WEBVTT - How to build an electrostate 0:00:02.730 --> 0:00:05.590 Bloomberg Audio Studios. Podcasts. 0:00:05.890 --> 0:00:06.410 Radio. 0:00:06.850 --> 0:00:07.270 News. 0:00:08.090 --> 0:00:11.930 How do you make electricity cheap again? It's the question 0:00:11.970 --> 0:00:16.670 that is bedeviling policymakers around the world, particularly so in 0:00:16.710 --> 0:00:20.130 the US and Europe. Some countries, though, have figured it out. 0:00:20.610 --> 0:00:25.490 Those include Iceland, Norway and China. Many call them electrostates 0:00:26.030 --> 0:00:29.330 because more and more of their energy system runs on electricity. 0:00:30.090 --> 0:00:35.580 The power plants, transport, increasingly industry. But how do you 0:00:35.640 --> 0:00:38.479 get there? What is the role of government? And what 0:00:38.700 --> 0:00:41.940 is the role of technology? This is Zero, I am 0:00:41.979 --> 0:00:45.480 Akshat Rati, and this week, how to build an electrostate. 0:00:47.010 --> 0:00:50.230 Joining me this week on Zero is Arthur Downing, author 0:00:50.330 --> 0:00:53.010 of Power and the People, a book published this month 0:00:53.350 --> 0:00:55.870 that looks at what history can teach us about how 0:00:55.930 --> 0:00:58.670 to structure the electricity system so that it can be 0:00:58.730 --> 0:01:05.730 both cheap and clean. Welcome to the show, Arthur. 0:01:06.110 --> 0:01:06.410 Hello. 0:01:06.790 --> 0:01:10.850 So you and I are obsessed with electricity, fair to say. 0:01:10.870 --> 0:01:13.390 I mean, something to do with our jobs, I guess, 0:01:13.430 --> 0:01:16.630 but also the bend of our minds. But you argue 0:01:17.470 --> 0:01:21.610 everyone should have a better understanding of the electricity system. Why? 0:01:22.230 --> 0:01:26.640 I think it's become something of a truism to say 0:01:26.730 --> 0:01:34.000 that electricity is an everyday essential, the pillar of civilization, 0:01:34.400 --> 0:01:41.420 foundational to economic activity. Without it, modern life would be inconceivable. 0:01:42.000 --> 0:01:45.600 So those are some reasons why you might think it's 0:01:45.620 --> 0:01:47.680 a good idea that more of us understand it. But 0:01:48.420 --> 0:01:50.260 I guess the argument that I make is that it's 0:01:50.300 --> 0:01:54.600 more pronounced than that, that the way the electricity industry 0:01:54.720 --> 0:01:58.740 both has developed over the past 100 years and the 0:01:58.780 --> 0:02:04.650 way it may develop is pivotal to civilization strategy for 0:02:04.710 --> 0:02:09.070 dealing with climate change that you could really summarize our 0:02:09.130 --> 0:02:15.359 approach as to decarbonize generation and electrify demand and there's 0:02:15.400 --> 0:02:17.760 lots of debate within the industry as to whether that's 0:02:17.840 --> 0:02:20.139 entirely the right approach but i think it's fair to 0:02:20.180 --> 0:02:23.140 say that it is the approach that almost all global 0:02:23.200 --> 0:02:25.630 institutions and governments have committed to this. 0:02:26.020 --> 0:02:28.620 And a lot of our focus over the past two 0:02:28.690 --> 0:02:32.070 decades has been on the clean part, especially in the West. 0:02:33.090 --> 0:02:37.650 And it's paid dividends, you know, given whatever the politics, 0:02:37.710 --> 0:02:41.110 wherever it is, you can't argue with the sheer amount 0:02:41.130 --> 0:02:44.720 of renewables that have been built and in many, many 0:02:44.750 --> 0:02:47.680 places have shown to actually reduce power prices. I mean, 0:02:47.720 --> 0:02:50.880 the latest example from Australia using batteries is just stunning 0:02:51.060 --> 0:02:53.399 how much gas consumption at peak hours they've been able 0:02:53.419 --> 0:02:58.350 to shave off by deploying batteries. But there just hasn't 0:02:58.389 --> 0:03:02.680 been the same focus on electrifying the end use of energy. 