Huw James, Aldershot and North Hants Socialist Party
The energy regulator, Ofgem, recently announced that it will raise the energy price cap by 2% from October, so that suppliers can charge 2% more for the energy they provide. This comes off the back of huge increases in energy prices over recent years. According to data published by the Department for Energy and Net Zero, domestic energy bills have increased by over 50% on average since 2020.
Ofgem reports the cap will be raised in response to increased wholesale gas and electricity costs. In making the cap dependent on wholesale costs, Ofgem is ensuring that whenever they increase, consumers, not suppliers, foot the bill. Although the cap is ostensibly there to protect consumers, the way it is set means that it ends up protecting suppliers’ profit margins instead.
Competition?
The move to a market-based energy system was justified on the basis that competition between suppliers would drive down prices for consumers. By this logic, there should be no need for the price cap, which is a kind of price control. But energy supply relies on fixed infrastructure, which creates what economists call a ‘natural monopoly’, so this logic doesn’t apply.
The real reason for our market-based system is to allow capitalists to generate additional profits at the expense of workers. Privatising the energy supply is particularly lucrative because of our total dependency on it. If energy prices go up then we have no choice but to pay the additional amount; it’s either that or freeze to death.
The government would argue that even if it was to renationalise energy, prices would still need to be based on global wholesale costs, which are beyond its control. Except this is only because the UK is heavily reliant on imported gas for its energy needs. Also, our ’marginal cost pricing system’ means that the price of electricity is set by the most expensive source available to meet demand at any given time.
Cheaper renewable energy costs do not translate to consumer savings under this system, despite renewable sources now consistently outcompeting fossil fuels on price. Marginal cost pricing is simply another profit-generating device. Until we remove the profit motive from the energy system, our energy prices will only continue to rise.
The Socialist Party says:
- Kick the profit-hungry fat cats out and bring down our bills. Nationalise the energy companies, with compensation paid only on the basis of proven need
- We can use the wealth and resources currently in the hands of the bosses to transition away from fossil fuels without making working-class people pay for it, including those currently in polluting industries, by guaranteeing their pay and conditions
- But to do so will require a socialist plan of production, democratically drawing up a plan of what we need instead of what makes a profit to provide decent standards of living for all
