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Are the 'big six' energy companies blocking renewables in the UK?
1st March, 2012
Just six energy companies EDF, E.ON, Centrica, SSE, Scottish Power and npower control 99 per cent of our domestic energy market but show only minor interest in renewables
Huge profits announced by EDF and Centrica recently have sparked further debate about the behaviour of the so-called 'big six' energy companies and their stranglehold of the energy market. At worst they may not only be overcharging customers but also holding back a once-in-a-generation opportunity to make the transition to renewable energy.
With many of the UK's coal and gas power stations coming to the end of their life and the Government planning to reform the electricity market in May, an opportunity has arisen to firmly establish renewable sources of energy in the country - and get us on track to meet the ‘zero-carbon electricity by 2030’ target set by the Committee on Climate Change (CCC).
However, critics believe the UK is conceding control of its future energy policy to companies such as EDF and British Gas/Centrica, who have been successfully lobbying the case for nuclear and gas and not renewables.
'There is geniune uncertainty about who is in control of the overall energy policy and which stakeholder - i.e. EDF, the French nuclear company or the non-nuclear companies in the "big six" and major energy users - has the most traction with the different ministries, in particular DECC and the Treasury. Consumer interests are at the bottom of the pile,' said Professor Catherine Mitchell, from Exeter University recently.
While the government dithers, energy bills keep rising. ‘Just six big companies control 99 per cent of the household energy we use and own more than two-thirds of our power stations,' explains Paul Steedman Senior Campaigner at Friends of the Earth. 'And they’re keeping us hooked on increasingly expensive, imported fossil fuels, like coal and gas.’
Spiralling bills: but its not the fault of renewables
The reason for spiralling bills is largely because of the big six’s over-reliance on ever-more costly fossil fuels, say campaigners. Though critics have argued that rising bills are due to ‘green taxes’, such as subsidies for renewable energy, a recent report from the CCC, an independent body, found the major cause was in fact rising wholesale gas prices.
Energy bills have doubled in the last six years, plunging one quarter of British households into fuel poverty. Energy watchdog Ofgem have found the big six guilty of overcharging customers £250 million during the winter of 2010-11, and their profits continue to rise. In the first half of 2011 alone they reported profits of around £3.5 billion, with profit margins increasing by up to 733 per cent in some cases.
Anger from all quarters is mounting – complaints about the big six rose 26 per cent last summer, politicians from all parties and Ofgem have questioned their power, and a slew of campaigns from environmental, consumer and pressure groups and smaller energy companies have emerged in recent months.
Low investment in renewables by the 'big six'
The debate has revolved around the prices, practises and power of EDF, E.ON, Centrica (who own British Gas), SSE, Scottish Power and npower. But environmentalists say that not only are they stifling smaller companies – such as those offering renewable energy – by monopolising the market, they are failing to invest in clean, affordable energy. Currently, three-quarters of our electricity comes from coal and gas, with renewables contributing only eight per cent.
We agree on the need for clean, affordable and secure energy and we are investing to make this a reality,’ says a spokesperson for EDF, pointing to the company’s plans to nearly double their onshore wind capacity this year and their current 64MW offshore wind operation. ‘Longer term, we believe that low-carbon nuclear power should also continue to be part of the mix alongside renewables and we plan to take a final investment decision on the first of our proposed new nuclear plants at the end of this year. We are also investing in efficient Combined Cycle Gas Turbine (CCGT) plant which produces less CO2 than older fossil plants.’
Friends of the Earth believes investment by the large companies needs to be proportionally higher. ‘The big six could commit to driving forward the renewables revolution through their investment plans,’ says Steedman. ‘The picture is far from uniform, but overall they are investing far more in the short-term in fossil fuel projects.’
He is concerned that the big six’s new gas projects pose a major threat to producing more of the UK’s energy from green sources, potentially resulting in a ‘massive over-reliance’ on increasingly expensive imported gas. ‘The Government estimates that we will need just 11 GW of new gas but 30 GW of new renewables by 2020. However, there are close to 30 GW of new gas proposals on the table [from the big six and smaller companies].’