0:03:03.100 --> 0:03:03.600 Why is that? 0:03:04.040 --> 0:03:08.340 So it is undeniable that renewables have grown at a 0:03:08.419 --> 0:03:12.619 dramatic pace in many geographies at many scales, both from 0:03:13.060 --> 0:03:16.810 rooftop solar to large scale solar, onshore wind to massive 0:03:16.870 --> 0:03:21.160 offshore wind. But it isn't always the case that the 0:03:21.380 --> 0:03:25.940 cheaper or the lower marginal cost of renewable generation has 0:03:26.060 --> 0:03:31.060 translated into what end consumers or citizens see, which is 0:03:31.460 --> 0:03:36.300 an all-in electricity price, a price per unit accommodating everything 0:03:36.400 --> 0:03:41.360 from the production, generation, transmission, distribution, storage. And I think 0:03:41.400 --> 0:03:44.160 that therein is a clue to why there hasn't been 0:03:44.200 --> 0:03:46.940 the same focus on the demand side. which is there 0:03:46.980 --> 0:03:51.640 was an assumption that if renewables had a lower marginal cost, 0:03:51.760 --> 0:03:55.730 that that would translate into a lower overall price per 0:03:55.850 --> 0:03:57.810 unit for the end consumer, and that. 0:03:57.650 --> 0:03:59.790 Would be what would drive electrification. 0:04:01.090 --> 0:04:02.810 I think it's fair to say that there's a very 0:04:03.010 --> 0:04:09.920 uneven geographically, uneven rate of success on that measure. In 0:04:10.000 --> 0:04:15.260 some countries, electricity prices have risen very dramatically, that that 0:04:15.340 --> 0:04:18.540 has eroded demand growth. I think there's a debate as 0:04:18.660 --> 0:04:20.460 to the extent to which some of that has been 0:04:21.130 --> 0:04:26.100 increased energy efficiency, or deindustrialization, and so changes to the 0:04:26.210 --> 0:04:30.020 structure of an economy, or is just genuine demand reduction. 0:04:30.200 --> 0:04:32.000 And I think it's a bit of all three, actually. 0:04:32.020 --> 0:04:34.300 And it's worth saying here that the marginal cost is 0:04:34.620 --> 0:04:38.260 the cost most people are told of deploying solar on 0:04:38.300 --> 0:04:40.840 the grid, but that really is the cost of the 0:04:41.000 --> 0:04:44.940 additional power added to the system, not the system cost 0:04:44.980 --> 0:04:48.240 of integrating it with maybe batteries, but also transmission. 0:04:48.260 --> 0:04:48.800 Right. 0:04:54.080 --> 0:04:56.790 That means somebody is paying for it, which in this 0:04:56.850 --> 0:04:59.010 case would be the grid paying you to consume that power. 0:04:59.070 --> 0:05:03.690 So all those costs inclusive have not translated into lower bills. 0:05:03.730 --> 0:05:05.650 I mean, the UK is a good example of that. 0:05:05.770 --> 0:05:08.529 We've had a lot of renewables added to the system 0:05:08.730 --> 0:05:12.599 over the past two decades, exactly the same time when 0:05:12.640 --> 0:05:16.020 power prices have been going up. But in places where 0:05:16.140 --> 0:05:19.880 electricity prices have fallen, even those places have don't quite 0:05:19.920 --> 0:05:22.779 have the focus on electrifying end use. Why is that? 0:05:23.180 --> 0:05:28.660 In some countries, the way that the climate regulation and 0:05:28.839 --> 0:05:34.420 sort of political regulatory consensus was very, very focused on 0:05:34.440 --> 0:05:39.020 a combination of measures to get emissions down. And some 0:05:39.050 --> 0:05:42.550 of that meant that demand reduction was seen as good, right? 0:05:42.850 --> 0:05:44.350 And that is true. That is true. 0:05:44.430 --> 0:05:47.800 I mean, I think it's an important distinction between the 0:05:47.960 --> 0:05:52.680 energy service that a light bulb provides and the energy 0:05:52.860 --> 0:05:57.120 input into the light bulb. Those are distinct things. Light 0:05:57.140 --> 0:06:00.339 bulbs have got dramatically more efficient over the last 50 years, 0:06:01.520 --> 0:06:05.929 particularly with LEDs. Fridges have got dramatically more energy efficient. 0:06:06.410 --> 0:06:09.969 Homes generally have got more energy efficient. In many countries, 0:06:10.010 --> 0:06:13.430 I think that even though prices were rising and demand 0:06:13.470 --> 0:06:16.440 was falling, people thought, well, this isn't a problem because 0:06:16.620 --> 0:06:20.570 it's mostly being driven by energy efficiency. I would argue 0:06:20.610 --> 0:06:24.100 that the other reason is because there hasn't been sufficient 0:06:24.150 --> 0:06:30.100 attention to the institutions, markets, and regulation of the system. 