Energy Prices – To Freeze or Not To Freeze

During Labours Annual Party Conference in Brighton, the Labour Leader Ed Milliband announced that if Labour were to win the 2015 elections, he would freeze energy prices for 20 months to the end of 2017. He would also abolish the market regulator Ofgem and break up energy companies so they are unable to dominate wholesale power production and retail gas and electricity supply. But what implications will this have on the energy industry?

According to the Chairman of Centrica, Sir Roger Carr, the introduction of a price freeze could result in economic ruin. This could result in energy companies withdrawing their operations in the UK and more importantly withdrawing their investments in the Energy industry.

The Labour government signed up to a Climate Change Agreement, which aims to reduce emissions by 2050, however by introducing a price freeze, Britain could be unable to adhere to those targets. Subsequently this will also affect the Electricity Market Reform (EMR), which is designed to ensure that the UK power supply and infrastructure is up to date in order to meet the UK’s future energy needs. In order to attain the targets set by EMR, Britain will need investors in the energy industry and there are fears that an energy price freeze will alarm investors.

“Just as investor confidence was being re-gained as the Electricity Market Reform (EMR) process moves towards its conclusion, these significant proposed changes may create a whole new level of uncertainty”

Tony Ward, Head of Power and Utilities at Ernst & Young

Moreover will the possible lack of investment lead to possible black outs and the collapse of the energy companies? Here’s what Energy UK had to say:

“Freezing the bill may be superficially attractive, but it will also freeze the money to build and renew power stations, freeze the jobs and livelihoods of the 600,000 plus people dependent on the energy industry and make the prospect of energy shortages a reality, pushing up the prices for everyone.”

Angela Knight, Head of the Trade Body, Energy UK