Electricity provision was a perennial problem for liberal capitalist states during the twentieth century. As a leading politician identified in Britain in the early years of electricity development, the supply of electricity “cannot … be thrown open to free competition” as it is “impossible, satisfactorily, to reconcile the rights and interest of the public with the claims of an individual, or of a company seeking … the largest attainable private gain”. The politician was no socialist firebrand — it was the imperialist, Liberal and then Conservative Joseph Chamberlain who identified the key contradiction in fully privatised energy.

In recent decades, the Conservative Party has taken a somewhat different perspective from Chamberlain’s. Not only are the electricity supply companies now private entities, but so too are the transmission, distribution and generation operators. The UK¹ was one of the pioneers of energy liberalisation, with other nations learning from its mistakes and the opportunities for profit that privatisation has afforded investors. There are signs that Labour will look to modify these arrangements, given the substantial overhaul of the electricity system required for a green energy transition, but they remain either too scared or unwilling to change them substantially. As Chamberlain foresaw, they face significant problems reconciling the interests of the public with the pursuit of private gain.

The recent energy crisis put this contradiction in stark relief for Labour — indeed it is one of the main reasons Labour was able to actually get into office in the first place. Britain was particularly exposed to rising gas prices; gas set the price of electricity 97 per cent of the time in 2021, and most UK homes rely on gas boilers for space heating. Like most governments, when energy prices began to rise rapidly in early 2022, following the Russian invasion of Ukraine, the UK Government had to quickly develop a set of interventions that would limit the impacts on the public. Without any form of state ownership these interventions were, by necessity, a mediation between electricity capital, households and businesses.  

The mediation took the form of a range of subsidies, with the core intervention being the Energy Price Guarantee (EPG). The EPG was a payment, made to energy retail companies, which aimed to limit the typical household bill for electricity and gas to £2500 per year. The payment was made relative to the energy regulators “price cap”, a mechanism introduced prior to the crisis which places an upper limit on the per unit cost of gas and electricity for those on standard/default variable tariffs but that is often expressed as an annual total for a “typical” household. The price cap’s initial purpose was to stop retailers shifting customers onto higher rates after their (cheaper) fixed term deal expired — as the majority of people do not regularly switch their energy supplier. During the crisis, when all suppliers were basically charging the most that they possibly could, the price cap acted as an indicator of the costs households faced for the government to judge its interventions — and was set at £3,549 (per year, typical household) for the winter of 2022/3. The EPG subsidy aimed to cover the difference between this figure and what households paid. The previous year the price cap was set at £1,277.

The EPG was framed by the government as “protecting households” but this claim is incredibly misleading; it relies on comparison with the counterfactual of the government doing nothing and on the assumption that market prices are natural phenomena. We should understand the EPG, and interventions like it, as an electricity and gas industry bailout was akin to the bailouts for financial institutions in 2007/8, where significant levels of public money (around £120 billion directly) propped up failing institutions that were “too big to fail”. If bills were allowed to rise to the (regulated) market rate, then it was also highly likely that most households would not have paid all or part of their bills. The EPG was announced because of public pressure. In particular, the result of the protest movement Don’t Pay, which threatened large scale refusal to pay energy bills. Millions of others would simply have been unable to pay. Even with the EPG in place, 24 per cent of UK households (6.7 million) were estimated to be in fuel poverty, with households paying out at least £25 billion in additional bill payments. Businesses and other organisations (which had their own scheme) paid out another £35 billion. It should be noted that there were several more targeted schemes for those on lower incomes, such as direct payments to those receiving social security benefits and direct to households through council tax, but these did not address rising poverty especially as energy price rises drove up costs across other sectors.  

Therefore, the subsidy package was part of, rather than counter to, an upwards redistribution of wealth through the state and energy system. The primary winners of these interventions, as with previous bailouts, were, of course, the oil and gas majors. The two major UK firms, Shell and BP, made over $100 billion profit (globally) in 2022 and 2023. The electricity and heating systems of Britian as with many other countries, channelled flows of capital towards the oil and gas majors for simply doing what they were doing before — and in many cases using the energy crisis to cover pandemic losses plus a lot extra on top.  

The situation was slightly more complex for electricity capital (the companies generating and supplying power) than fossil capital (the oil and gas majors). What we saw during the energy crisis was that the design of wholesale market — where retailers buy electricity — is deeply flawed. With gas as the price setter, consumers are not just paying for the high wholesale price of gas (set in the European market) but they were also paying renewable generators well above their own costs due to the merit-order process which meant that other generators get paid the same as gas generators per unit of energy. Markets, on the neoliberal view, are supposed to be efficient processors of complex information. However, during the crisis, the wholesale market prices simply did not communicate the overall costs of producing electricity — allowing those generators who were not tied into price-fixing contracts to make significant profits. Those in the electricity networks benefitted from higher prices.  

Energy retailers faced tighter margins and were most at threat of financial problems during the crisis. Most smaller electricity retailers — brought into existence by the Coalition Government a decade before to bring about “competition” — collapsed, including firms as large as Bulb (1.5 million customers). The remaining major firms are all part of larger, often global, corporate structures. However, even domestically most of the larger firms losing in retail were able to make above average profits in other sectors of electricity (and domestic gas supply) — from production and generation through to networks. Emergent firms like Octopus and OVO, in part because of their more effective use of digital systems, were able to rapidly expand through consolidating the smaller firms in a state mediated process (Supplier of Last Resort) to take their place amongst the new Big Six as others (like SSE) exited retail altogether.