0:06:30.580 --> 0:06:33.300 And that one of the downsides to being so focused 0:06:33.360 --> 0:06:36.870 on the energy transition as a technological problem is that 0:06:36.910 --> 0:06:39.029 you think that if only you get more renewables on 0:06:39.050 --> 0:06:42.230 the grids, prices will magically fall. And that clearly isn't 0:06:42.290 --> 0:06:45.070 the case unless you have the right institutional arrangement. And 0:06:45.110 --> 0:06:47.890 so there is a sense in which that political elites, 0:06:47.930 --> 0:06:50.390 business elites, and companies kind of took their eye off 0:06:50.430 --> 0:06:53.270 the ball. I also think that one of the problems 0:06:53.330 --> 0:06:55.290 is that now in some countries, we do have a 0:06:55.330 --> 0:06:58.250 kind of negative spiral, which is that as you move 0:06:58.270 --> 0:07:00.630 to a renewable-based system, a greater share of the costs 0:07:00.680 --> 0:07:05.480 become fixed. If you therefore undershoot your demand projections, then 0:07:05.800 --> 0:07:08.140 prices go up for everybody because the cost has to 0:07:08.160 --> 0:07:10.420 be spread over fewer units. And then that drives a 0:07:10.520 --> 0:07:14.309 further incentive for more energy efficiency, and et cetera, et cetera, 0:07:14.330 --> 0:07:16.900 et cetera. And so I think it's both a kind of, 0:07:16.910 --> 0:07:19.880 I wouldn't say it's conspiracy, it's sort of a combination 0:07:19.940 --> 0:07:22.920 of a sort of screw up and a natural break 0:07:23.000 --> 0:07:25.520 in the energy transition where we need to divert attention 0:07:25.600 --> 0:07:26.520 to the demand side. 0:07:26.740 --> 0:07:29.900 And this particular year with what has happened in the 0:07:29.930 --> 0:07:33.630 Strait of Hormuz in the Middle East has made people 0:07:34.500 --> 0:07:37.110 at least countries which do not have access to fossil 0:07:37.130 --> 0:07:40.350 fuels really think hard about what to do next. And 0:07:40.650 --> 0:07:42.410 most of it is, what can we do at home? 0:07:42.670 --> 0:07:44.950 If you do have any fossil fuels, try and dig 0:07:44.970 --> 0:07:48.930 those up. But if you don't, well, you're electrifying. And 0:07:48.950 --> 0:07:53.580 the discussion about electrostates comes up a lot in these questions. 0:07:53.880 --> 0:07:56.540 People call China as an electrostate just because of the 0:07:56.560 --> 0:07:59.740 sheer amount of technologies it's building, but also Norway and 0:07:59.840 --> 0:08:03.860 Iceland and Often it is referred to as the country 0:08:04.080 --> 0:08:08.180 with a large fraction of their energy coming from electricity. 0:08:08.480 --> 0:08:10.250 How would you define an electrostate? 0:08:11.570 --> 0:08:15.670 Well, I think the best way to define an electrostate 0:08:15.810 --> 0:08:19.300 is to focus on the state part. So what I 0:08:19.380 --> 0:08:23.910 mean by an electrostate is a country in which the state, 0:08:24.290 --> 0:08:29.550 be it municipal or national level, is deeply embedded in 0:08:29.590 --> 0:08:33.630 the making, moving, selling of electricity. You might go as 0:08:33.670 --> 0:08:37.150 far as to say that the means of electricity production 0:08:37.740 --> 0:08:41.800 are owned and operated by the state. I think that 0:08:41.820 --> 0:08:46.059 that's a meaningful way to define an electrostate like China 0:08:46.100 --> 0:08:50.100 because because it doesn't get you kind of locked into 0:08:50.140 --> 0:08:55.219 debating about metrics and whether, you know, is electricity's share 0:08:55.280 --> 0:08:58.680 of final energy consumption the right metric? On that measure, 0:08:58.960 --> 0:09:02.420 China has a very, well, relatively high, although lower than Norway. 0:09:02.960 --> 0:09:04.640 But then you would say that there are other things 0:09:04.679 --> 0:09:08.210 about the Norwegian economy that would make it something like 0:09:08.250 --> 0:09:10.630 a petrostate. And so I think that this kind of 0:09:10.710 --> 0:09:13.790 techno focus on the electricity part is the wrong bit. 0:09:13.950 --> 0:09:16.870 The question should be about the political economy of the 0:09:16.910 --> 0:09:17.830 electricity system. 