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A contribution to the energy debate: is Jeremy right to prioritise nationalising the energy companies?

Jeremy Corbyn has announced that he would renationalise the energy companies. Sounds good, but what is the cost?

Jeremy’s proposal has some significant obstacles:

1. Investment
The power companies are investing heavily, with new nuclear power being the biggest investment. Jeremy used to be anti-nuclear power, but he has not commented recently.
For homes to be heated over the next 20 years we have three choices:

a) Build new nuclear to meet existing and projected demand
b) Retain coal fired power stations beyond the international climate change agreements
c) Speculate on fracked gas filling the gap


There are no other options. Labour has previously backed the phasing out of coal, for environmental reasons and expansion of gas, but is not precluding fracked gas.


There appears to be agreement between Liz, Andy and Yvette and Jeremy appeared previously to consent.
The cost of new nuclear is extraordinary, but the timelines are very clear. To place the capital cost on the state will be a significant new borrowing requirement.


How borrowing works. Governments are most likely to issue bonds (in essence IOUs) and pay interest on them to sell them. The overwhelming percentage is sold on the financial markets, rather than the tiny numbers of Premium bonds etc. But the more bonds issued, the higher interest is required to maintain demand. So the taxpayer has to meet the cost of borrowing.


The big problem with this is that Jeremy (and Yvette and Andy) want to slow down the reversing of the annual deficit. This means more borrowing, to allow spending on the public sector. Jeremy will (presumably) buy back existing student loans, requiring another big loan. He and all of us will want to see other major infrastructure spending. So the amount of borrowing will rocket hugely, purely to pay for new nuclear power stations. This stops other public expenditure.


2. Compensation
Contracts are let and any breach of them will require compensation, with international law available to enforce payment, including the European Court. Any contract breach immediately impacts hugely on bond sales and so on borrowing. Therefore there will be further significant borrowing top compensate the energy companies.

3. EDF
Électricité de France is the largest energy company operating in the UK, but it is already nationalised. It is a French state company.

4. Scotland
The Scottish Government has made no offer to buy Scottish power stations, including nuclear stations. Indeed they have made huge play of their negotiations over keeping private energy suppliers in Scotland.

 

There are major questions that need to be answered to take forward the debate, including:

Will Jeremy maintain coal beyond agreed closure dates?
Will he cancel new nuclear?
Will he attempt to nationalise providers in Scotland?
Will he exclude EDF, the largest supplier?
What will the total cost be?
What is the opportunity cost of the multi-billion pound proposal? (£100 billion would be a reasonable initial ballpark figure)


It is important that the big issues are debated and this is one of them. So let’s debate.

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