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 common would be 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 as a whole 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 £125 million. That means a windfall profit of £625 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.
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NOT A LOT OF PEOPLE KNOW THAT 
Cut the subsidies? Government builds a coal fired plant to compete?
I do really think that whoever controls the Industry should have at least some concern for this Country and for its people.
So, a posteriori, we should forget both witless and corrupt politicians and shark infested GangGreen Energy Companies.
But who at least sometimes at least, wants to preserve their customers for future exploitation, rather than just kill them off?
I wonder if the Mafia would be interested?
Governments are useless at running businesses, mainly because they can’t resist political interference. Ministers are simply incapable of keeping their noses out!
Good point, Aaron.
And here’s a very good analysis of the consequences by Tucker Carlson on Fox news in the USA
What that tells us is that nearly half of Conservative voters weren’t around during the great UK nationalisation of everything in sight catastrophe courtesy of Labour in the 1950s – 1970s, leading to the blackouts and culminating in the 1979 Winter of Discontent.
No matter how bad things get, nationalisation will only make them infinitely worse.
As far as I can see, nationalising power generation (the grid as well?) would leave us with a Frankenstein monster of a ‘service’ in the same state as the NHS.
Just imagine, standing on your freezing doorstep, clapping like mad – not in appreciation of the power ‘service’ but in order to keep warm!
Minor corrections. The Big Six are no longer 6 but 4. Eon took over Npower in 2019. SSE sold its supply business to Ovo. In addition, I think that Orsted has sold 50% of its share in the London Array to Danish pension funds – that is what they do with almost all of their wind farms.
On the larger point, I suspect that Centrica / EDF / Eon / Iberdrola (Scottish Power) would be delighted to have their supply businesses nationalised. They are certainly not a source of significant profit to offset the huge PR pain that they face.
Nationalising the generation businesses would take years – probably a minimum of 2-3 years – and would leave an indescribable mess of long term contracts to sell and buy power. I knew those involved in trying to sort out the mess after TXU went bankrupt in the late 1990s and Enron in the early 2000s. It took more than 10 years of litigation and left most parties profoundly unhappy.
Further, imagine adding £50-100 billion of public debt just to be stuck with all of the pain of financing an additional £100-200 billion of investment in renewable generation – if the Energy Security Strategy is to be taken seriously! And that isn’t even making any allowance for hydrogen.
The core problem is that there is so little knowledge or honesty about the commitments and promises that have been made over the last decade.
And, would nationaling, including wind, not mean that the public purse would be landed with all the costs of removing decrepit wind turbines etc?
They probably will be anyway, Harry. I can see most of these chancers doing a runner as soon as the cracks start (literally) to appear.
Not that even National Power & Powergen (who bought out the CEGB) were all that great.
I think the best thing I remember about Powergen was, after deciding to set up an Italian subsiduary company, they named it Powergenitalia.
No, not kidding…Humour? Incompetence? Who knows?
It is sad that so many people think that ‘nationalisation’ is the answer to this problem and many others. Would we ‘nationalise’ EDF Energy, which is already state-owned, but by France? How would that be done? Would we nationalise the huge number of small businesses in generation and supply? The problems are many and varied and I cannot help but conclude that those advocating nationalisation must be young or they do not remember the days of nationalised industries.
Apart from that, after electricity privatisation, UK governments discovered that they could exercise enormous control over the electricity supply industry, without the inconvenience of owning it. That did not always end well.
How we got to where we are today and how the politics panned out (ever-changing energy policy, including sometimes 180 degree turns) is described in my book ‘Electricity supply: the British experiment’ published by Mereo Books in 2014.
A self-inflicted wound is still sad.
Another windfall….
https://www.dailymail.co.uk/news/article-11156599/Giant-2million-wind-turbine-knocked-WIND-raging-storms.html
I’m sorry but I fail to see how a plethora of companies, many of whom exist solely because of the insane subsidies which they receive, is an improvement on a central electricity generating board with professional expertise to decide on the appropriate mix of fuels for generation and set prices accordingly.
Distribution may be a different matter but only if we are prepared to close our eyes to the farce of “green electricity” — a farce which in various forms has been around for decades, ever since certain Scottish Labour local councils declared themselves “nuclear-free zones”, apparently oblivious to the fact that most of their electricity was coming either from Hunterston or Torness!!
I am not a big fan of nationalised industry in general but essential national infrastructure is too vital to be left to the greedy whims of the sort of chancers we have allowed loose in the electricity industry.
Been there…done that…
It was a dismal, catastrophic failure.
One of my most enduring memories from the 1970s was riding through Manchester on my motorcycle during one of the Trade Union enforced blackouts.