0:09:18.179 --> 0:09:20.620 I would take a different definition here because it would 0:09:20.679 --> 0:09:23.990 help us answer the main problem we are facing right now, 0:09:24.090 --> 0:09:27.870 which is the cheapness of electricity coming from clean sources 0:09:27.929 --> 0:09:31.689 hasn't really delivered. And in a way, I'd like us 0:09:31.730 --> 0:09:34.449 to answer the question of how to build an electrostate. 0:09:34.590 --> 0:09:38.150 But we define that electrostate as a country building a 0:09:38.230 --> 0:09:42.330 grid that provides reliable and affordable electricity. 0:09:43.059 --> 0:09:43.640 How does that sound? 0:09:43.940 --> 0:09:46.160 I mean, I like that a lot on the basis 0:09:46.200 --> 0:09:50.360 that it's what citizens care about is, you know, a 0:09:50.460 --> 0:09:54.809 falling price of the, you know, the commodity that they buy, 0:09:54.929 --> 0:09:55.690 the electricity. 0:09:56.690 --> 0:09:58.530 So I'm very, very sympathetic to that. 0:09:59.010 --> 0:10:02.130 But I think that the reason that I'm interested in 0:10:02.190 --> 0:10:06.460 a definition which focuses on the institutions is because it 0:10:06.530 --> 0:10:08.800 means that we all focus a bit more on what 0:10:08.840 --> 0:10:13.000 we have to do to create institutions, ownership models, and 0:10:13.100 --> 0:10:17.220 markets that serve citizens and that translate the benefits of 0:10:17.320 --> 0:10:21.329 renewable technology, which I completely agree with, into prices for 0:10:21.350 --> 0:10:23.830 end consumers. I would also argue that that's the way 0:10:23.850 --> 0:10:27.050 that previous system builders have thought about the system. 0:10:27.330 --> 0:10:29.290 Well, that's exactly what you've done in the book, right? 0:10:29.690 --> 0:10:33.199 I found it a really refreshing read because a lot 0:10:33.220 --> 0:10:36.400 of the discussions around this topic do start with technology. 0:10:36.580 --> 0:10:40.020 But your focus in Power and the People has been 0:10:40.100 --> 0:10:40.699 on history. 0:10:41.320 --> 0:10:42.480 Why history? 0:10:42.760 --> 0:10:45.140 Well, first and foremost, because that's the way that I 0:10:45.179 --> 0:10:49.059 see the world. I did history at university. I remember 0:10:49.140 --> 0:10:53.439 once debating with someone, why was this strange thing in 0:10:53.480 --> 0:10:56.990 Japan where the frequency of the grid is totally different 0:10:57.050 --> 0:11:00.310 in two halves. When you dig into it, you discover 0:11:00.330 --> 0:11:03.360 that the reason behind that is because back in the 1890s, 0:11:03.720 --> 0:11:06.300 there was division in the country between whether to buy 0:11:06.740 --> 0:11:11.940 German technology or US technology. This completely incoherent approach to 0:11:12.120 --> 0:11:15.500 managing the grid is just a product of history, an 0:11:15.559 --> 0:11:18.280 accident of history, you might say. That is the other 0:11:18.320 --> 0:11:20.220 reason why I wanted to write this book about history, 0:11:20.240 --> 0:11:24.849 is because the energy system is history. It's a system 0:11:25.270 --> 0:11:30.840 where each generation layers infrastructure on the infrastructure built by 0:11:30.870 --> 0:11:34.830 the past generation. And the choices available to us are 0:11:34.929 --> 0:11:37.790 heavily constrained by the weight of history. And I think 0:11:37.830 --> 0:11:41.329 that the reason why we need to understand the energy 0:11:41.390 --> 0:11:44.429 system as a product of its history is because it 0:11:44.510 --> 0:11:49.960 allows us to, with confidence, understand the magnitude of what 0:11:50.000 --> 0:11:53.480 we're attempting. And I think the need to move beyond 0:11:53.800 --> 0:11:58.240 debates just about energy. technology naturally just percolating through the 0:11:58.280 --> 0:12:02.390 system and lovely S-curves taking you all the way to utopia. 