proposals carry with them a very significant risk of being less effective – more costly and greater risk of delay – than the current system.”
With the UK recently passing legislation committing to becoming net zero by 2050, energy networks will have a central role to play in delivering this. Currently, £45bn in investment has already been committed up until 2023, programmes are already in place to deliver extensive upgrades to the networks to aid the country’s transition and a third of Britain’s electricity is generated by renewable sources. This progress has helped the UK to reduce carbon emissions to their lowest levels since 1888 (BEIS, CCC).
David Smith, Chief Executive of ENA, said:
“The energy networks are wholeheartedly committed to delivering net zero by 2050, having already played their part in helping Britain become the superpower of renewable energy that it is today. We share the objectives set out in Bringing Energy Home, but we are clear that the most cost effective and efficient way to achieve these is by building on the progress networks are already making towards this target. A complete restructuring of the energy sector would not only be costly and unnecessary, but would also lead to significant disruption and delays to achieving the goals of net zero by 2050 when it is clear that time is not something we currently have the luxury of. ”
Notes to Editors
Frontier Economics's analysis can be found online here.
About Frontier Economics
Frontier Economics is one of the largest economic consultancies in Europe with offices in Berlin, Brussels, Cologne, Dublin, London, Madrid and Paris. Frontier uses cutting edge economics to solve complex business and policy problems, and works with leading private and public sector organisations. Frontier’s Energy practice advises governments, regulators, energy companies and their financial and legal advisors on strategy, regulation, valuation and competition policy.
Further information about Frontier is available at www.frontier-economics.com.
About Energy Networks Association (ENA)
Energy Networks Association represents the companies that are responsible for operating the ‘wires and pipes’ of Britain’s gas and electricity network infrastructure, serving over 30 million customers across the country.
Key facts about Britain’s energy network companies:
- Local electricity generation: Over 30GW of largely renewable electricity generation is now connected to Britain’s local electricity grids, generating a quarter of Britain’s electricity
- Value for money: Network companies are responsible for operating and maintaining 1 million km of electricity cables and 272,000km of gas pipelines across the UK at a cost of around 35p per day
- Vulnerable customers: Distribution networks now provide extra support and care to over six million vulnerable customers on their Priority Services Registers. So far in RIIO-GD1, gas distribution networks have helped 64,100 households with their fuel bills under the Fuel Poor Extension Scheme
- Customer satisfaction: Regular satisfaction surveys conducted by Ofgem with a range of customers show consistent satisfaction of more than 87% in the services provided by network companies, putting networks above any energy supply company, higher than many high-street retailers and amongst the very best performers in the UK Customer Satisfaction Index
- Safety: Safety has improved considerably since privatisation. Total Recordable Incident Rate for electricity network staff shows a tenfold improvement since 1990
- Reliability: An average customer would have a power cut less than every two years which will last for 35 minutes. Gas network customers experience an unplanned interruption to their supply once every 140 years
- Jobs: Directly employing 36,000 people, the energy networks have a vital role in supporting UK plc