Gas and electricity suppliers feel the heat from Miliband, while a nanotech firm suffers from US slowdown.
The reaction of the financial markets was inevitable. Opposition Labour leader Ed Miliband’s proposal to cap the prices of the UK’s ‘big six’ energy suppliers sent the share prices of the two London-listed firms, Centrica and SSE, into a nose-dive. Investors seemed to fear not only falling profits under a future Labour government, but also uncertainty over much-needed long-term investment in energy infrastructure.Soon after the policy announcement at the Labour party conference, SSE reported that it expected to make a loss from its retail activities in the first half of the year. The UK’s four other firms, all with overseas owners, will also be concerned about the proposed cap: EDF of France, Germany’s E.ON and RWE, which owns npower, and Spanish Iberdrola, owner of ScottishPower.
Energy UK, the trade body whose members include all the above, responded to Miliband by insisting that no other industry faces the same investment challenges. “We need to invest £110bn over the next ten years to build and renew the power stations, the wires and the pipes everyone in the country needs to keep the lights on, our homes warm and to supply the power for British business to compete, to recover and to grow,” it insisted.
But Miliband’s argument includes the point that these are not just the big six, they are the only six, and there is simply not enough competition in the market to ensure a good deal for consumers.
However, in Britain the policy of successive governments has been to shift the financial burden of greening the energy sector onto consumers through higher bills. When these bills are capped, energy companies may struggle with environmental demands from the EU.
In a separate development - and a possible sign of things to come - Centrica announced it was dropping plans to develop two new gas storage projects in Britain at a cost of £1.5bn. The company blamed government’s decision not to subsidise gas storage, a market suffering from “weak economics”.
SSE also confirmed media reports that it plans to review its wave and tidal energy technology projects off Scotland - although the company insisted that no conclusions had been reached and it was not planning to pull out of the schemes. However, the reports suggested SSE would want to scale back investment in this market, after both RWE and E.ON had announced a reduction in wave and tidal schemes. It remains to be seen whether green infrastructure investment can be maintained by energy companies aggrieved at the prospect of a price-cap regime.