Monday 3 June 2019

Labour's Energy Nationalisation Plans: Interesting Stuff

Even if Extinction Rebellion didn't pull off its attempted election-night stunt, everybody has been much taken by their efforts - note how the annoying government Smart-Meter advertising campaign is trying to hitch its wagon to them; and there's even a Graun article here suggesting that if they seriously want to save the world, da green yoof should, errr, join a union!  (Actually they should clean up after themselves and curb their rampant plastic-oriented consumerism ...)

The Labour Party is fairly troubled by the electoral manifestation of this Green surge, and is rushing to outbid everyone else in its *promises*.  Noting the universal scorn for the ER's "zero carbon by 2020", they are toying with a 2030 target.  Ah well: as one of the ER demonstrators said to a TV interviewer: this is no time to be realistic.

Far more significantly, under this green smokescreen they are also planning to renationalise the gas and electricity transmission grids and distribution networks (DNOs).  For hardcore C@W readers, if you give even half a chance to there ever being a Labour government with McDonnell holding the reins this is a subject for serious study.
  1. Choice of target.  Assuming (as we must) that McDonnell actually intends ultimately to nationalise far more than this, the Grid + DNOs is quite a shrewd starting point, politically speaking, for getting his ball rolling.  Not many people carry a torch for this lot.  They are natural monopolies.  They are still under public ownership in many EU countries, so it's hard to claim nationalisation will obviously be disastrous, or fundamentally contra to EU law.  They are asset-rich, really easy to finance (guaranteed, regulated revenues) and heavily unionised.  Many are owned by wicked foreigners.  (And, frankly, several of the DNOs have pig-shit thick management.)
  2. Paying for it.  They are a bit vague on this, musing that perhaps they don't need to "pay compensation" (morally speaking, that is - because the wicked shareholders have been ripping us all off for decades); but then again, maybe (legally speaking) they do.  However this plays out, they'd be exchanging equity for government bonds.  They've obviously taken some fairly well-informed accounting advice and reckon it will be neutral as regards government borrowing.
  3. Grand plans.   You need to read the stuff to get the full measure of this, because it's far from a simple change of ownership they have in mind.  Briefly, it is intended as a springboard for getting councils, unions and 'local communities' in on the action, with control of energy distribution being atomised into at very least several hundred local authority-based mini-regions, but ultimately down to thousands of micro-regions: cooperatives, housing estates, business parks etc etc.  (These must be sufficiently 'open and democratic': wealthy gated communities or fat-cat County-set windfarmers need not apply.)  All with 'maximal union involvement', natch.  Plus a bizarre edifice of regulation and governance - which will be much needed: this is gas & electricity we're talking about!
  4. "Rationale".  The ostensible reasons for doing this are threefold.  (A) reduce costs to the consumer - because coupon for bondholders will be less than divi, and managament salaries will be slashed.  (B) Facilitate the Green Revolution - because the Grid and DNOs have been dragging their feet.  (C) Democratisation and local participation.  Curiously, they don't admit to outright doctrinaire bullshit, though it's not particularly disguised, either.
What to think?   The electricity industry holds a particular fascination for leninists and stalinists like McDonnell - it is sometimes said that leninism was marxism plus electricity, and the whiff of the industrial soviet is easily detected here.  But personally I'm by no means horror-struck, if this to be as we are promised one of the first acts of a Corbyn government.

a)  it will quickly bog down in protracted legal challenges over (i) compo, and (ii) compatibility with some very complex EU regulations covering the fundamentally complex electricity sector.  (Of course, these are illustrations of why Corbyn et al want out of the EU.  But any forseeable 'deal' won't let them off these hooks at all quickly; and No Deal will leave them with No Time for ideological indulgences like this.)  

b)  even if they can get past a), the sheer practical difficulties involved in the fatuous Grand Plan aspects will ensure nothing much changes in substance for a long, long time.  People really do insist on a continuous electricity supply!   And mostly, they have not the faintest idea how difficult it is.

c)  rationales A and B are non-starters.  I just mention this for completeness, really.  Costs will of course go up, not least because staff numbers will go through the roof as soon as they try C, plus the 'maximal union involvement' thing.  And no amount of well-meaning 'local community' enthusiasm will kick-start the Green Revolution, which will need to be a tightly-managed, highly technical affair.

