Tag Archives: Policy

Ken’s London Energy Cooperative

Forget the weepy campaign video and the tongue-lashing in the lift. The most interesting part of London’s mayoral campaign is actually an innovative energy policy: Ken Livingstone’s manifesto pledge to “establish the first ever London-wide Energy Co-operative.”

In 2011 the average London household spent 1140 on their combined electricity and gas bills when paying by direct debit, up 8.6% on the year before. Since high energy bills are a sure-fire way to get bad headlines, it’s no wonder that politicians are looking for ways to bring down costs. But given the structure of the UK’s energy markets and urban governance, there’s usually very little that local authorities can do besides encouraging their residents to shop around.

This is why Ken’s big idea, if it works, would be a significant change in the way UK cities approach their energy systems. By using a Transport for London energy supply contract to buy in cheaper energy from the wholesale market, the Livingstone campaign claims that London households could switch to the new London Energy Co-operative (LEC) and save around 130 per year. Per unit gas and electricity costs for the median industrial consumer are about half of what domestic customers pay so this certainly sounds feasible.

We can double-check the maths with the help of this factsheet (pdf) from the energy regulator Ofgem, which gives a breakdown of domestic gas and electricity bills. For both fuel types, about 35% of the price is fixed and covers metering provision, transmission and distribution charges, taxes and the cost of energy saving and climate change policies; the LEC would still have to pass on these charges to consumers.

The remaining 65% is made up of the actual fuel cost, the cost of running the business, and the profit margin. Recent Ofgem analysis indicates that operating costs account for about 11% of the final bill, and average net profit margins are around 4.5%. Assuming similar operating costs for the LEC, having access to cheaper fuels and operating as a non-profit would enable a potential annual savings of around 220 per household.1 Naturally there will be set-up costs and the operations may not be as efficient as existing suppliers, but expected savings of 130 are not unreasonable.

There are many obstacles before Ken Livingstone makes this experiment a reality, not least of which is getting elected. Furthermore a number of firms have expressed their reluctance to offer wholesale contracts to these types of bulk purchase schemes. The matter may eventually need to be settled in court.

But if it were to happen, this model could provide a significant disruption to the UK’s energy supply market. Not all UK cities currently have access to wholesale supply contracts via an entity like TfL (London’s largest single electricity consumer), but with the template in place, it could encourage them to think about how they might promote more affordable urban energy provision. And once started, these urban energy co-ops could expand to offer a range of improvements in energy efficiency, renewable energy supply, and customer experience. Elected mayors, if granted appropriate powers in this area, could be at the forefront of a renaissance of urban energy innovation.

Over a hundred years ago, modern energy services like gas and electricity began to emerge in cities worldwide, led by local firms and local governments. As the networks grew, the pendulum swung towards the centralized national grids we have today. Perhaps now’s the time for the pendulum to swing back the other way.

1 There are a lot of assumptions in this calculation. I’m only guessing at TfL’s costs for gas and electricity based on DECC’s commercial price survey and it’s hard to work out the exact cost of fuel within these prices, as Ofgem doesn’t provide a breakdown for commercial bills in the same way that it does for the domestic sector.

Quango cuts aren’t what they seem

This week’s big news was the leak of a government document outlining the abolition of 180 quangos. Editors seem to have uniformly settled on “Bonfire of the Quangos” to describe the situation (a phrase first used in 1978 apparently) but the scale of the conflagration seems to have been judged largely on the headline “180″ figure. Fortunately, thanks to the Guardian’s Data Blog and the BBC’s copy of the document itself (1.3 MB PDF), we can explore the matter a little further.

Digging in the data

I proceeded as follows. First I took the Guardian spreadsheet as a starting point, as they’d already done most of the typing. Then I compared it with the leaked PDF and updated the data so that it matched the summary table on page 1. This meant adding data for quangos that have been retained and an extra column to keep track of the reason why a decision had been made (where given). Finally, I merged the data with the Taxpayers Alliance quango staffing and budget spreadsheet, again available via the Guardian.

