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Rt. Hon. Helen Liddell - Former Minister for Energy and Competitiveness in Europe (Jul 1999 - Jun 2001)Energy Policy Conference National Assembly |
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Thank you for inviting me to speak at your conference today. Energy policy is, as always, a cornerstone of how we organise our economies and it is a major element in the quality of life for businesses and families, not just in Britain and France, but throughout the world. We embark on a new millennium at a time when the energy sector is going through great change. We must ensure that change brings positive benefit to our people and to our planet. Throughout the centuries, the access to sources of readily available energy has transformed civilisation and the denial of light and heat can be one of the most punishing tortures of all. It is right to be reflective at this crucial stage in our development, but it is essential to be pragmatic as well. Today?s debate has been thought provoking. Some very important and complex issues have been discussed - for example, the interaction between energy and environmental policy, the future of nuclear energy, the impact of competition in energy markets. These are big issues in the UK too and there are no easy answers. How we organise our markets for the future will play a big part in our prosperity. Today, French or British, we are Europeans anxious to see our economy succeed. Yet, in some areas, we lag behind our competitors in the global market. Energy costs in Europe are far out of line with those in the US and elsewhere. That fact alone puts us at competitive disadvantage as far as our businesses are concerned and it is also unfair to domestic consumers. Some of the remedies are in our own hands. It is why it is so important to establish a single European energy market. It requires us to embrace change that addresses the economic needs of our society, but alongside that meets our social and environmental objectives as well. Change has been a constant companion to UK energy markets over the past decade and so rapid and dramatic has that change been that, yes, mistakes were made, but we are now restructuring our industry to learn from the lessons of the past and it is to that I will now turn. Opening energy markets brought many benefits, but we faced problems, so I will be frank about how we have set about solving them. The UK gas industry was privatised in 1986, but the more significant step of introducing competition came in between 1992 and 1997. For electricity, the process started with privatisation in 1990 and the phasing in of supply competition, which was completed with some urgency by the new Labour Government after an election in 1997. Now, all electricity and gas consumers have a free choice of supplier, but domestic consumers have only had this choice for a relatively short time. It is too early to state with any confidence the ultimate costs and benefits, but even at this stage, I can give a pretty good picture of the impact market opening and restructuring of the electricity and gas sectors has had. Price gives us one of the most obvious measures of the effects of competition. The results have been dramatic. Of course, prices generally fell in all countries due to technological advances and falls in world prices, but the British experience remains impressive. Industrial gas prices fell by over 40% in real terms between 1992 and 1996 so that they, in mid-1998, they were the lowest in the EU. Industrial electricity prices have fallen by 20% since 1994. Domestic electricity and gas prices are also falling as competition develops and now rank as the 3rd to 5th lowest in the EU. However, the picture is not so good for the very largest electricity users. They still pay relatively high prices compared to some other major EU countries. The electricity market is still not as competitive as it could be. We are, therefore, taking steps to remedy this - primarily by reforming the trading arrangements for the wholesale electricity market and by seeking plant divestment by the major coal-fired generators. Price is, of course, only one element. Of equal importance is the impact competition has had on the level of service provided to the consumer. A key element of that is, quite rightly, public service. The British Government is committed to ensuring that public service is maintained and improved upon in a competitive market and that means the right regulatory framework. When we came to power, we were unhappy with our inheritance and we have moved to reform the regulatory system to achieve just that. All consumers have a right to be supplied with electricity and gas. The prices charged to small consumers are controlled by the regulator to whom we have given the primary duty to protect the consumer. It was a significant element in the last election in the UK that many felt the balance after privatisation had swung too far in favour of the shareholder. Where monopoly elements continue, such as the ownership of wires and pipelines, price controls remain in place. Fears that cost reductions might lead to a deterioration in service have proved baseless - in fact, standards of service have improved because of statutory standards of service which are set by the regulator. Suppliers have to meet standards in areas such as reconnection following faults, keeping appointments, responding to complaints. Consumers are paid compensation if these standards are not met. These incentives have led to significant improvements in the service provided to consumers. But we cannot relax our vigilance in these areas. Competition has also encouraged companies to innovate and offer new services to the benefit of consumers in other ways. For example, cheaper prices if both gas and electricity are bought from the same supplier; the right to choose to buy "green" electricity; new payment methods to help low volume consumers. Choice and flexibility is better than no choice at all. And, in fact, millions of consumers have taken advantage of having a choice by switching their supplier and saving a large amount of money in the process. A quarter of all gas consumers - that is five million customers - have changed their supplier since 1996, saving up to 17% on an average annual bill in some cases. And 11% of electricity consumers - 2.5 million customers - have switched their electricity supplier since 1998, saving about 8% on annual bills. One area where we as a Government are not happy is the impact on poorer customers who have not benefited as much as the large energy users. We are anxious to remedy this. Already, we have provided pensioners with