0:12:02.890 --> 0:12:05.989 And also that the system builders of the past did 0:12:06.050 --> 0:12:08.819 also think in these terms, that they understood that at 0:12:08.880 --> 0:12:12.920 certain moments in history... it was incumbent on that generation 0:12:13.020 --> 0:12:17.860 to intervene in systems, to reset the rules of the game, 0:12:17.920 --> 0:12:20.930 to change the markets, the institutions, the ownership models, in 0:12:20.990 --> 0:12:22.370 order that something new might grow. 0:12:22.730 --> 0:12:24.750 When you put it that way, and of course, when 0:12:24.770 --> 0:12:27.270 you read the book, you realise, actually, we do think 0:12:27.330 --> 0:12:31.459 about a lot of our infrastructure in historical terms. Cities 0:12:31.510 --> 0:12:35.220 are shaped by history. Our roads and our food systems 0:12:35.260 --> 0:12:38.040 are shaped by history. And there's so much discussion about 0:12:38.110 --> 0:12:40.590 them in any type of book you would pick up 0:12:40.630 --> 0:12:41.230 about London. 0:12:41.290 --> 0:12:42.630 That'd be about history. 0:12:42.990 --> 0:12:46.490 But in energy systems, not so much. The book focuses 0:12:46.510 --> 0:12:49.150 on networked energy. So you do both the history of 0:12:49.270 --> 0:12:52.840 gas networks and electricity networks, but you do it in 0:12:52.880 --> 0:12:57.480 the UK. And of course, while electricity systems are different 0:12:57.500 --> 0:13:01.439 in different countries, there are lessons from the UK that 0:13:01.480 --> 0:13:05.730 translate into others. So let's just start with the UK's history. 0:13:06.130 --> 0:13:08.390 You divide it in four parts. Give me a brief 0:13:08.850 --> 0:13:13.350 four-part summary of what the UK networked energy has been. Sure. 0:13:14.030 --> 0:13:17.770 So from 1813, which marks the beginning of networked energy 0:13:17.820 --> 0:13:20.780 with the first gas network in the world on Westminster Bridge, 0:13:21.300 --> 0:13:26.440 to about 1926, we have what I call a localised system. 0:13:26.720 --> 0:13:33.510 Lots of small-scale... local, city-level, sub-city-level gas and electricity undertakings. 0:13:33.990 --> 0:13:36.530 They are vertically integrated, so they do everything along the 0:13:36.570 --> 0:13:40.610 value chain from production and generation through to supply. That 0:13:40.670 --> 0:13:42.910 works fairly well, but it starts to run out of 0:13:42.980 --> 0:13:46.959 road in the 1920s in particular, when Britain becomes increasingly 0:13:47.020 --> 0:13:51.120 concerned that its electricity system is very fragmented and that 0:13:51.540 --> 0:13:55.140 the country is losing out to other countries, particularly America 0:13:55.160 --> 0:13:59.190 and Germany. because of its high electricity prices, something very 0:13:59.270 --> 0:14:02.650 reminiscent of our concerns today. So the second phase is 0:14:02.670 --> 0:14:05.929 what I call rationalised energy, and that operates between 1926 0:14:05.929 --> 0:14:12.070 and 1947, and that's where the central state intervenes for 0:14:12.110 --> 0:14:16.290 the first time and builds the first national grid between 0:14:16.290 --> 0:14:20.780 1926 and 1935. The third phase is what I call 0:14:20.860 --> 0:14:25.110 nationalised energy, which really begins with Clement Attlee's government post-war. 0:14:25.670 --> 0:14:28.690 Both the gas and the electricity systems are brought into 0:14:28.990 --> 0:14:32.790 national ownership. you get the formation of the British Gas Corporation, 0:14:32.810 --> 0:14:37.270 then CEGB. What the nationalised period represented was an extraordinary 0:14:37.330 --> 0:14:41.050 period of asset building from not just networks and nuclear 0:14:41.110 --> 0:14:44.970 and hydroelectric coal-fired power stations, but on the gas side, 0:14:45.490 --> 0:14:50.860 the British Gas Corporation effectively invented LNG, oversaw an extraordinary 0:14:51.050 --> 0:14:54.260 programme of converting the system from using gas made from 0:14:54.340 --> 0:14:57.320 coal to natural gas found in the North Sea. Now 0:14:57.340 --> 0:15:00.580 that phase starts to run out of steam in the 70s. 0:15:01.320 --> 0:15:02.979 I argue that they kind of enter a phase of 0:15:03.040 --> 0:15:07.850 technocratic drift. It becomes increasingly bureaucratic. And so the fourth 0:15:07.900 --> 0:15:10.630 phase is what I call, is what anybody would call 0:15:10.670 --> 0:15:13.130 privatized energy. And that's kind of what we have today. 