Over the last few months, many working-class people have been staring at their rising gas and electricity bills and sensing that something is fundamentally broken.
Why is the average household now paying twice as much as it was a year ago to keep the lights on? Is the war in Ukraine to blame?
While the tapering off of gas supplies from Russia has acted as a trigger for the current spike in energy markets, it has, in reality, only been one domino falling in a chaotic and underprepared capitalist global energy market.
Despite the huge increase in the price paid for gas and electricity by retail customers in Britain, the bulk of supply is still coming from the same sources – natural gas from the North Sea and Norway, along with wind farms, coal, and nuclear plants, and solar arrays based in the UK and France.
However, the EU countries, which previously imported 40% of their gas used for heating and electricity from Russia, have had to look for alternative sources due to the restriction of supply via the Nord Stream 1 pipeline. This has sparked a bidding war, driving the price of natural gas in Europe up more than 50% over the last year.
Gas only accounts for 38% of the UK’s electricity production. But, under the current ‘marginal pricing’ system, producers of electricity from other sources, including renewables, are able to peg the price per unit they produce to the cost of power from a more-expensive gas plant. This has led to an extreme form of price gouging, which is estimated to have added up to £40 billion to electricity bills.
It’s not true to say that there’s no thinking ahead in the current energy market. The buying of ‘futures’ – effectively reserving gas, oil, and electricity months or years before they’re delivered – is used by electricity companies in normal times to smooth out fluctuations in wholesale energy prices caused by anything, from changes in demand to weather conditions.
But, like many other necessities of life under capitalism, where an essential commodity such as gas is limited in supply, speculators will seek to profit. At the onset of the war in Ukraine, even before gas imports from Russia by European countries began to fall off, a trading frenzy in gas ‘futures’ was launched, adding to the stratospheric increases in wholesale prices paid by energy suppliers.
These additional costs being passed on to consumers means that, even with bills being subsidised by the government, already over 6.7 million households are in fuel poverty in the UK. And bills will rise much further for those people, often on the lowest incomes, who are living in draughty homes or have special medical needs that require them to spend more than the widely quoted average ‘cap’ of £2,500 a year.
And now, after many of us making sacrifices in our day-to-day spending to keep up with our energy bills, there is the possibility that the lights may not stay on anyway! The National Grid has refused to rule out the possibility of rolling blackouts over the winter.
No wonder increasing numbers of workers are looking at the fundamentally unequal and unfair system and wondering what can be done to change it.
Keir Starmer’s plans for a future Labour government to set up Great British Energy, a publicly owned company to produce renewable electricity in competition with the existing electricity generators, would still be subject to many of the same perverse incentives described above.
And any electricity produced by Great British Energy would still be sold via the same privately owned energy retailers that have paid out £200 billion in profits to their shareholders in the last 12 years!
In contrast, Socialist Party members, on campaign stalls and elsewhere, have been raising the increasingly popular demand for full public ownership of the energy producers, suppliers, and the transmission network. 66% of the UK public now supports renationalising energy companies.
How would this work in practice? One common argument against this form of nationalisation is that, with the total shares of companies in the UK energy sector listed on stock exchanges currently valued at £374 billion, buying out the current owners would be unaffordable and impractical.
That’s why we say: not a penny more to the large shareholders and wealth funds that currently own the lion’s share of the main players in the energy market. No compensation to the fat cats who have made money hand-over-fist since privatisation of the UK’s energy network began with the sell-off of British Gas in 1986.
Naturally, small shareholders and pension funds should be compensated to avoid working and middle-class people losing out on income they are counting on for their retirement. However, a study undertaken earlier this year estimated that only 0.2% of shares in BP and Shell are held by pension funds!
Public ownership could deliver savings to retail customers right away by removing the effective premium we currently pay on our bills to subsidise the profits of the energy sector – as well as the overheads of competition between different suppliers such as marketing, purchasing and duplication of administrative functions. Not to mention the £94 that has been added to the bills of every energy customer to cover the cost of suppliers going bust in the last 15 months!
But importantly, socialist nationalisation wouldn’t mean leaving the control of the energy supply in the hands of capitalist politicians like Sunak, Starmer and Hunt, or unelected civil servants. Instead, it would involve the democratic input of working-class communities, trade union representatives of those working in the energy industry, and utilising skilled workers’ technical knowledge of energy generation and transmission.