So what do the results look like?

In the first plot, I show the results of the quango review by department. It’s clear that the Ministry of Justice has the largest number of quangos, although this includes 101 Advisory Committees on Justices of the Peace and 147 Independent Monitoring Boards. Over at the Ministry of Defence, not much has changed with only one quango scheduled for abolition and five still in review. However, the Department of Health and Defra appear to be scrapping over 60% of their associated quangos.

Quango review status by department

Figure 1: Quango review status by department

We can look at the reasons for these abolitions (Figure 2) and it starts to appear that perhaps “bonfire” isn’t quite the right word to describe the situation. Take the Department of Health: approximately 90% of the quangos to be abolished are actually having their functions transferred elsewhere, primarily to the Medicines and Healthcare Products regulator. In other cases, like BIS’s regional development agencies, quango functions are being devolved to local authorities or, conversely, taken over by the host department.

Reasons for quango abolition or mergers

Figure 2: Reasons for quango abolition or mergers

Perhaps the most surprising finding – or unsurprising, depending on how cynical you are – is that these reforms will have a relatively minor impact on the overall quango budget (although at least 35,000 jobs look likely to go). As shown in Figure 3, if we assume that 50% of the budget and staffing levels from merged quangos will remain, then it appears that the reforms will give a 12.8% saving in government funding obligations and a 10.5% reduction in staffing levels.

Government funding and staffing impacts of quango reforms

Figure 3: Government funding and staffing impacts of quango reforms

However in the following table, I’ve broken out the budgets for abolished quangos whose functions are to be transferred or devolved. This accounts for 86% of the savings estimated above! Unfortunately the implications for staff are less certain with 53% of positions likely to go (the table doesn’t include 8,200 employees in quangos scheduled for a change of status or privatisation).


Review status Government Funding Staffing
(2007, million )  (2007, people)

Abolish 2,130 35,570
(transferred function) (1,840) (8,510)
Merged 640 7,920
Retain 11,980 52,960
Retain and reform 470 219,600
Under review 3,820 58,560

Total 19,040 374,610

Of course, the numbers haven’t been finalized and about 20% of the budget and 16% of the staffing levels are still under review. Within my own area of interest (energy and climate change), this includes notable groups like the Carbon Trust and Energy Savings Trust. What are their prospects? In the plot below, I show the reasons why quangos have been retained to date. Those organizations that provide focused technical advice or transparency services (e.g. independent regulators or auditors) are most successful, although this varies by ministry. Notably absent are implementing agencies and so it seems that the EST and Carbon Trust may be in line for privatisation.

Reasons for retaining quangos

Figure 4: Reasons for retaining quangos

Conclusion

This analysis suggests that headlines about a “bonfire of the quangos” are somewhat overstated. From the table above, the savings delivered thus far – assuming 50% savings from merged quangos, omitting those “abolished” quangos with transferred functions, and assuming conservatively that all bodies under review will remain – then the reforms will achieve only a 3% saving in government funding with the loss of approximately 31,000 jobs. True, a further 4 bn could still be cut when the review is finished (giving a 24% saving) and the financial data set is incomplete, but I think the more appropriate metaphor might be that of a few logs burning cozily on a minister’s hearth in Whitehall.

Whatever the final numbers, the structure of the reforms are clear. Central government will continue to fund a number of quangos, particularly those with statutory responsibilities such as regulation and auditing. But many of the supposedly abolished bodies will still be funded by the taxpayer, as their responsibilities are transferred within Whitehall departments or devolved to local authorities. I’ve taken a conservative view of the situation here: we should have a better understanding of the actual savings once the departmental funding levels are announced in the October spending review.

PS: Best Quango names

There are some lovely names on the list, but to pick four:

  • the “Treasure Valuation Committee”: run by pirates?
  • the “Government Hospitality Advisory Committee on the Purchase of Wines”: I say give ‘em Blue Nun.
  • the “Veterinary Residues Committee”: doesn’t bare thinking about.
  • the “Scientific Advisory Committee on the Medical Implications of Less-Lethal Weapons”. The medical implications of “lethal” seems pretty obvious. Surely the implications of “less-lethal” are not dying?

