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Friday, February 27, 2015

Will the lights go out under Labour?

The Sun has already reported on the views of a senior energy consultant that Labour's proposed energy price freeze has already cost each household £70.

They say that Tim Ham of Pearson Ham believes that the threat of a Labour Government freezing bills meant the “Big 6” suppliers are worried about cutting bills and then being unable to put them up if costs spiralled. He estimates that average gas bill, currently £695 a year, could be around 10 per cent lower if the energy market was allowed to operate without the threat of political intervention.

He added that Labour’s claim that it only wanted to “cap” bills has exactly the same effect on suppliers as the threat of a freeze. Ed Miliband vowed to freeze domestic energy bills for 20 months if he won the Election. However, since his pledge, wholesale gas prices have tumbled by 33 per cent but suppliers have only announced small cuts from the start of January.

Now the Telegraph has joined the fray with their report of a key note speech to business leaders at which the Labour leader was present, in which Mark Carleton, services director at Mestec, a company which measures factory performance has warned that "new power investment" is "desperately needed" and that the energy companies will need to make "massive investments".

His concern is that these investments will not be made if prices are capped: He said: "Power generation capacity margins are at historic lows. Investment in new power generation is desperately needed. The Labour party's apparent position is that energy company's profit margins of between 3.5 and 4.5 per cent are excessive.

"What level of profits would you regard as acceptable, and do you believe that profit margins of below the current levels are going to be sufficient to incentivise energy companies to make the massive investments that are required to keep our lights on? Or do you believe that the funding to build new generation facilities is going to come from elsewhere."

All-in-all, Ed Miliband has a lot of food for thought as to how this cap will work, if it is desirable at all in the face of falling energy prices.
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