Not a light on anywhere, no shop lights, no traffic lights, no pedestrians, I was the only vehicle moving, the only thing else was a solitary cat, like something out of a science fiction post apocalypse story.
Then there was British Rail…British Shipbuilding…British Steel…and the crowning glory of the whole vile Left Wing TUC “We’ll Bring the Country to its Knees” bunch, British Leyland.
There is no way the life blood of the country can possibly be in the care of that traitorous bunch ever again.
Nationalisation – Just Say NO!
The industries you name were “rescued” by the government after owners, management and workers had effectively killed them.
No industry is immune from strikes nationalised or privately owned.
There are currently refuse collection strikes, rail strikes, dock strikes. postal strikes either ongoing or planned as far as I’m aware most of these are privately owned these days.
Shipbuilding is a sorry tale mismanagement, unions and lack of investment combining to a self destructive and inevitable end, as is the UK car industry, electronics and most industry in the UK
I spent most of my working life dodging redundancy and factory closure in the electronics industry. The factory where I got my first full time job in the 1972 was using pre-war equipment to compete with the Japanese, it didn’t end well. Mismanagement, lack of investment and unions is all you need to know.
I never believed Thatcher’s claim that privatised utilities would be funded by shareholder investment. British investment, in my experience is not a longterm thing. In fact investment is usually takeover, take profits, close down/sell on and move on. Sewage in the sea in 2022 after 33 years of “investment” would confirm that
I’m not claiming that private ownership is perfect Ben, I’m saying that “public” AKA Government ownership is invariably worse.
During the 1970s as an automotive engineer I worked for Ford and BL, although some of Ford’s management was pretty dire, they did manage to turn out some very saleable cars and vans, the Cortina, Granada and especially the omnipresent Transit.
BL’s was catastrophic because it was dominated by the Unions run by Red Robbo and his thugs and they knew that no matter how much money they wasted producing unsaleable, unreliable rubbish (when they weren’t on strike, that is) – the Maestro and Allaggro for example, the Government would always bail them out.
Private industry depends on market signals. Without an expectation that industry will make a profit they will not invest. Whilst I agree that the energy market as a whole should not be nationalised there are parts of the energy infrastructure that perhaps should. In the early 2000s there were a number of gas storage projects developed and planned (both depleted gas fields and leached out salt caverns) and they were profitable because of the summer/winter gas price differentials. However there have been no new gas storage projects for some years because the increased gas supply has wiped out those differentials. In a situation like this the Government has to intervene.
Nationalising the energy industry-an idea so indescribably stupid it makes those who suggest we should have let major banks fail in 2008/9 look intelligent, by comparison.
Major bank failure was by private companies, hubris, greed and short termism leading to the inevitable nemesis funded by taxes. I’m not sure we got a good deal out of it. Mind you we didn’t get a good deal out of the South Sea Bubble either, finally “cleared” by George Osborne after 300 years
I see that the HBOS management go off Scot Free
Yes, a total disgrace. My shareholding in Lloyds was ruined by Gordon Brown’s private party stitch-up to save Scottish jobs – as if our English tax donations to Scotland are not enough! I voted against it but there were idiots like the Mail’s Finance Editor Alex Brummer who was all for it and then he couldn’t understand why Lloyds was trashed as a result of taking on a bankrupt bank when Lloyds had emerged pretty much unscathed.
Viewed in isolation the bank bailouts have not been that expensive, seen within the context of government spending. Essentially the loss will equate to the almost certain loss on RBS (£20 billion?) and the cost of carry.
The alternatives were obviously far worse though.
Lloyds was destroyed by its arrogant management who took on massive debts and expanded as the 2008 debt bubble burst. All the banks were run by incompetents who got their positions due to their golf handicap rather than financial acumen. Technically Lloyds should have gone bust and your shares should be worthless. The taxpayer subsidised lloyds shareholders who couldnt control a Board of idiot directors.
Think that it is fair to say that most voters of any party have little idea how power is provided and the route that it gets to their house. All they know is that it is rapidly becoming unaffordable and they are scared.
Ask them any question about any change and they will say yes, as it is clear the current system that they don’t understand is just not working for them. All they see is the Electricity bill from British Gas and the Daily paper / BBC saying BP has made a few $billion in profit and the want change.
and don’t forget ROC buyout price is indexed link so they will be getting a bonus benefit in next reset as well.
Also London Array gets 2 ROC/MWh till 2035. Government needs to levy a windfall tax on all generators or personally in my view just scrap the energy cap and let the market find its true level of what its actually costing.