The times they are a-changin’

After months of silence, I’ve had two cold calls about the state of microgeneration in recent weeks. I don’t really work on the details of the policy anymore so I did wonder why everyone’s getting excited all of a sudden. However I think it might have something to do with this: another consultation document.

But this new consultation is a little different from the old ones, in both form and content. First the form:

Rather than follow recent practice, and produce a document on which interested parties can comment, we wish to make sure that all those with the greatest knowledge and expertise in this field can contribute to the development of a draft strategy, which can then be widely consulted on later this year.

Seems like a sensible idea. Rather than drafting a bunch of stuff internally that only gets slapped down as being simultaneously over- and under-ambitious, why not try to build a consensus from the start?

The second difference is the scope of the consultation. Previous efforts have had fairly wide remits, looking at technology standards, skills and quality assurance, grant schemes, feed-in tariffs and so on. But the new strategy, undoubtedly reflecting the coalition’s spend-thrift ways, is crystal clear about what is in and, more to the point, what is out of scope. Check out these extracts from the invitations to join the four working groups:

  • WG 1: Quality and certification Out of scope: complete removal of certification and industry standards, publicly financed instruments.
  • WG 2: Technology development Out of scope: support for R&D and developing export markets would need to be through the existing mechanisms within Government, publicly financed instruments
  • WG 3: Skills Out of scope: not looking to set up new bodies but to work with existing organisations operating in the sector, publicly financed instruments
  • WG 4: Information and advice Out of scope: Publicly financed instruments

Notice a trend?

Sellafield

From yesterday’s Observer:

In fact, Sellafield is a classic illustration of the failure of British industry. We were pioneers of nuclear power but in our desire to build our own atomic weapons, failed abysmally when it came to developing and managing our own civil reactors and reprocessing plants.

As a result, we have been left with a multibillion-pound clean-up bill and the prospect of buying either American or French reactors for our next generation nuclear plants. The lesson of Sellafield is not so much that nuclear power is dangerous but that Britain seems incapable of implementing any long-term engineering plan that comes its way, from high-speed trains to wind turbines or rocket launchers.

Release the white paper!

The Energy White Paper was released today and there must be a lot of interest in it; it took about six hours to actually get a decent connection to the DTI’s website and download a copy. I haven’t had a chance to go through it all yet but a couple things have jumped out from skimming the executive summary and news coverage.

  1. The big story over at the BBC is nuclear power. The white paper reiterates that nuclear could play a major role in reducing carbon emissions and improving energy security; indeed a consultation document on new nuclear stations was released at the same time. It should make for interesting reading: what will the government do if the private sector decides it’s not economic?
  2. Energy policy is about more than electricity supply though and it’s good to see that the white paper starts with demand reduction.

    “The starting point for our energy policy is to save energy. It is often the cheapest way of reducing carbon emissions, certainly in the short-term. It can also contribute to security of supply, for example by reducing our need for energy imports, and reduce fuel poverty through lower bills.”

    I’ll have to check but this may be the first time that the importance of the demand side has been stated so clearly.

  3. As an example of this interest in demand reduction, the white paper has confirmed the earlier rumours about home energy monitors. All new electricity meters starting next spring will have displays showing consumption (e.g. kWh) and cost. Apparently not everyone’s happy with this move but it’s certainly a step in the right direction.

As with anything, the devil will be in the details and it’s worth remembering that the 2003 white paper made many of the right noises too. In fact, a cynic might say that the whole purpose of the new white paper was to lay the groundwork for new nuclear power stations. But the nuclear issue shouldn’t overshadow the wider themes of the white paper, that a renewed effort in all sectors – industrial, transport, domestic, and so on – is needed to deliver a sustainable energy policy for the UK.