From here, a socialist plan for expanding energy production and capacity could be developed to ensure low-cost supply to households from clean, renewable sources. While large oil companies such as Shell currently reinvest as little as 5% of their profits in developing clean energy, socialists propose using the £900 billion currently held lying idle as cash reserves by big business to fund the rapid deployment of low-carbon technology that’s desperately needed to combat the climate crisis.
It’s clear that replacing fossil fuels such as gas, coal, and oil in electricity generation, not to mention the rollout of heat pumps and electric vehicles, will require a massive upgrade to the infrastructure of the UK’s electricity network. Currently, developers of new renewable energy projects are being told they may have to wait six to ten years to connect to the National Grid.
Part of the reason is that National Grid PLC, operating as a monopoly over the UK’s core energy network but owned by private investment funds, is unwilling to pay for the additional substations needed to connect new wind, solar and tidal farms to the system. This is despite it making an operating profit of £4 billion last year!
Many of these new onshore wind and solar farms, not to mention forests and crops grown for biomass, are being developed as a result of what was previously farmland no longer being profitable for purely agricultural use, due to the low prices paid to farmers by food manufacturers. But, in an attempt to rally support among sections of the Tory right, Liz Truss proposed to ban solar farms on agricultural land, citing the need to improve Britain’s food security.
Rather than waiting for individual energy developers to come forward with proposals, a socialist plan of energy generation would take a comprehensive survey of underused brownfield and greenfield sites across the UK alongside potential locations for tidal and offshore wind. This could then be used to work out how to increase green energy production from a mix of sources, while seeking the democratic input of those living near new sites to minimise disruption to communities and nature.
Jobs and training
Workers in the oil and gas industry, worried about losing their jobs in a rapid transition to renewable energy, can have no faith in capitalism to safeguard their jobs, pay, and conditions. But, as part of a socialist plan for energy, workers in the energy industry would have a vital democratic role in planning the future of the industry. New jobs and training opportunities, with trade union terms and conditions, in building and maintaining new infrastructure would be created.
Currently, 80% of the world’s solar panels are manufactured in China, before being sent around the globe on ships powered by high-emission Heavy Fuel Oil. Developing factories to produce these panels, and other energy equipment, closer to where it will eventually be installed, rather than simply where labour is cheapest and most exploited, would reduce the carbon footprint of replacing fossil fuels in the energy mix.
Both the shock to gas markets from the war in Ukraine and the rise in extreme weather events linked to climate change have shown the need to make energy networks more resilient and also increase storage capacity. Currently, gas storage facilities across most of continental Europe are over 90% full, but suppliers are still anticipating major shortages this winter.
Capitalist ownership of energy production encourages lack of extra production capacity, due to the ability of electricity generators to charge more at times of high demand and low supply. Socialist planning would take into account the fact that solar, wind and other forms of renewable power can generate more or less electricity from day to day depending on the weather!
A socialist plan of production would allow energy supply to be coordinated in tandem with peak times for energy-intensive industries to smooth out demand, along with developing and scaling up the technology for hydrogen and battery storage that currently exists in outline to store excess electricity generated.
However, the need to phase out fossil fuels couldn’t just be approached on a UK-only basis. The effect gas supply disruption in Europe has had across the world shows the need for an international approach to energy production and distribution.
That’s why the potential for the development of affordable, clean power that bringing the energy companies into public ownership would represent can only be fully realised by replacing the capitalist system that surrounds it as well. The owners of the energy sector would be unlikely to simply give up their share of the fat profits to be made from oil, gas and renewables because an act of parliament asked them to.
But a movement of working-class people, organised and determined to take the power off the capitalist class and bring about a socialist society, could take democratic ownership and control of the wealth and resources that currently exist in society, and that their own hard work has created over years.
The current cost-of-living squeeze, and the developing environmental catastrophe, is leading increasing numbers of workers and young people to question a capitalist system that can provide the energy for private space tourism but not heat people’s homes. If you agree that we need socialist change to tackle the energy crisis, then join the Socialist Party in fighting for it.