0:15:13.190 --> 0:15:16.330 And it's got four basic principles. The first was moving 0:15:16.950 --> 0:15:20.100 ownership from public to private. The second was to change 0:15:20.120 --> 0:15:23.360 the way you coordinated the system from central planning to 0:15:23.500 --> 0:15:27.120 using markets and prices. The third was to break up 0:15:27.140 --> 0:15:30.869 the system. For a generation, people had thought an electricity 0:15:30.910 --> 0:15:34.490 system was one indivisible thing. But the innovation of privatization 0:15:34.550 --> 0:15:36.970 is to say, no, we can split off the bits 0:15:37.030 --> 0:15:40.210 that could be competitive, generation and retail, from the bits 0:15:40.250 --> 0:15:44.430 that remain natural monopolies, the networks in the middle. And 0:15:44.450 --> 0:15:48.100 the fourth pillar was independent regulation. So moving control out 0:15:48.150 --> 0:15:54.180 of government departments and ministers into independent regulators. And that 0:15:54.340 --> 0:15:56.920 phase has kind of lasted up until today, although in 0:15:56.940 --> 0:15:59.820 the book I argue that privatization enters a kind of 0:16:00.280 --> 0:16:03.979 stagnation or a zombification phase in the 2010s. 0:16:04.320 --> 0:16:06.660 Let's come to the current moment because it is the 0:16:06.700 --> 0:16:11.250 current moment that gets us into the trouble era. There 0:16:11.280 --> 0:16:13.350 is that chart you have in the book about how 0:16:13.390 --> 0:16:17.030 power prices kept falling from the 1920s and kind of 0:16:17.070 --> 0:16:20.430 plateaued in the 1990s. And then They've just kept going 0:16:20.550 --> 0:16:24.220 up since the 2000s. And there doesn't seem to be 0:16:24.700 --> 0:16:28.060 any end to the power prices going up, regardless of 0:16:28.220 --> 0:16:31.700 who is in power in the government. Why? 0:16:32.600 --> 0:16:36.740 Wow. That's the $ 50 billion question in the sense that, 0:16:36.750 --> 0:16:38.620 you know, that's roughly the cost of running the system 0:16:38.660 --> 0:16:42.180 every year or maybe a bit more than that. There 0:16:42.260 --> 0:16:47.860 is undoubtedly a technological explanation for this. Some of the 0:16:48.140 --> 0:16:51.800 increase in prices over the 2010s through to today is 0:16:51.860 --> 0:16:55.910 driven by rising gas prices and the way that gas 0:16:55.930 --> 0:16:57.010 sets the price in the market. 0:16:57.030 --> 0:16:57.690 That is. 0:16:59.380 --> 0:17:01.880 a portion of the cost increases. But of course, the 0:17:01.900 --> 0:17:05.820 wholesale price is only a third of the bill. There 0:17:05.859 --> 0:17:08.699 are other things that drive the bill, network costs, and 0:17:08.850 --> 0:17:11.469 those have risen. Part of that, I think, is that 0:17:11.490 --> 0:17:14.490 there was a catch-up that some of the cost savings 0:17:14.550 --> 0:17:18.429 and price end reduction, for end consumers, the reduction in 0:17:18.510 --> 0:17:21.619 price is in the 90s and early 2000s, was partly 0:17:21.630 --> 0:17:24.940 kind of deferring capex, capital expenditure that you'd kind of 0:17:24.960 --> 0:17:27.760 deferred and delayed, you'd kick the can down the road, 0:17:27.780 --> 0:17:31.780 and then it boomeranged back in the 2010s onwards. There 0:17:31.840 --> 0:17:34.600 is also the increase in policy costs. So these are 0:17:34.640 --> 0:17:39.180 various sort of support schemes for social or environmental policies, 0:17:39.640 --> 0:17:44.020 things like renewable obligations, so the price support mechanisms for renewables, 0:17:44.040 --> 0:17:46.980 and those were added back to the bill. That's one 0:17:47.040 --> 0:17:50.109 way of explaining this. And I think it's an interesting debate, 0:17:50.140 --> 0:17:52.550 but I think that it's one that's become somewhat stale. 