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Letters / Fool’s cap

Douglas Young (Energy prices; SN 29/01/15) mocks Tavish Scott’s statement that consumers in Shetland will find it “difficult to understand” why electricity prices have not been reduced, despite the recent crash in oil prices.

Mr Young writes: “I’ve been unsuccessful in finding any consumer who is puzzled” and goes on to blame it all on shareholders, the majority of whom, incidentally, are the institutions who steward our pensions, insurance policies and savings.

Like Mr Young’s respondents, I’m not “puzzled”, either. However, this episode shows the ignorance of both the SNP and Tavish Scott where power generation is concerned.

First, the price of electricity has precious little to do with the current price of oil except that, if sustained, it will lead to consequent drops in the prices of gas and coal, which are determined in separate markets, and on which the price of electricity generation does depend.

That is because the main sources of electricity in the UK are coal, gas and nuclear with a growing contribution from renewable energy; whereas the amount of electricity generated from oil in the UK is virtually zero.

A large proportion of the cost of electricity is incurred by the need for a distribution network which is unrelated to the oil price but which has required vast upgrades and extensions to cope with bringing wind energy from remote areas to population centres e.g. submarine cables to islands, costing hundreds of millions each.

Tavish Scott shares the “Fool’s Cap” with the SNP on this one.

It might be argued that, because the gas price and wholesale price of electricity have both fallen that utilities should reduce prices, however, it must be borne in mind that many of these factors are constrained by contracts designed to “hedge” fuel prices and protect the companies – and consumers – from price volatility.

That said, it might still be argued that prices could be reduced, so why haven’t they?

The SNP and Tavish, attacking the utilities, have missed a glorious opportunity to attack Labour over the monumental folly of Ed Milliband’s election pledge to “freeze electricity prices”, while maintaining Labour’s commitment to pursue the CO2 reduction targets set out in UK climate change legislation.

If ever there was an example of the creation of a “political football”, this is surely it.

Tell me, pray, which utility chief executive is going to cut electricity prices before the election, with the prospect of being forced by a Labour government to buy ever more renewable energy at two to three times the price of conventional electricity, while subject to a compulsory price freeze?

(Declaration: I am a former employee of a well-known utility and hold some utility shares; the views expressed above are, exclusively, my own.)

John Tulloch