Electricity and the Primary Fuels: Technology, Market Structure and Prices

The Review is pleased to give hospitality to CLARE Group articles, but is not necessarily in agreement with the views expressed; responsibility for these rests with the author. Members of the CLARE Group are M.J. Artis, A.J.C. Britton, W.A. Brown, W.J. Carlin, J.S. Flemming, C.A.E. Goodhart, J.A. Kay, R.C.O. Matthews, D. Miles, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, M.FG. Scott, Z.A. Silberston, J.H.B. Tew, S. Wadhwani and M. Weale. Between 1950 and the oil price increase of 1973, British Coal lost most of its markets for direct sales to industry and households. Its hold over electricity generation actually strengthened in the 1960s and 1970s, as competition from petroleum faded and the contribution from nuclear energy was delayed and limited by technical and financial problems. But competition from coal imports has increased; and a radically new technology for using natural gas to generate electricity has developed. This new technology arrived simultaneously with the privatisation of electricity supply. The new structure of ownership has not changed the fundamental nature of the choices open to generators or big customers, but has liberated decision making from some key constraints, and removed some powers from Ministers. Coal imports and gas usage are rapidly eroding British Coal's market, towards a level one tenth of 1960's sales. By the time the public noted the speed of the final contraction of coal, in the autumn of 1992, it was already too late even for a modest application of the brakes. The author argues that this is to be regretted. For the future, the nuclear question remains open, but is perhaps a dubious bet for the UK after all the effort and errors of the past.