The U.K.'s Energy Awakening: Government Needs to Wield Power

Free Markets Can't Be Left Alone to Face Challenges

By JAMES HERRON
In a sign of how the U.K.'s political orthodoxy has changed in the wake of the partial nationalization of the banking industry, Gordon Brown's government now appears to have its sights on the energy sector.
Ed Miliband, the U.K. energy and climate-change secretary, said in a speech last week that building new power stations or wind farms, reducing carbon-dioxide emissions and cutting bills for struggling households "are all challenges which the market alone cannot be guaranteed to solve." These problems require a "strategic role" by the government, he said.
His comments heralded a potentially significant policy shift in a country that has long advocated allowing its energy industry to operate with little interference. Energy ministers who served under Mr. Brown's predecessors would boast that Britain had the most liberalized gas and electricity market in the world, and berate European governments over their state-dominated markets.
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The U.K. government, under pressure to replace aging nuclear plants and other infrastructure, might get more active in the energy sector.
Even Britain's Conservative Party, architect of utility privatization, is changing its tune. Peter Luff, a Conservative member of Parliament and chairman of the Business and Enterprise Select Committee, said that the government could no longer rely on the market alone to meet the country's energy needs.
"A radical rethink is now required if the lights are to stay on," Mr. Luff said, as his parliamentary committee called on Mr. Brown to take action in the energy industry "just as the government has been quick to respond to the crisis in the banking sector."
That was a sharp turnaround for Mr. Luff, who back in July said improvements to the energy market "can best be made through improving market design...and by continuing to work for liberalization of European markets."
The calls for government to take a bigger role come as policy makers fret over how the U.K. will meet its future energy needs as the country's energy infrastructure ages. Many of the U.K.'s nuclear-power facilities are nearing retirement, but there are doubts that the private sector, uneasy over energy-market volatility, can or will take on the risk of financing a new generation of plants. In addition, the U.K. has pledged to get 14% of all its energy from renewable sources by 2020, but the government acknowledges that the current level of private-sector investment will yield just 5%.
Meanwhile, as the toll from the recession mounts, several government officials have called on utilities to reduce fuel prices for consumers.
Mr. Miliband, the energy secretary, so far hasn't made known any specific plans, but he said he intends to discuss the issue at a summit in London this Friday for energy ministers from the main oil-producing and -consuming countries. Mr. Brown announced plans for the meeting in June, when oil prices were near a record high. Now that prices have tumbled, however, the government's biggest worry isn't how to pay for fuel but bringing it to market in the first place.
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