Dear Sir

Two apparently unconnected bits of information came to our attention over the week-end: the flurry of panicked activity by the British government when it was learnt that Gazprom was contemplating a take-over of Centrica, as revealed by the Financial Times this Monday, and the most recent report by the Environmental Audit Select Committee of the Commons on British energy policy. Both point to  the contradictions inherent in the liberalisation of the energy markets, whether in Europe or in the UK.

The first item underlines the hypocrisy of a government that lambasts the governments of France or Spain for their "protectionist" instincts while doing essentially the same thing - preventing the take over of a national energy company by a foreign one - under the (very real) argument of security of supply. Acknowledging that the nationality of the owner of such a vital thing as the energy distribution infrastructure matters is a good thing - the next step is to recognise that the policies of countries like France and Spain which, unlike Britain, have had to grapple with high dependence on imported hydrocarbons for a long time, actually make sense and should stop being targetted for domestic political gain (blaming Europe for the current high energy prices).

The second report notes in its executive summary (http://www.publications.parliament.uk/pa/cm200506/cmselect/cmenvaud/584/58403.htm) that  "the current highly liberalised UK electricity market structure is too short term and fails to provide a framework [to ensure that the necessary investment in lower-carbon generating technologies takes place]. Indeed, it is not clear whether it will even ensure that enough investment takes place to keep the lights on by 2016." A regulatory context that does not provide for sufficient incentives to build enough generating capacity, let alone spare capacity of such a vital commodity as electricity can only be called deeply flawed. It can be argued that the current cries by the British government against the "protectionism" of its continental neighbors are nothing but a crude attempt to tap the spare capacity that these countries have built instead of paying the high power prices caused by the government's lack of foresight.

Moreover, the Committee notes the contradiction between a policy framework that is supposedly technology-neutral and the recent attempts by the government to encourage a rebirth of nuclear energy. While it is not correct to say that a liberalised market is technology-neutral (by empowering the private sector, it de facto favors technologies that have the lowest initial investment - and financing - cost, i.e. coal-fired and gas-fired plants rather than nuclear or renewables, which both have high upfront investment costs but low fuel and operating costs), it is right to point out that favoring a techology like nuclear over others, even for the best of reasons like security of supply, goes against market liberalisation and also opens itself to criticism that not enough is done to encourage renewable energy sources.

What both stories show is that liberalisation of the energy sector is definitely not the solution to the 3 issues that all European countries face today, but that Britain faces more urgently than most: how to ensure security of supply, how to limit greenhouse gas emissions, and how to make sure that the necessary investment in the sector is made. Liberalised markets will only invest - moderately - in hydrocarbon-fired power plants, thus making the first two issues worse and only partly solving the third. Nuclear power might solve all 3 issues, but requires heavy public support and creates other problems (how to deal with the waste, how to bring the capacity online in time, how to keep long term costs under control): it is absolutely incompatible with liberalised markets. Renewable energy and conservation are seen as insufficient and too costly even though they are both already cheaper than gas-fired electricity. They do require a strong, stable regulatory framework, public support and R&D, and a long term commitment - thus they are also at odds with the religion of market liberalisation despite providing the only real long term solution to all the above issues.

It's time for the British government to stop blaming the continent for its self-inflicted power woes, and to commit itself to a serious energy policy eschewing pure market mechanisms and explicitly favoring renewable energies on a large scale, starting with wind power. The alternative is increasing carbon emissions, natural gas shortages, and, ultimately, brownouts - or to go beg EDF to sell a few more GWh of cheap nuclear power at exorbitant prices...

We'll see if it gets published...

In the long run, we're all dead. John Maynard Keynes