Electricity and Energy Prices

Why are electricity prices so politically toxic?

  1. The price of electricity has become a centrepiece of political debate. It provides a focus for a whole set of political concerns and prejudices. It directly impacts on household budgets and hence highlights the “squeezed middle”. Electricity is provided by big companies – hitting the “fat cats” and “monopoly capitalism” buttons. It is essential to modern life, and just like cash machines, we fear what happens when its supply is interrupted.
  2. These general worries encourage an altogether more immediate political dimension when there are accusations of profiteering. When price rises come thick and fast, and politicians and industry warn of ever-higher prices in the future, the scene is set fro more attacks on the companies and all sorts of schemes to put things right.
  3. This is the sad reality of the current debates about electricity and energy prices, and already we have a commitment by the labour party to freeze prices for 20 months after the election and a Coalition response of a £50 transfer from bills to taxpayers for some of the green levies, a Competition and Markets Authority inquiry and a set of short term measures to hear off power cuts from the system operator, national grid.
  4.  This is not a happy situation for the customers, the companies or the economy, If there was a general excess supply – as there has been for much of the last quarter of a century – it might not matter much. But all sides of the debate agree that there is no such luxury. On the contrary, excess demand not excess supply looks more likely and there is an urgent need for investment. There is not the time to hold endless consultations about reforms cobbled together for the General Election. On the contrary, for the first time since the mid 1970s, there is the prospect that the capacity margin will at least approximate zero, and may even go negative, Short of a major economic setback, or extremely benign weather conditions in winters to come, there is the emerging prospect of a power crisis, The British economy is growing again, and a few years of 2-3% GDP growth, and rising household incomes, might make the current forecasts for electricity and energy demand look complacent. 

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