additional help to pay their fuel bills as well as giving help to the less well off to make their homes more energy efficient. We have also asked the regulator to prepare an industry-wide action plan to ensure that the economic benefits of competition are spread fairly amongst everyone, including the most vulnerable customers. Another area which I know is of particular concern in France is the impact on employment levels. Overall, competition will increase productivity and stimulate growth which will, in turn, create jobs. In the UK, the service sector has expanded significantly over the last ten years, with an additional 2.4 million jobs being created, and this has provided opportunities for those seeking re-employment. Nevertheless, it is true that the introduction of competition led to substantial job losses in the electricity and gas sectors between 1990 and 1997. The social impact of that must be managed. Although we tend to use the word ?flexibility? in different ways, who could deny the advantages of encouraging the skill and adaptability of the workforce and through that to giving individuals greater long term economic security? Government and industry have together provided considerable help with re-training for alternative careers and there are Government sponsored regeneration programmes in former mining communities. Many of the job cuts were achieved by offering employees early retirement on enhanced pensions or appropriate redundancy payments. This process has, so far, been managed in a way which has, as far as possible, reduced the pain. There are, of course, environmental implications to opening energy markets. Our experience has been broadly positive. Total carbon dioxide emissions in the UK are currently 7% below 1990 levels despite an overall increase in electricity consumption of 9%. Carbon dioxide emissions from power stations decreased by over a quarter between 1990 and 1998 - half because electricity generation became more efficient and half because generators switched from coal and oil to gas and nuclear. This switch was made easier by the advent of new gas turbine technology. Nevertheless, it is a fact that when companies are free to make their own investment choices, they will have to take account of the longer term environmental constraints and invest in clean technology if they are to recoup their investment. In addition, Government is continuing to promote the development of renewable technology. I do not pretend there is any one correct way to introduce competition in energy markets - each country has to make its own decisions taking account of its own particular circumstances. I know France has major decisions ahead. I hope my resume of the British experience is some help. Now let me do something you had learned not to expect from a British Minister over the lifetime of the previous Government. Let me talk to you as a fellow European. The energy sector in the EU will change beyond all recognition in the next few years, as competition develops. It must do if we are to strive for greater competitiveness. Already, we see a wave of mergers and acquisitions, not least by France?s own EdF. Some countries have enjoyed huge price reductions. A number of member states have already opened their markets more quickly than the EU Directive on the internal electricity market requires. At the same time, consumers are beginning to realise that having a choice of supplier can bring real benefits, so pressure from that direction will quicken the pace of change. To be fearful of these developments is to deny Europe that innovative competitive edge that will allow us to hold our own on the world stage. However, for competition to be beneficial, it must be fair, we must all play by the same rules. It is not just for the European Commission to stand guard over these rules, national Governments and regulators have to play their part too. I would like to welcome French investment into the UK because I believe it is in the interests of both France and the UK that there are the strongest links between us - for the benefit of both our countries, but also for Europe as a whole. But, it is hard to do so while there is no two-way street. This is not an Anglo/French issue - this is an issue about the Single Market as we go into the 21st century. Already, concern has been expressed by German and Italian colleagues and many others. How this is resolved is a significant issue for European co-operation. It is for that reason that I very much hope that the legislation implementing the EU Directive will be implemented in France soon. There are clearly not the same opportunities for UK companies to enter the French market as there are for French companies in the UK. As well as being bad for consumers and energy markets, it plays into the hands of those who wish to thwart the operation of the Single Market and the European Union itself. A number of Member States have already opened their markets more quickly than the Directive requires. There is still a lot of detailed work to be done if we are to achieve a real Single Market in energy. Britain has moved ahead to open our gas market. Many Member States have yet to start opening gas markets and this could be a bigger challenge than electricity. But it will, in my view, be well worth the work we will have to put in. It is, after all, in the interest of all countries in the EU to have efficient energy markets with minimum distortions. This is one of the surest ways to increase our industries? competitiveness, helping them compete in global markets, and improve the standard of living of all our consumers. Let me end by emphasising the view of the British Government, the new Labour Government. We are now full players in Europe, anxious to do our part to ensure economic reform in Europe, so that we can as a union make even greater strides in global competitiveness. Modernising, reforming, completing the Single Market all help ensure the strength of our partnership in the EU. As the Prime Minister, Tony Blair, said when he addressed the Assembleé Nationale last year - ?the challenge for the 21st Century is to make Europe strong and influential?. Those of us who drive and develop energy policy are the mechanics in that process. The vigour and innovation of our policy development will play a key part in Europe?s advance. Together we can succeed. It is, after all, what the European ideal is all about. |
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Other speeches by Rt. Hon. Helen Liddell - Former Minister for Energy and Competitiveness in Europe (Jul 1999 - Jun 2001)
(the following are available from the archive) |
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