Cities can take on the ‘big six’ energy companies

Politicians on all sides want to devolve power to the cities to boost economic growth. Energy should be central to this new agenda.

Politicians on all sides want to devolve power to cities to boost economic growth. Energy should be central to this new agenda

From the coalition pledge to leave ‘No Stone Unturned in the pursuit of the unstoppable force that is devolution, through to Labour’s devolution deals’  and commitment to devolve up to £30bn of funding, the desire of politicians to transfer power to the cities is growing. But how does energy fit into this new agenda?

The energy sector is currently in crisis. Complaints have soared to record levels amid evidence of overcharging and unfair pricing strategies by the big energy companies. Ofgem has referred the entire sector to the new Competition and Markets Authority for a full competition investigation.

It is little wonder then that trust in the sector has collapsed, with just 32 per cent of the public trusting the energy industry – lower even than the media and banking.

Investment levels in energy are also a major concern. According to the Parliamentary Environmental Audit Committee, investment is running at less than half the level needed, or around £10bn short a year, to achieve decarbonisation goals. Moreover, the investment that is occurring is primarily by foreign state-backed utility companies because the private sector utilities are not financially strong enough to make the necessary investments.

Around the world cities are demonstrating that they can play a central in the future of the energy sector. The German city of Munich, for example, intends to supply the entire municipality of 1 million residents with renewable electricity by 2025. The city has already invested €900million in renewables and has a target to invest €9 billion.

Some cities in Britain are beginning to seize the opportunities that are available. Manchester has launched a ground-breaking pilot to trail new technology that will reduce consumers’ electricity usage at times of peak demand when prices are high. Cornwall council is raising finance for investment using a revolving loan fund of £2 million which has been designed to support a wide range of community energy projects such as electric vehicles, energy efficiency and renewable energy throughout the county.

These activities are to be welcomed but are very disparate. In fact, many cities are not yet engaged at all in energy. Cities can and should be doing more.

A new IPPR report has identified two forms of activity that cities should take to help address the crisis in the energy sector, which could also boost their local economies.

First, cities should consider becoming active in the energy supply market, as the Greater London Authority, and Bristol and Nottingham City Councils intend to do. This would give cities the opportunity to promote renewable projects in their area, which would benefit their local economies through job creation and skills development opportunities. Cities may also be able to secure large numbers of customers by offering local tariffs because they are significantly more trusted than the energy companies.

This could enable cities to address overcharging of some customers by energy companies, including those who are fuel poor.

Second, cities should raise finance to invest in low carbon infrastructure and help plug the investment gap. Local authorities could adopt a model that is common in South Africa and join together to issue municipal bonds to raise finance. Cities could also follow the example of Lancashire County council and direct their pension fund managers to invest in low carbon infrastructure.

Together, the city pension funds are worth invest £150 billion. If only a small portion of this money was directed towards low carbon projects it could make a huge contribution to the UK’s investment needs.

Cities are keen for politicians to deliver on their commitments and devolve powers away from Westminster. But for this to happen cities will need to demonstrate that they have the capabilities to take on their powers and use them to drive forward their local economies. With the energy sector in crisis cities should seize the opportunity to step in and provide an alternative to the big six.

It’s encouraging that some cities are already acting on the opportunities that are available. But it is time for others to get involved and for the pioneers to go further.

Jack Williams is a research intern at IPPR

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