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The social, environmental and trade union case for public and democratic

ownership of energy

By David Halld.j.hall@gre.ac.uk

Public Services International Research Unit (PSIRU) University of Greenwich, UK

October 2012

www.psiru.org

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Summary

• Why public?– Problems with private power– German remunicipalisations– Developing countries– Why the public sector works

• Why democratic?– Dimensions of democratic control

Draws on various PSIRU reports including:   • Overview of energy in Africa October 2012 (working paper)

• Remunicipalising public services in Europe May 2012

• Why we need public spending October 2010

• Global experience with electricity liberalisation December 2009;

• Electricity companies in Latin America 2007 October 2007

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Why public?

• Failure of private sector

• Positive case for public sector– Economic not just politics– Public is more economically efficient– Public sector is vehicle of infrastructure

investment– Public sector is vehicle of investment in

renewables– Public sector grows in line with economic growth

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Privatisation & liberalisation: no price cuts, no investment

• Prices: no benefits to consumers– EU: “public ownership tends to decrease prices [and] vertical

disintegration tends to increase prices”– USA: prices rise fastest where deregulated

• Connections: private sector does not invest– 90% of investment in electricity in Africa is state– Investment in extension of household connections are all state:

e.g. rural electrification in South Africa, ‘luz para todos’ in Brazil

• Power generation: underinvestment, corruption– independent power producers (IPPs) rely on government

guarantees via power purchase agreements (PPAs)– corrupt, expensive, inflexible, anti-competitive– almost all investment is in gas, not renewables

• R&D funding mainly public• Blackouts: Auckland, Rio, Buenos Aires, California, N-E

USA/Canada, Italy, India

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Problems with liberalisation in OECD countries

1 Consumers – both large and small – strongly oppose restructuring.

2 Restructuring has not resulted in ‘‘real’’ or ‘‘true’’ competition.

3 Restructuring has brought higher electricity prices.

4 Technological innovation has not been realized.

5 High concentration of generation ownership, and joint ownership of generation and transmission, throughout the restructured world.

6 Single-price, bid-based auctions are easy to game and difficult to police.

7 It is very difficult to negotiate reasonable long-term contracts.

8 Disincentive to invest .. failure to build necessary infrastructure > concerns re reliability

9 Inadequate transparency and cooperation

10 Regulators have not protected consumers from the problems of restructuring.

11 Developing renewables requires move away from liberalised markets.

“the structure of today’s ‘organized markets’ is neither competitive nor sustainable” (Andersen 2009)

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A British business success…….

Sales £m.

(£422m. In 2009)

Return on capital employed

(42% in 2009)

Aggreko (international power projects)

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…. but a measure of global failure?

A. Aggreko rent temporary diesel generators - expensive, high carbon, does not develop local

capacity

B. Market is result of failure to invest in developing countries– “Poor countries are seeing demand for power

increasing by over 8% per annum……” but investment will prioritise replacing capacity in north. So:

– “…. the world-wide shortfall of power generating capacity nearly 10-fold, from about 70 gigawatts (GW) in 2005 to around 600 gigawatts by 2015”

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Public efficiency

• Public finance works– Historically used in north (inc USA) and south– Tax revenue is sustainable basis– lower interest rates on debt than private corporations– crisis reinforces relative cheapness of public finance– even in developing countries!– E.g. Indonesia 2009 private pays 3% more for debt

• Public/private operating efficiency: no difference– UK privatisations, global electricity comparisons, World

Bank studies, electricity, water, transport etc– USA study finds unbundled systems are less efficient:

deregulated states “have lower productive efficiency, and … decreases in efficiency over time. In particular, the vertical separation of generation… is associated with an adverse impact on productive efficiency” (Goto and Makhija 2009)

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Renewables investment: government not market

“Several countries already source over 70% of their power generation from low-carbon sources (Figure B4.10)9. For these, investment has typically only occurred with substantial government intervention, even where markets have subsequently

been liberalised”

“we should not accept the significant risks and costs associated with the current market arrangements… changes to the current arrangements are both required and

inevitable.” (UK Committee on Climate Change, 2009 http://www.theccc.org.uk/reports/progress-reports )