Advantages of nationalization:
o Control is at national level. Westminster decides they want windmills in your backyard. Your council can do double ought zero about it – control has gone to the national government. Tough touki.
o The national government can – and will – decide that their objective is compliance with COPout## ad infinitum. The national government’s interest are not YOUR interests. They will pursue THEIR goals. If your lights stay on, it’s coincidence, not intent.
“I’m sorry but I fail to see how a plethora of companies, many of whom exist solely because of the insane subsidies which they receive, is an improvement on a central electricity generating board with professional expertise to decide on the appropriate mix of fuels for generation and set prices accordingly.”
The “professional expertise” will come from the nephew of an MP. DO NOT assume expertise in government. If they had “expertise,” they’d get a real job with a company.
Your “central electricity generating board” is subject to political control. E.g., they will select renewable generated electricity over all others. This is happening now under the regulatory state’s control.
Your core belief about government is ignorant, at best.
Compulsory Purchase is still used in the “national interest” so nationalisation is irrelevant on that front. The national government overrules local government planning decisions, the ones where permission is denied, also for the greater good.
Nepotism and employing ex-politicians and their mates doesn’t exist in private companies?
Whataboutery.
Actual Tories would not want state control of anything. The market should decide without governments picking winners and losers.
If I’m not an “actual Tory” then why have I been voting Conservative for the last 60 years?! Are you suggesting that the current state of the electricity industry is an improvement on the CEGB+the regions?
And no, Gamecock, the whole purpose of a CEGB is that is is NOT subject to political control; it decides the priority because it would be at arms length. State ownership does not have to mean government control. We’re so used to living in fear of the 1970s — and yes, catweazle, I lived through that time as well and fought the good fight in my own way — that we can’t see the wood for the trees. Essential national infrastructure (which does not and never should have included car manufacturing!) is a natural monopoly — as the shambles which is the current state of electricity or railways ought to demonstrate. But it does need operational independence. The government IS dictating now what the priorities are for electricity generation; that should not be their function but that does not mean that diverse ownership is the answer.
I agree with you Mike. Should never have included merchant ship building either. Naval shipbuilding is a different issue.
Mike i wouldn’t disagree but regulatory oversight has been pathetic in this country whether by government design or outright incompetence in the people leading it but its failed the consumer and industry across all the utilities.
I think you must mean ‘actual Conservatives’ as opposed to Tories, but the problem is that the Tory Party has not been conservative for decades.
“but the problem is that the Tory Party has not been conservative for decades.”
Not since 28/11/1990, to be precise.
To nationalise or not is a red herring; competent management at a high level by our glorious political leaders and civil servants is what is needed, which would be a first in my lifetime.
(Foreign) state-owned companies are doing very well out of this country’s stupid electricity system. Masdar. Equinor. Orsted. CRC. We send them money until our knees buckle. Great plan, I’d say. Where are the UK state-owned companies fleecing other countries’ citizens? Nowhere, because there aren’t any.
Back in the 1950s and 1960s, despite the impoverishment caused by two World Wars in less than half a century the British had the World’s first nuclear power station, fastest production motorcycle – Vincent Black Lightning, fastest production car – Aston Martin DB4 GT, World’s fastest aeroplane – Fairey Delta 2, land and water speed record courtesy of Donald Campbell’s Bluebirds, Triumph motorcycle engines powered the bike that took the two wheel LSR, an aviation industry that sold planes all round the World including to the Americans, the first and still only convincing VTOL fighter – the Hawker Harrier – to have success in air combat and with a Mach 2 version – the P1154 – on the drawing board with prototypes close to flying that would have been in service half a century before the F35, and a four engined VSTOL passenger/freight aircraft – the Armstrong Whitworth AW681, and we managed to launch our own satellite too.
And not only were we were self-sufficient in energy, he had enough to sell too.
And then came “managed decline”, with the Trade unions, Left wing government and finally the the lying traitor Heath took us into the Common Market that morphed into the EU, and the whole lot was p1ssed up the wall.
What a tragedy…
Mostly by private companies. A good job Rolls Royce thought it was worth producing the Merlin engine, and conspired with Avro to provide 4 Merlins for the new Manchester derived 4 engine bomber, the Lancaster.
Same story with the HP Halifax.
Catweazle spot on. Im looking through the English Electric Journal (archive.org) from the 1960’s its utterly utterly depressing to see what this countries capabilities were and how we are now utterly dependant on importing almost all the equipment this fine company once manufactured in our own backyard.
‘World’s first nuclear power station’
[citation needed]
Beat 1951 in Idaho, USA, and Obninsk, Russia, 1954.
OK, let’s qualify that: ““The world’s first full scale power station solely devoted to electricity production opened on October 17, 1956.
https://en.wikipedia.org/wiki/Nuclear_power_plant
Calder Hall was also “devoted” to producing plutonium for the weapons programme….