Power companies are the new banks as far as the public is concerned — but does that mean they’re not worth putting your money in? In any troubled marketplace there are always stocks to be picked, but current political turbulence makes that an unusually tough challenge in the UK energy sector.
Much anger is currently directed at the ‘big six’ energy groups — Centrica, Scottish & Southern (SSE), Scottish Power, E.on, RWE and EDF — and their pricing power in the domestic market. The recent round of tariff rises, ahead of the winter heating season and in the face of a moderating wholesale market, served to underline the suggestion that they are price-gouging.
Labour leader Ed Miliband harnessed this discontent in his conference speech in Brighton in September with his vow of a two-year price freeze and abolition of the current regulator, Ofgem. In fact, by promising a freeze 18 months before a general election, he may actually have encouraged the big six to gold-plate tariffs now, in case the controls should become a reality.
Without the freedom to raise prices, they claim new investment plans would be postponed, as would plans to bring mothballed gas generation back on line. This is not an empty threat: former regulator Alistair Buchanan estimated last year that the big six would need to find £33 billion in new equipment over the next decade just to keep our lights on.
But Miliband had detonated a political explosion. Initially coalition ministers argued that competition among suppliers and fixed-price tariffs would ease pressure on energy users; and over the longer term, fracking and new nuclear would help meet the country’s energy requirements. However, after the unhelpful intervention of former prime minister Sir John Major, who floated the idea of a windfall tax to subsidise poorer consumers, David Cameron was forced to respond.
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