• Historical investment in renewables is by governments

• Consensus that liberalised markets cannot deliver in EU

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Re-municipalisation in Germany and elsewhere

• German re-municipalisations driven by superior performance of public sector in delivering renewables

• Municipalities buy energy companies from MNCs (> €8.1 billion)– Sales due to debts, concessions expire

• New law facilitates municipalisation • Munich spells out reasons

– Private sector has failed to deliver on renewables– Municipality can and will deliver on renewables

• Elsewhere: – Latin America: renationalisation eg Bolivia, Argentina– Japan: state nationalises Tepco– Boulder City, Colorado, USA: a new municipal utility

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Higher GDP, higher public spending

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0 10000 20000 30000 40000 50000 60000 70000

Publ

ic s

pend

ing

as %

of

GD

P

GDP per capita

Higher GDP per capita positively linked to

higher public spending as % of GDP (OECD

2008)

Long rise of public spending as % of GDP, in line with GDP per capita: “Wagners Law”

(Tanzi 2000)

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Even in the USA……1903-2010

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Public solutions along the energy chain Energy chain sector Public/democratic solution adopted or demanded

Extraction Oil, gas, fracking Iraq, Argentina, Bolivia

Coal South Africa

Renewables

Hydro USA, etc

Solar Demands: Desertec

Wind China

Geothermal Indonesia, Chile

Other Nuclear Japan, Ukraine

Waste: incineration, biogas stoves

Hamburg, India

Biofuels Demands: Africa

Efficiency Public transport, buildings Public transport

Electricity Generation many inc. Germany, Bolivia, etc

Transmission many

Distribution Many inc. Germany, South Africa, India

Lighting

Gas Transmission, storage, distribution

Slovakia, Bolivia

District heating Germany etc

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Democratic

• Democratic: political power and material interests

1. Democratic = not corporate– People 7 billion votes, corporations 0– Against corporate power, corruption, campaign finance– decisions in public sphere, not secret meetings

2. Democratic = national not international institutions– Environmental and social priorities vs trade, profit– World Bank, IMF etc: no privatisation conditionalities– WTO, BITs: no compensation rights in breach of social/env

rules– EU: environmental/social should override market

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Democratic

3. Public ownership and control of natural resources– Oil-gas-coal, sunshine, wind and rivers– “Earth, fire, air and water”

4. Make private ownership of electricity/energy illegal– As with water in Netherlands, Uruguay, ?Italy– As per Indonesian constitution, Icelandic constitutions

5. Human right to energy– “Right to energy is human right, not corporate right”– Rural unconnected: right to energy from sun/wind/rivers– Human right as equality demand: energy for 1= energy

for all

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Democratic

6. Democratic = determined by public objectives– not commercial objectives– Long-term vision for planet and people– Development for planet: climate change– Social development for people– Economic development for countries (tech transfer etc)– Re-development for rich countries: with lower

consumption? (air-con, cars, aluminium)

7. Unions and social movements for people vs capital

– Based on material interests: workers, consumers, gender, neighbourhoods, rural

– Also environmentalists and faith groups

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Framework

• Reducing GHGs as common public objective

• Democratic and public as core framework

– Political strategy is local issue– Technology is local issue– Energy source is local issue– Central/decentral is local issue– Pricing is local (public) issue– Just transition of employment is local issue

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Conclusions• Role of public ownership based on core advantages

• Public policy objectives central– Public ownership of resources– Renewables and low-carbon economy, universal affordable

coverage– Flexibility over whole system: renewables, transport, demand – Decent jobs, not return on capital

• Democratic accountability

• Public finance is cheaper– Interest rates lower– Borrowing is just deferred taxation

• Capacity-building and labour– Build competences, train labour at all levels

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Can we do this?

• Yes: we did it before, 1900-1950– First electricity private – Multinational expansion with limited supply (for

rich, lighting, tramways) – Public ownership by

• Municipalisation • Nationalisation

• Yes: we have done it in water– Water privatisation largely defeated since 2000– Even reversal in home country of MNCs (France)– Still struggles but we won, not them

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Anti-privatization struggles,