The government has torpedoed its promised community energy revolution – to the benefit of big business.
By George Monbiot, published on the Guardian’s website, 23rd January 2015
You would think the government had invented community. When David Cameron became Prime Minister, he announced that “my great passion is building the Big Society … We need to create communities with oomph – neighbourhoods who are in charge of their own destiny, who feel if they club together and get involved they can shape the world around them.”
Since then, ministers have scarcely been able to finish a sentence without using the word community. But their commitment turns out to be as hollow as the other famous claim Cameron made in his Big Society speech: “we’re all in this together.”
There are, it seems, just two levels of organisation that the government regards as valid: individual households and big corporations. Anything in between is either a threat or an irrelevance. For all the grand announcements about community rights and community action, there is still no such thing as society. Let me show you what I mean.
In 2013, the secretary of state for energy and climate change, Ed Davey, announced what he called “a community energy revolution“. Under the unlikely slogan “Power to the People”, last year the government explained what this meant:
“Local communities will be able to take control of their energy bills and help transform the energy system … In the future, the generation of electricity by communities themselves could put pressure on energy suppliers to drive down prices, creating warmer homes, cutting carbon emissions and diversifying the UK’s energy mix.”
The Big Six companies who currently dominate the supply of energy in this country, ripping off their customers while ensuring that we remain locked into the fossil fuel economy, would, the government promised, be replaced with “the Big Sixty Thousand”.
An example of how this could work is the installation of a community energy supply in Balcombe in Sussex, the site of some of Britain’s most determined anti-fracking protests. The co-operative that local people have formed there as an alternative to the smash-and-grab fossil fuel extraction pursued by the drilling companies has attached £30,000 of solar panels to the roof of a cowshed. They will switch on the array within the next few days. The co-op, REPOWERBalcombe, hopes eventually to produce as much energy as the village uses, and to invest some of the profits in local energy efficiency and the alleviation of fuel poverty.
I have reservations about the efficacy of solar power at these latitudes, but if it’s going to be done, it is far better done by communities, at scale, with widely-distributed benefits, rather than just by individual householders, which means extra costs and resources per unit, and financial benefits flowing only to people rich enough to carry the costs of installation.
There is a real possibility, as Ed Davey’s department suggested, that community energy of all kinds (not just solar) could present a serious threat to the existing system: the stitch-up that followed privatisation, which allows six companies to milk us under a dispensation no fairer than the granting of royal monopolies in the 17th century.
This is more or less what has happened in Germany, whose Big Four are now in serious trouble as a result of the government’s encouragement of community schemes. I believe that Germany’s priorities are wrong: that getting rid of fossil fuels is a much more into important task than getting rid of nuclear power, which is orders of magnitude less dangerous. But despite proceeding with a ball and chain around its leg (the irrational pledge to abolish the nation’s primary source of low carbon energy, which impedes the transition away from oil, gas and coal) the government there has at least succeeded in challenging the big energy companies’ licence to print money.
One result is that at the end of November the German company E.ON (which is also one of our Big Six), whose prior commitment to cooking the planet prompted protesters to devise the immortal slogan “E.ON: F.OFF”, announced that it would spin off its fossil fuel business and “focus on renewables, distribution networks, and customer solutions”. There are, however, grounds for suspicion about the motivation of such companies.
This was the future promised to the United Kingdom by Ed Davey’s department. In this oligarchs’ island paradise, whose government often seems to be little more than a channel for corporate power, it sounded too good to be true. And it was. His coalition partners have now sabotaged Davey’s community energy revolution. The Big Six can relax: their inordinate profits remain safe on these shores.
First, the Financial Conduct Authority changed the rules under which energy co-operatives could be established. As a result of the Co-operative and Community Benefit Societies Act passed into law last year, the model that has proved so successful in Germany has been deemed ineligible here. The FCA has been rejecting attempts to establish new energy co-ops on the grounds that they sell the electricity they produce onto the grid, rather than to their members.