David Toke, Senior Lecturer in Energy Policy at the University of Birmingham, says the 'big six' have vested interests in continuing business as usual, and though they are doing more with renewables now, even large-scale wind power remains a ‘small minority concern.’ As for solar energy, the large energy companies are ‘very hostile’ towards it as they have no way of controlling it.
With the debate over the big six’s malign influence now at tipping point, something has to give. But the question around how best to reform the market remains a contentious issue.
Last week Ofgem announced its proposals for reform, which include simpler pricing, greater transparency, and enforced auctions up to 20 per cent of the energy generated by the large companies aimed at boosting competition in the market.
Toke lacks confidence in Ofgem’s proposals. ‘It wouldn’t solve the fundamental problem that suppliers have a big interest in selling power station output.’ He points to the ‘vertical integration’ of the big six – one part of the company generating power and another supplying it to consumers, effectively selling energy to themselves and making it extremely difficult for smaller companies to compete. ‘Ideally the big six should be split up between energy generators and energy suppliers,’ he says.
The government have welcomed Ofgem’s suggestions, and argue that the Electricity Market Reform will revitalise the market. The Department of Energy and Climate Change (DECC) told the Ecologist that their proposals to reform the electricity market and revolutionise the energy efficiency of our homes would deliver the best deal for Britain and for consumers, getting us ‘off the hook of relying on imported oil and gas by creating a greener, cleaner and ultimately cheaper mix of electricity sources right here in the UK.’ The mix would include renewables, new nuclear, and carbon capture and storage.
Friends of the Earth are however unconvinced that the reforms are on the right track, arguing that they will leave much as it is: a market that only large companies can compete in; no commitment to the 2030 zero-carbon electricity target; no serious plan to reduce energy waste; and the green light to the big six’s plans for a new generation of gas-fired power stations.
Toke too is sceptical of the Electricity Market Reform, saying the Government’s proposals are fixated on the ‘failing sunset technology’ of nuclear. ‘The Government's hopes of a big nuclear programme are distracting them from the tasks of building a renewable energy future backed up by serious energy conservation strategies,’ he says.
Both Steedman and Toke support a ‘feed-in tariff’ based on the scheme implemented in Germany, the oft-cited champion of decentralised renewable energy revolution. ‘Germany has shown how it is possible to challenge the big energy companies head on,’ says Steedman.
Community-led renewable energy generation projects have spread across the country following the success of the town of Schnönau, whose residents battled with energy giants to buy the local electricity grid. Renewable sources are now responsible for over 20 per cent of Germany’s electricity, with the large energy companies owning only 13 per cent of the kit, compared to 51 per cent owned by individuals and supported by a successful feed-in tariff that pays people for the energy they generate.
Here in the UK, the Government recently announced – after a legal battle with Friends of the Earth and solar companies – a new ambition to have three and a half times the amount of Solar PV by 2020 than previously planned, alongside £490 million for new feed-in tariff projects in this Parliament. Steedman welcomes the ambition, but is concerned about how this new framework will be delivered without major improvements being made. The promised ‘community energy tariffs’ have also not materialised, he says. ‘In fact the new framework risks making it harder, not easier for community energy and social housing schemes to get off the ground.’
Power to the people?
A recent report published by social and economic think-tank ResPublica concludes that communities should be at the centre of the new energy economy, generating renewable energy themselves, and that solutions are to be found in the production rather than the supply of energy.
‘Our paper calls on Government, the industry and communities to instead turn to the opportunities that lie on the side of production, rather than giving weight to greater market efficiency and increased competition amongst the larger energy suppliers alone,’ says co-author of the report Caroline Julian.
‘The Government has to date supported community energy generation through grants and subsidies,’ says Julian, ‘but must now broker in such projects to wider energy market reform … A ‘responsible capitalism’ may begin to call markets to account, but a truly transformative capitalism will place markets back into the hands of the people.’
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