Who broke Britain's energy system? | Arthur Downing interview

Arthur Downing (0:00)

Am I tough enough? Strong and stable leadership. Total rhubarb. Hell yes, I'm tough enough. Shut the fridge. Not another once. It's the PoliticsJOE Podcast. My name is Arthur Downing. I work in the energy industry, and I've written a book called Power and the People, A History of British Energy. The stages that the book is organized around, the first is what I call localized energy. So from the early 19th century through to the early 20th century, most gas and electricity was supplied through highly localized, what we call undertakings. They were a mix of public and privately owned. These organizations are vertically integrated. They tend to be regulated, but in a very light touch way.

And the central state is more or less absent. And it's working pretty well until the first 20 years of the 20th century, when increasingly political elites and business elites become very concerned that Britain is falling behind, particularly in the electricity industry. So in the 1920s, we begin the second phase in the history of energy, which I call rationalized energy. And that's when the central state starts intervening more. The really important program at that time was what was the foundation of the Central Electricity Board by Stanley Baldwin, a conservative prime minister in 1926 And the Central Electricity Board builds the first national grid. And that's the kind of next phase, and that takes you all the way through to the Second World War. After the Second World War, we begin the next phase in the history of energy, which is the nationalized era. And under Clement Attlee, both the gas and the electricity industries are brought under, unified under the control of two vertically integrated monopolies, one in gas, one in electricity.

And that phase really is about building at a breakneck speed and extraordinary scale. And the electricity industry just booms. And this is an era where everybody is getting fridges and TVs. So the increase in the consumption of electricity is really dramatic.

Across the aisle, the gas industry is also going through a kind of extraordinary renaissance. And one of the things that the book tries to tell the story of is there's very little is known about the gas industry, and very few people know that it's one of the most technologically advanced enterprises ever. Nationalized period starts to sort of whimper in the 70s. So they were very, very good at building things. But the argument I make in the book is that they weren't very good at stopping building things. And as demand starts to slow down, they undoubtedly keep building too much stuff for too long. And this starts to invite scrutiny. A number of economists and politicians start playing around with ideas that would eventually become privatization. So the fourth phase of the book tells the story of privatization. And I tell it in two phases. So the first phase is privatization from 1979, and it takes a long time actually for it to work through the system. The system is not really fully privatized until the mid-90s.

And essentially, that involves four things. The first is moving assets from public to private ownership on the belief that the private sector is more efficient and will manage costs better. The second pillar was moving from central planning to markets as a way of coordinating the system. So rather than government departments or a state-owned enterprise like the Central Electricity Generating Board or the Gas Council, sort of planning where infrastructure would go, you would try and use markets to determine, you know, the right mix of different technologies.

And that was an incredibly innovative idea. It had never really been tried anywhere in the world. The third pillar was unbundling. So this idea that the gas and the electricity industries weren't actually vertically integrated. You could split the bits of the system that you could make competitive, generation and retail, off from the bits that in theory were natural monopolies. So that's transmission and distribution. So the wires and the pipes that carry electricity and gas to homes. The fourth principle was to introduce independent regulation. So rather than the Secretary of State for Energy being the main kind of political actor involved in managing the system and the treasury, actually it was very important in the nationalised era, we create this new layer of independent regulators, originally as offer and off-gas, that then merge into what we have today, which is off-gem. And those four principles remain pretty effective in how they're managed for lots of the 90s and then into the early 2000s. The argument in the book is then in the mid 2000s and 2010s, things start to change and the privatised model starts to break down. But since 2010, roughly, we've had a system that doesn't really make sense. So I call it zombie privatisation, because in many ways, of those four principles that privatisation was built upon, you know, we've unwound an independent regulation. We've introduced a lot more direct government control. We have a national energy system operator that centrally plans the system. We also have had a significant degree of re-bundling. So bits of the system had stitched back together. I argue that the only principle of privatisation that has been left kind of sacrosanct and untouched is private ownership. And the book argues that that is inconsistent. That doesn't really make sense. Actually, the privatisers of the 1970s and 80s, they readily admitted that there wasn't a great deal of difference between public and private ownership in terms of efficiency. What really made the difference with the idea was you could use private ownership to introduce competition and markets. And so the private ownership bit wasn't the bit that sort of made the system work. It was the competition and the markets part. And so we've kind of seen a breakdown of that. So that takes us to the kind of present day, you know, and a system which I've called a zombie privatised system because it's a kind of incoherent dysfunctional hybrid that combines aspects of sort of state-directed, a state-directed system with aspects of a privatised system in a way that doesn't work and, you know, the book contains a number of arguments for why I don't think the current system is working. The first thing to note is that the word privatisation isn't used till quite late on in the day. So it's originally, you know, in the early 1980s, the kind of economists and system architects, you know, that are sort of thinking about privatisation. Don't call it that, they call it denationalisation. The sense was that demand was stagnating, an infrastructure base had already been built, there were lots of coal-fired generation sites and there were lots of networks, and the goal was to sweat the assets. And in a sense, privatisation accomplished that remarkably well.