Then the Treasurer, George Osborne, quietly slipped a change to the tax rules into last year’s autumn statement. Uniquely among small new businesses, community energy schemes will, from April, no longer be eligible for two major incentives to investors: Enterprise Investment Scheme and Seed Enterprise Investment Scheme tax relief.
A different relief scheme will be available to community groups, but only if they are set up as “community benefit societies”, which are “charitable or philanthropic in character”. The profits of these societies cannot be distributed to their members or shareholders. In other words there’s a tax incentive to invest in a business that cannot make you any money, but no incentive to invest in a business that can turn a profit. A perfect formula for ensuring that nothing changes.
As almost all energy co-ops rely on the usual business model – people invest and expect a return on their money – and as margins are fairly tight, this means, in effect, the death of community energy in Britain. In all other circumstances the government celebrates the profit motive as being the primary, or even the sole, means by which social benefits are delivered. But when the profit motive threatens the position of the Big Six, the high priests of Mammon suddenly become an order of Franciscan monks.
This is not the government of enterprise; it is the government of monopolies. Its mission is to protect its major donors and lobbyists against effective competition. Through privatisation, successive governments in the United Kingdom have created a tollbooth economy, whose gatekeepers enrich themselves at public expense. The profits of the Big Six (and utility companies operating in other sectors) arise from the same treasure house as the wealth of the Russian and Mexican oligarchs: a state licence to rob the public.
I mentioned that there are two units of organisation regarded as valid by this government: corporations and households. While community energy has been torpedoed, the absurd incentives for rich families remain protected.
As the Guardian revealed earlier this month, the Renewable Heat Incentive was rolled out by the government without any basic tests, safeguards or quality standards. The rich have been encouraged through amazingly generous incentives to install biomass boilers so inefficient that they don’t meet the official definition of renewable energy, under a scheme which encourages as much waste as possible. The bigger the boiler and the more fuel you burn, the more money you are given. So rich people now run their oversized boilers at full steam, and leave the windows open to cool the house. The returns are astonishing: 20, 30, sometimes 40%.
I’m told that there are farmers who have used this incentive to install biomass-fired grain dryers, which would normally operate for just a few weeks a year. But because the scheme pays them to burn wood pellets, they keep the empty dryers running year-round.
This scheme is expected to cost us around £10 billion, while doing little to reduce our greenhouse gas emissions. As hundreds of thousands languish in fuel poverty, forests are being felled so that rich people can burn wood with the windows open to profit from a government-approved scam. Does that sound like good policy to you?
All this has the incidental effect of ensuring that there is no serious threat to fossil fuel production and consumption: in other words no threat to the interests of the corporations with which the Conservative party has a symbiotic relationship. You can see the effects of this relationship in the Infrastructure Bill now passing through Parliament, which, outrageously, places a legal duty on future governments to maximise the economic production of oil in the UK, and in the government’s refusal of planning permission for most wind farms. Never mind the living world; never mind the future of humanity. What counts is the financial interests of the fossil fuel producers.
I asked the Financial Conduct Authority why the rules have been changed. It told me it has to work within the new act. It repeatedly stressed that energy co-operatives could set themselves up as community benefit societies if they choose, apparently unaware that this would destroy the incentive under which around 90% of them have formed, and which has propelled the transformation of the German energy market. “There is no need for community energy projects to be constrained or undermined” by this model, it told me, which suggests that it has no knowledge of the impact of its policy.
I asked the Treasury whether it has conducted an impact analysis of how its changes to the tax rules will affect energy cooperatives, and whether its ministers or officials have been lobbied by existing energy companies, urging them to introduce this change to the rules. I will update this article if it answers my questions.
I bet Ed Davey is fulminating. I think he was sincere in seeking a community energy revolution, but the Treasury and other departments have made this impossible. It’s a classic example of the triumph of what Thomas Piketty calls patrimonial capital: a rentier economy of robber barons crushing the breath out of new entrants and alternative models. Overseen, of course, by a government that claims to be the champion of free enterprise.