All in all, we should be entirely delighted if this crazy scheme, which has obvious superficial attractions for all manner of lefty-greens, were to absorb all their energies right from the start of a New Regime.  A bigger distraction from more damaging potential forms of political meddling could hardly be imagined.  And of all the many baleful things McDonnell is plotting, this lunacy is by far the easiest to throw into reverse.

Keep watching this one: it's interesting.



GridBot said...

I've been waiting patiently for your synopsis of these plans ND - pleased you've got round to bringing this up!

Having gone through "Bring Energy Home" (a take on grids "Bring Energy to Life") with a fine tooth comb - I believe the labor party must have had insider help in developing this document. How else could they make the assertions they do?

what is undeniable is that the relationship between Ofgem and National Grid is... complicated; it's grossly inefficient running an asset intense business, that needs a 20+ year strategy to asset manage properly, on 5 or 8 year price control periods.

In the lead up to the price control - a lot of effort will be put into arguing with ofgem; why the planned expenditure on asset investment (maintenance and replacement) is in the benefit the consumer. Ofgem ignore these because they are economists and know FA about the engineering implications of not getting it right - take the figure and decimate it (as many times as they feel is right).

On the other hand - in agreement regarding your position on grand plans. absurd is the only word. If anyone thinks these are going to drive down costs or increase renewable connections they are kidding themselves. as you put it - this needs to be done through quite complicated technical innovation. GP don't care about this - they just want to be able to watch X factor...

E-K said...

Labour has to square how it's going to make poor people rich (including anyone who turns up in a dinghy) at the same time as reducing carbon footprint.

GridBot said...

Adding from a capitalist@work POV and for those not immediately aware - National Grid share price at the moment is primarily influenced by 2 factors. Bond Yields and political stability. NG has typically been a low risk option for those seeking an income stock and historically it has delivered great returns in a low yield bond market - as the yields on gvt and other bonds have increased, institutional investors (Pension funds) have moved to reduce there holdings in NG and opt for the lower risk bonds. Combine that with sentiment around uk prospect of nationalization has put a bit of a dampener on the whole affair.

Nick Drew said...

GB - all part of the service!

@ insider help in developing this document ... undeniable that the relationship between Ofgem and National Grid is... complicated

yes, plenty of evidence of knowledgeable help - albeit then overlaid by utopian and doctrinaire guff. I'm somewhat impressed on 2 levels: the 'tactical' (insider knowledge deployed), and the 'strategic' (choice of target for first big nationalisation)

I know of inward-investment plans for some new grid-related technical innovations, very germane to the 'green' future, and will be interested to see if they go ahead now

the Ofgem thing is a puzzle. Actually, Ofgem and the whole UK regulatory process, with all its many faults, is head-and-shoulders better than anything else in Eu (and everyone in Eu energy knows it)

there are some fundamental difficulties, incl:

(a) Ofgem is always running to keep up, they always miss the Next Bad Thing (e.g. the proliferation of tiny, and often bent, suppliers and [even worse] bent brokers etc); they never have enough tech or commercial insight

(b) the perverse incentive the Grid etc have to gold-plate stuff, given the guarateed rate of return - they never call out any 'green' plan, however crazy, because they know it means more work for / more investment by them. "Can you make this implausible scheme work?" - "Oh, yes, minister!"

andrew said...

I think the other side are playing a shell game on you.
They will be desperate to do something BIG that will have resonance with the jams and there on down.
Telling them that the leccy that they sometimes cannot afford will be community owned is not going to do it.

Nick Drew said...

The BIG thing they could do so-oo easily (I offer them this for free) is extend the Council Tax bands north of the current 'H' ('I' in Wales, for some reason). Drop of a hat. So easy, it's impossible for me to believe it hasn't been done already

James Higham said...

"They are a bit vague on this, musing that perhaps they don't need to "pay compensation" (morally speaking, that is - because the wicked shareholders have been ripping us all off for decades); but then again, maybe (legally speaking) they do."

Say all we probably need to know about them.

hovis said...

@ND - CT bands much easier to do, however I thought McDonnell was a proponent of LVT - it was at last mentioned, if not in the last manifesto - true communism in action ..

Nick Drew said...

careful, hovis - Mark W will be in amongst us!

E-K said...

I think it's shocking that you can be giving such serious consideration to a Corbyn government but there you are.

This is the price of May.