Energy hot air

Allan Asher, chief executive of Energy Watch, is making some rather dubious statements, reported in the Telegraph, about energy policy:

"Allan Asher, the chief executive of Energywatch, told a parliamentary select committee that competition in the energy market is a "myth", with the six major suppliers operating a "comfortable oligopoly".


Mr Asher pointed out that the difference between the cheapest and most expensive provider was just a "few pence a week", on the most popular deals."

No one with any training in economics would use relatively similar prices as evidence for collusion.  In a highly competitive market prices are likely to converge as any company that sets prices higher than its rivals will lose customers.  In a perfectly competitive market every supplier would necessarily have to match its competitors prices.


Ofgem, the energy market regulator, has set out in some detail how there is little evidence that the UK energy market lacks competition.  The international price of gas has been rising rapidly and we are heavily exposed as it is gas is most important fuel for our power stations.  Coal prices have also gone up significantly.  The UK has roughly average electricity prices and below average gas prices relative to the rest of Europe.


Politicians find it convenient to focus on the companies as it obscures their role in high energy bills.  Ofgem estimate that green measures such as the ineffective Renewables Obligation constitute up to 8% of the average household electricity bill.


Having politicians involved in the day to day management encourages the idea that if there is a problem there must be something for them to do about it.  High energy prices are a huge people for poor, often elderly people, and the assumption is that the politicians can step in and fix the issue.  They can't but, instead of being honest and telling people that, they grandstand bashing energy companies.


That grandstanding obscures the very real measures they can take if they address the right problem - the contribution that government policies make to high household energy costs.

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