The UK regulator, OfGEM, facilitated this upwards wealth redistribution by entertaining the fiction that the retail arms were separate standalone entities and choosing to maintain the “price cap” at a higher level than it would have been to allow them to recoup profits into 2024. With the collapse of the smaller firms, the major retailers emerged from the crisis with a larger market share and at least as much profit as they would have made in normal times. The operating profit for 15 of the major firms in electricity was £14 billion higher from 2021-24 than it was in the period 2016-19 — without all companies having filed accounts. In January 2024, retail companies were permitted to return to enforcing indebted households onto pre-payment meters, effectively partially disconnecting those with unpayable energy debts. Household energy debt is at record levels — £3.7 billion in total.

Perhaps the upwards wealth redistribution could have been balanced out, if the state had recouped its losses through taxation and redistribution. It did not. Two “windfall” taxes were introduced: one for oil and gas, and one for generators. The Energy Profits Levy has so far taken £6.2 billion, with the Electricity Generators Levy forecast to bring in £14.2 billion. Together they are expected to raise £24 billion as a best case scenario. This figure would recoup the cost of the EPG, but the total of all the state spending (for businesses as well as targeted payments) was around £54 billion.  

Both the Conservative and Labour governments hoped, as evidenced by the tax deductions for investment included in the windfall taxes, that the money flowing into electricity and fossil capital could be directed towards investment in renewables. The fossil fuel majors decisively rejected this, and it remains an open question how much of the public subsidy will manifest in investment from the utilities and renewable firms. If the tax deductions and public bailouts do make it into actual renewable projects then it should be recognised as publicly subsidised investment.

The energy crisis is, therefore, the third crisis (the financial crisis and pandemic) in 15 years in which the state response has been to secure upwards wealth redistribution in the name of preventing societal collapse. At each point, a significant public bailout has been instituted to maintain the stability of the economic system, increasing public debt which is then followed by periods of austerity in the name of reducing public debt. And at each crisis point, there is the opportunity for states to deliver systemic change in key sectors where capital became openly reliant on government interventions, and at each point government has chosen business as usual. As we saw recently, the current system is wide open to gaming: gas generators were able to game a further market in January this year — the balancing mechanism — to extract extremely high prices for the cost of avoiding blackouts. Such behaviour is a recurring problem within the UK’s energy markets.

The energy crisis made evident to the public, like the financial crisis did, that this privatised system is underpinned at every point by state intervention. The state has actually become increasingly involved in determining energy prices, through the network of markets introduced in 2001 and reformed again in 2014. During the energy crisis, the state was effectively determining the price of electricity and gas heating. The state also regulates future wholesale electricity prices as well as present ones, at the minimum and maximum, through the Contracts for Difference scheme which expanded this year to a budget of £1.5 billion and contracted 10GW of power. A review led by the previous government also highlighted that the capacity market, which makes payments to reliable sources of electricity (mostly gas and nuclear) to ensure security of supply is likely to be unsuitable for developing the storage and backup systems a renewable grid requires.

Labour has yet to set out further market reforms, but they face the colossal challenge of both delivering what will be a completely new electricity system whilst simultaneously trying to keep consumer prices down. Households and businesses have already been hammered by high energy costs, alongside other price increases, and are responding with increased hostility to governments presiding over rising prices in key sectors which are making handsome profits. The last two market-based reforms — NETA (2001) and EMR (2014) — led to some short-term gains but were unable to address the Chamberlain contradiction. NETA, because it produced an energy only market that failed to bring forward longer term investment and planning and formed the Big Six oligopoly. EMR addressed some of the long term investment issues but also led us to where we are today: with a new oligopoly, collapsing energy companies, and in a confused limbo between statist coordination and privatised companies (barely) competing in dysfunctional markets.  

The challenge for Labour here is immense, but it has an historic opportunity to change the power sector, overcoming high energy bills, addressing public anger, and supporting the energy transition. Labour has promised a £300 reduction in annual bills whilst simultaneously decarbonising the entire electricity system by 2030, through a period of what will likely be rising demand. Labour believes it can achieve this largely through another round of shifting incentives in the highly privatised energy system but this is doubtful; the fact that successive governments have spent four years unable to come up with a meaningful set of reforms suggests that they really do not have a lot of ideas left for how to generate solutions, even short-term ones.

However, the deviation from neoliberal orthodoxy that has been made opens up more redistributive possibilities, with the addition of a small public company Great British Energy taking a stake in renewable and low-carbon generation and the newly public system operator separated from the National Grid company (a decision taken by the Conservatives). The creation of these new public companies should not be understated, it does mark a partial deviation from decades of neoliberal policy, but the fact that energy companies are relatively sanguine about their introduction also suggests they do not expect it to challenge or discipline their activities significantly. Great British Energy is to be capitalised with £8 billion over the parliament, which is about the cost of one large offshore wind farm. The weak capitalisation could be a mistake they rue at the ballot box, as a more substantive and active public company could at the very least begin to capture some of the value being created through investment in the power system for the public — who are ultimately underwriting the whole transition anyway. The problem is not public support for public ownership, Labour fears bond market discipline and the reaction of the UK’s feral press if they were to begin to start to redress the balance of power and wealth in the UK’s energy systems (or anywhere else for that matter!).  

At this point, the Labour government faces a choice: enact the (de)regulatory demands of investors and pour more public money into the upwards wealth redistribution machine and simply hope that this sees medium term price stability as greater renewables come online, or to use this moment to expand public ownership and coordination of the electricity system to discipline electricity and fossil capital rather than further their enrichment. The present arrangements are like a perverse and inverted form of market socialism — where markets coordinate production but in a highly state-mediated process which socialises risks and locks in private returns even when the system is failing to deliver public goods. The costs of the investment required in energy infrastructure and new generation remains heavily focused onto consumer bills, with the system operator uncertain about when the investment costs will begin to offset the wholesale costs. With high prices and growing inequality, Labour will not be able to sidestep Chamberlain’s contradiction for much longer if they plan on staying in power.

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