The labour Party has announced a 20 month price freeze for business and domestic customers if they win the next election.
Anybody with any knowledge of the energy markets will be amazed at this announcement. There appears to be no understanding of the way the energy market works. One imagines a circle of think tank graduates brainstorming possible vote winning ideas, and coming up with a ‘flavour of the moment…doing down energy companies! Energy business nocking is likely to be populist in just the same way as banker bashing has been. However, there has to be a balance, nobody will thank Labour if we end up with a lack of supply which is already likely to be stretched as old coal fired power stations are decommissioned by the end of next year (2014).
Electricity is bought and sold like any other commodity; however, the ‘spot price’ varies on a daily basis. And although forecasts can be a useful guide many factors affect it. Take the business sector as a starter, most companies enter into contracts lasting 1, 2, 3 even 4 years with a fixed price. How will those contracts fit into the freeze? Very larger users such as large factories, supermarkets, local authorities etc. will often be on what are called Half Hourly (HH) contracts which could be daily, weekly, monthly or longer agreements designed to optimise their energy purchasing. How does Labour intend to treat these?
They also announced plans to break-up the ‘big six’ suppliers (British Gas, EDF, E.ON, npower, Scottish Power and SSE). Isn’t this likely to be anti-competitive, which was the very argument put forward for de-regulation of energy supply in the first place. Indeed it could lead to an exodus of suppliers. According to the Economist Centrica (owner of British Gas) are already threatening to leave the UK.
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