Jeremy Corbyn may save on €140bn buy-out plan cost

The “alternative models of ownership” suggested by Mr Corbyn are the most specific comments he’s made to date about how Labour would follow through on a promise to nationalise utilities. With the next Westminster election due by 2022 and Mr Corbyn running neck-in-neck in polls against the ruling Tories, investors are only starting to take seriously his suggestions and speculate about how the industry could be reshaped.

“It’s going to be complicated,” Keric Morris, partner in the energy practice of Oliver Wyman said. “But there are ways it can be done. It’s not impossible.”

Mr Corbyn has his sights set on local networks responsible for bringing power and gas directly into homes, including 10 that work in electricity and five in natural gas. Power and gas travels through infrastructure owned by National Grid at a high volume or voltage before reaching substations where it enters local distribution networks to be carried to homes and businesses.

The local distribution companies are a smaller, softer target than the Big Six utilities. They’re not household names, and they have multiple owners, many from overseas. UK Power Networks, which covers the eastern part of Britain, is owned by Hong-Kong-based CK Infrastructure Holdings; Power Assets Holdings; and the Li Ka Shing Foundation. Northern Powergrid Holdings is owned by Warren Buffett’s Berkshire Hathaway Energy.

Targeting the grid companies might sidestep the cost of buying up the UK assets of the big six utilities operating in Britain. They are: Centrica, Electricite de France, SSE, Innogy SE’s Npower unit, Iberdrola’s ScottishPower and EON. Mr Corbyn surprised the industry by not discussing the outlook for the Big Six in a speech in London.

Instead, he accused grid companies of being “notorious for overcharging” and for being slow to connect up renewable projects that “might end up undermining their profits.” He said grids had overcharged customers in the last eight years, citing research from the consumer group Citizen’s Advice.

He didn’t mention National Grid, which operates the main trunk lines connecting the local distribution networks. Renewable energy isn’t linked into National Grid’s transmission network. That makes the issues highlighted by Mr Corbyn seem aimed mainly at distribution networks and not National Grid, a view shared by the company. Mr Corbyn’s speech was general enough to keep the industry guessing about exactly how Labour might act.

“There is no evidence that the large cost and distraction of nationalisation would deliver the stability and long-term investment our energy networks need to continue the work towards a green energy future that is already underway,” a National Grid spokesman said.

Under a future Labour government, the industry could be led by local authorities, with towns or cities that consume power directing the local grid and its links with municipally-owned green power projects. This vision is best suited to a state-run grid that can prioritise preventing climate change, Mr Corbyn said.

The local grid companies rejected those thoughts. “Network companies are already achieving the goals cited as being the rationale for nationalisation,” a spokesman for the Energy Networks Association, which represents the local distributors.

The idea of nationalising the whole utility industry has been criticized as too expensive. The Centre for Policy Studies, a right-wing research group co-founded by former Prime Minster Margaret Thatcher, estimated buying the Big Six and National Grid would cost as much as €140bn, and that would reach to €208bn if the energy industry was nationalised. Sticking with the energy networks alone would cost €62bn, the CPS said last month, citing research by Moody’s. Mr Corbyn’s allies dismiss those figures. John McDonnell, the Labour MP who speaks on finance, has said nationalisation can happen at zero cost.

— Bloomberg