Retail Energy Markets: Government Ignores Economics At Its Peril

Sat Apr 27 16:24:38 EDT 2013
By Graham Shuttleworth and George Anstey

Over twenty years ago, the Thatcher government embraced competition in the markets for electricity and gas in the UK, with the aim to increase efficiency, lower bills, and take government out of decision-making. In this article from New Power, NERA Director Graham Shuttleworth and Senior Consultant George Anstey argue that every government since then has acted as though it would rather restrain competition than embrace it -- pushing the electricity industry to use more British coal (Major), solve fuel poverty (Blair), convert to renewable energy (Brown), or to possibly build new nuclear power stations (Cameron). The latest retail market measures emerging from the UK Department of Energy & Climate Change (DECC) and Office of Gas and Electricity Markets (Ofgem) are still supposed to increase efficiency and to lower bills, but they place government decision-making in a central position. While the DECC and Ofgem justify their interventions by pointing to market failure, Mr. Shuttleworth and Mr. Anstey point out the risk of government failure in these interventions. The economics of competition offer plenty of reasons why these interventions may have adverse consequences, the authors note. Future governments may therefore regret being given a prominent role in energy sector decision-making.