0:17:52.910 --> 0:17:56.150 And it's the one that people have heard about because 0:17:56.190 --> 0:17:58.830 it's recent history. But if you take those four principles 0:17:58.970 --> 0:18:02.720 of privatization, they don't sound bad to me. But you're 0:18:02.770 --> 0:18:05.610 saying they've been the cause of the ill. 0:18:06.070 --> 0:18:09.910 I wouldn't argue that privatization has caused the ills of today. 0:18:09.970 --> 0:18:12.990 What I would say is different, which is that the 0:18:13.050 --> 0:18:16.899 way the privatized model has been retrofitted and adapted to 0:18:16.960 --> 0:18:20.040 try and deal with the dual problems of energy security 0:18:20.220 --> 0:18:23.820 and climate change has driven up bills. and that that 0:18:23.960 --> 0:18:27.890 is eroding trust in the system and is eroding goodwill 0:18:27.990 --> 0:18:32.130 for decarbonisation in particular. Let me highlight two areas where 0:18:32.170 --> 0:18:34.860 I do think though that the way the privatised model 0:18:34.900 --> 0:18:40.370 develops does matter. The first is fragmentation. So the way 0:18:40.410 --> 0:18:44.880 Britain does privatisation is it unbundles the system and privatises 0:18:44.920 --> 0:18:47.180 it to an extent that no other country does. 0:18:47.840 --> 0:18:48.540 Unbundling. 0:18:48.580 --> 0:18:52.320 We literally break apart transmission to the onshore and offshore. 0:18:52.380 --> 0:18:55.710 Distribution is partly unbundled because you've got independent distribution. 0:18:56.090 --> 0:18:59.290 Retail was separated. Generation was separated. Other countries. 0:18:59.310 --> 0:19:01.510 And just to explain these parts, the transmission network is 0:19:01.530 --> 0:19:06.380 the large power network that takes power plant level electricity to... 0:19:06.660 --> 0:19:10.140 towards towns etc but then there's distribution at the town 0:19:10.180 --> 0:19:12.639 level that needs to be done yeah retail being the 0:19:12.680 --> 0:19:14.800 people who give you the bills they might not always 0:19:14.840 --> 0:19:16.680 be the people who are generating the power so there's 0:19:16.720 --> 0:19:19.570 generators and exactly then there's overlap between them because some 0:19:19.630 --> 0:19:22.890 of these companies have multiple roles in in the system. 0:19:22.750 --> 0:19:25.590 Yeah that's right and that's a degree of fragmentation that 0:19:25.850 --> 0:19:28.970 very few other countries have britain is on its own 0:19:29.090 --> 0:19:33.340 when it comes to pushing unbundling, and private ownership. And 0:19:33.380 --> 0:19:35.960 I would argue that that drives up bills in two ways. 0:19:36.460 --> 0:19:38.740 The first is that it increases the cost of capital, 0:19:38.940 --> 0:19:43.060 because in systems where you have state-owned assets, the state 0:19:43.100 --> 0:19:45.250 can borrow at a lower rate than capital. And that 0:19:45.290 --> 0:19:49.970 means that very capital-intensive things like nuclear or networks, they're 0:19:50.280 --> 0:19:53.119 more expensive and less likely to be built in a 0:19:53.460 --> 0:19:56.600 system with high degree of private ownership. The second is fragmentation. 0:19:57.790 --> 0:20:00.150 so many bits of the system, and you don't have 0:20:00.190 --> 0:20:03.990 a mechanism, as we didn't for many decades, to coordinate 0:20:04.030 --> 0:20:06.659 those different bits. It's a bit like that kind of 0:20:06.960 --> 0:20:10.880 Jesus feeding of the 5,000, but in reverse. Everybody adds 0:20:10.960 --> 0:20:13.260 a little bit of cost here, here, and here, and here, 0:20:13.320 --> 0:20:15.960 because it's good for their revenue. And so everybody adds 0:20:16.060 --> 0:20:18.730 costs into the system, and then we become surprised at 0:20:18.810 --> 0:20:21.189 why the bill has gone up. I think there has 0:20:21.210 --> 0:20:25.240 been a lack of overarching cost control as a consequence 0:20:25.280 --> 0:20:28.219 of fragmentation. And both of those things, I think, are 0:20:28.619 --> 0:20:29.940 a function of privatization. 