Proposals by the Labour Party to take energy networks back into public ownership would include interconnectors and would take the assets back at cut price.
According to the FT, shareholders be given compensation below market prices because of ”‘asset stripping since privatisation’, state subsidies since the 1980s and pension fund deficits”. The investor compensation would come from bonds issued by the Treasury.
Energy Networks Association chief executive David Smith said, the propsals would be “extremely costly”. He added, “Over the last six years network companies have invested over 2% of annual UK investment. At a time when there are constraints on public spending we need to ask where the money would come from to pay for and provide future investment in these vital assets.”
“Under state ownership the energy networks were more expensive and less reliable. Since privatisation in 1990 network costs to the bill-payer have fallen by 17%. At the same time that costs have fallen, reliability has improved: the public have experienced 60% fewer power cuts while their length has been reduced by 84%.”
Rating agency Moody’s said, :’Regional Energy Boards’ would manage system operation functions for both electricity and gas, later acquiring the assets of electricity distribution network operators. Electricity transmission, as well as electricity and gas distribution, would be acquired by central government, although not immediately.
“… we would expect [a Labour government] to structure any nationalisations in such a way that the risk of debt defaults is minimised, as the government did in the 2002 nationalisation of Railtrack.
“…Our starting point is to assume that this would be based on the current Regulatory Capital Values or Regulatory Asset Values
“…The fact of nationalisation would not, in itself, constitute a default under Moody’s definition”
Rebecca Newsom, head of politics for Greenpeace UK, said, “Nationalising gas and electricity distribution networks, if managed properly, has the potential to be positive for the climate, energy bills and workers in those sectors. More control over these networks would give those in government more power to implement a rapid transition away from damaging fossil fuels towards clean and increasingly cheap renewables.
“The challenge would be to overcome the bureaucratic inertia of a centralised system to ensure sufficient scope and support for innovation, particularly in community-level solutions. Labour’s ambitious rooftop solar plan indicates that they understand the importance of community-level projects. By supporting a smarter, more flexible energy system it will help cut carbon emissions and increasingly reduce fuel bills as costs drop, so everyone can benefit from the climate transition.”
Beama said, “Labour’s publication brings into focus the need for accelerated investment in network infrastructure to drive decarbonisation of the end to end energy system. However, BEAMA fear wholescale reform as proposed by Labour could slow down progress which can be made within our existing market.
“… we see investment slowing, and in some cases leaving the UK. At a time when we are recognising the urgent need to decarbonise, we must come together to retain the industry needed in the UK to deliver on the needs of the market. Labour’s proposals may be one solution, although this would take considerable time and therefore risks slowing investment even further and limiting progress to decarbonise. Action is needed today. BEAMA agrees there are existing regulatory failings which are preventing adequate investment and scope for innovation in the market place. To decarbonise radical change is needed to facilitate new market models and entrants who will drive the flexibility on the system we need today. … Handing more responsibility back to government won’t necessarily solve the issues the market faces today.
“Labour’s regional focus for network management has merit.
Matthew Fell, CBI chief UK policy director, said, “As drafted, these proposals amount to hanging a ‘closed’ sign above the UK, with renationalisation delivering a triple whammy neither citizens nor the country can afford.
“First, Labour’s plans would leave individual savers and international investors alike asking the question ‘is my money safe?’ Loose talk of re-nationalisation is already hitting the pockets of nearly six million pensioners. This will only increase if the plans are delivered.
“Second, much-needed investment is drying up under Labour’s threats, which seriously risks hampering efforts to tackle climate change, and puts in doubt the innovation that will deliver a net-zero carbon economy.
“Third, these plans would threaten significant improvements in network resilience made since privatisation. No-one wants a return to the frequent power cuts that were a feature of nationalised industries of yesteryear.
“Against the uncertain backdrop of Brexit, the country needs policies focused on powering economic growth in the future, not revisiting mistakes of the past.”
Matthew Saunders, international arbitration partner at law firm Ashurst said, ”Recent announcements that a future Labour government would nationalise energy companies paying only book value compensation fail to reflect international law commitments owed to international investors in the energy sector under investment protection treaties, including the Energy Charter Treaty, which prohibit expropriation without full compensation. Because such obligations are enshrined in international treaties, they cannot be diminished by actions of the UK legislature.”
RenewableUK’s Head of Policy Luke Clark said: “RenewableUK members are investing tens of billions of pounds to transform our energy sector, and any reforms must support continued investment in a low carbon future and the rapid deployment of renewables.
“There is much more that can be done within existing structures to enable investment in cheap renewable energy, and clean jobs and industry around the UK. Policymakers could accelerate the UK’s journey to a smarter electricity system, with flexible technologies and markets saving consumers billions of pounds each year.
“Restructuring our energy networks risks being a costly and complex option, when we also need to speed up the decarbonisation of our economy”.