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The Disraeli Room

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The answer to our energy problems? The “off the grid economy”

4th May 2015

The near inexorable rise in UK energy prices over the past five years has made energy policy a topical electoral battleground for next month’s General Elections. But unsustainable energy prices reflect not just inadequate policy, but the need to re-think our entire energy model.

Currently, the most popular electoral policy response to soaring energy prices is Labour’s energy price freeze. But energy price freezes are already proven failures in other European countries. Like Labour’s proposal to freeze prices till 2017, price ceilings in other European countries were also intended as temporary solutions whilst wider reforms were enforced. But subsequent governments failed to lift the caps for fear of an electoral backlash since consumers would pay more without them. Lifting any ‘temporary’ UK price freeze would likewise prove to be far more challenging than many anticipate.

Furthermore, if wholesale prices are lower than predicted, a price freeze would mean those price savings not being passed onto consumers. On the flip side if wholesale prices increase, the sector might operate at a loss, which could lead to government (in other words the taxpayer) covering the shortfall, as has already happened elsewhere in Europe.

Conservative proposals to simplify the tariff system and empower consumers to more easily switch supplier will also have little impact in addressing the seismic scope of Britain’s energy challenge.

The real problem with such policies is their failure to address the root cause of the energy dilemma, focusing instead on providing short-term relief by addressing the symptoms and not the systemic and structural causes of an inefficient and distorted energy market.

But tempting as it might be, aggressive state intervention is not the answer. Instead of fixing prices, industry reform should focus on deregulation so the energy sector can decentralize and allow for the emergence of an “off-the grid economy”; a phenomena that would empower those that consume energy to also play a part in producing it.

As it stands, electricity is produced in a few large power stations and distributed nationally, with much of it wasted at power stations and in the transportation process.

Decentralizing energy production would help address this problem. It would mean embracing distributed energy – where power is produced at the point of consumption. It would also mean use of smart grids and microgrids; small-scale localized versions of the centralized electricity system. This, along with technological advancements in electricity storage harnessed from solar and wind and the correct regulatory framework, could trigger the creation of an “off the grid economy”; a bottom up movement of energy consumers and producers who are one and the same, granting them greater autonomy over their energy resourcing, costs and security. An off the grid economy would in practice mean hospitals, schools and companies having their own smart grids that enable the sourcing of cheaper long term renewables.

Of course, none of this could or would replace the central grid. Rather it would complement it by relieving some of the overwhelming traffic our old centralized grid structures often struggle to accommodate.

And there are bigger issues a decentralized energy system would help address, like energy security. At a time of increasingly fragile global energy security and Europe’s dangerous dependence on Russian gas, the continued focus on extracting new deposits of fossil fuels to bolster energy security risks blind-sighting us to the bigger picture (the recent discovery of oil near Gatwick airport being a case in point). What’s as important to British energy security than how much oil and gas it has hidden underground is its entire model of energy ownership, production and consumption. Decentralizing our energy system would enable ordinary people to have greater localized control over how they source their energy, something that would slowly but eventually make them more insulated against the ripple effects of global energy politics. It would also help disperse power in the energy sector away from a few large utility companies and towards ordinary people.

An off the grid economy also offers a fresh approach to encouraging renewable energy consumption as off-grid energy would be structurally dependent upon renewables in the same way the centralized grid is structurally dependent upon fossil fuels. Moreover, Britain, Europe and the rest of the world will not achieve their climate goals simply by punishing those responsible for emissions alone. Sweeping interventionist solutions inevitably undermine economic competitiveness and create a longer-term political, economic and electoral backlash. Clean energy use must be positively incentivized. And giving people greater control over their energy when renewables are ever-more practical and affordable is one of doing this.

From a policy perspective, deregulation means allowing people and businesses large and small compete to sell energy directly to customers. It also means stripping away the bureaucracy and costs that dissuade many from taking action to reduce their own energy usage and harnessing solar and other renewable energies for their homes.

By removing the barriers preventing people from producing their own energy, Britain can not only have freer more competitive markets, but also greater energy security and renewable energy consumption with little or no economic fallout in the process; a far more effective approach then price distorting or piecemeal policies that in the long-term only end up costing the consumer more.

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