0:20:30.240 --> 0:20:34.020 And you also point out in a chart showing how 0:20:34.060 --> 0:20:39.459 much investment in these infrastructure, both gas and electric, but 0:20:39.500 --> 0:20:43.810 also in this country, water networks, after privatization went down, 0:20:43.830 --> 0:20:46.750 you know, half or even a third of what it 0:20:46.850 --> 0:20:51.830 used to be under nationalized control. circumstances, how much did 0:20:51.890 --> 0:20:52.630 that contribute? 0:20:52.869 --> 0:20:53.030 Yeah. 0:20:53.050 --> 0:20:57.920 I mean, it's difficult to compare investment levels between decades 0:20:57.940 --> 0:21:00.790 and periods because If you have changes in the price 0:21:00.830 --> 0:21:03.570 of the capital assets or you have an increase in 0:21:03.609 --> 0:21:07.310 the cost of building things, are you comparing like for like? 0:21:07.350 --> 0:21:10.250 But I think that the evidence is pretty compelling that 0:21:10.970 --> 0:21:14.130 if you look at overall investment as a share of GDP, 0:21:14.230 --> 0:21:18.070 so the share of the country's gross national product that's 0:21:18.170 --> 0:21:23.330 reinvested in energy, it does fall quite significantly from the 0:21:23.350 --> 0:21:27.770 1970s onwards. And it has been doggedly fairly low. So 0:21:27.869 --> 0:21:29.350 even though we think of the system at the moment 0:21:29.390 --> 0:21:33.070 as representing lots of investment is mobilizing and in historical terms, 0:21:33.130 --> 0:21:36.300 it's not as significant as what happened in the 1950s 0:21:36.320 --> 0:21:36.840 and 60s. 0:21:39.480 --> 0:21:42.280 After the break, more of my conversation with Arthur Downing, 0:21:42.680 --> 0:21:46.060 author of Power and the People. If you're enjoying this episode, 0:21:46.220 --> 0:21:48.449 please take a moment to rate and review Xero on 0:21:48.490 --> 0:22:01.380 whichever platform you're listening on. A lot of the time, 0:22:01.440 --> 0:22:06.520 the UK electricity system is seen as doing really well 0:22:06.680 --> 0:22:12.070 in decarbonization. But reading your book, you come away with 0:22:12.170 --> 0:22:18.810 a much darker assessment of the UK's electricity networks. At 0:22:18.910 --> 0:22:24.210 one point, the comparison is really with UK's water networks, 0:22:24.369 --> 0:22:28.230 which under privatization have decreased. ended up in terrible places, 0:22:28.830 --> 0:22:31.950 dumping sewage in the seas and rivers, and now at 0:22:31.990 --> 0:22:35.310 the brink of maybe a bailout from the national government 0:22:36.090 --> 0:22:38.890 to the tunes of hundreds of billions of pounds. And 0:22:39.070 --> 0:22:44.520 you say that the current electricity system is at its 0:22:44.580 --> 0:22:47.580 breaking point. It doesn't feel like it. It's not like 0:22:47.640 --> 0:22:51.940 people in the business are walking about panicking that this 0:22:52.000 --> 0:22:55.960 system's going to break. Why are you panicked and nobody else? 0:22:56.950 --> 0:22:57.729 That's a good question. 0:22:58.150 --> 0:23:02.190 The reason I'm nervous is because I think about fundamentally 0:23:02.310 --> 0:23:04.030 what we've been doing over the last 10 years is 0:23:04.250 --> 0:23:09.400 organized around security of supply and decarbonization. And so those 0:23:09.420 --> 0:23:12.859 are the objectives for the system in the future. And 0:23:12.900 --> 0:23:15.119 the reason I worry is because if I look to 0:23:15.140 --> 0:23:18.000 the near-term future and look at the path we're on, 0:23:18.740 --> 0:23:22.290 I am concerned that there are two big problems that 0:23:23.010 --> 0:23:27.150 Demand has gone down really a lot over the last 0:23:27.150 --> 0:23:28.210 10 years, right? 0:23:28.410 --> 0:23:31.590 And you're talking about this sort of pre-AI electric cars 0:23:31.630 --> 0:23:34.000 coming through. It's going up now again, but really it 0:23:34.080 --> 0:23:36.200 has for the last 20 years been going down. 0:23:36.460 --> 0:23:40.700 Sure, but very anemic, right? We're talking about at most 1% 0:23:40.700 --> 0:23:44.419 growth in electricity demand last year. If you look at 0:23:44.880 --> 0:23:48.560 electricity demand per capita, 2000 to 2019, there's only like 0:23:48.700 --> 0:23:51.260 five countries in the world, including. 0:23:50.920 --> 0:23:52.380 Syria, Tajikistan. 0:23:52.790 --> 0:23:57.510