1. PSIRU www.psiru.orgwww.psiru.org The social, environmental and trade union case for public and democratic ownership of energy By David Hall d.j.hall@gre.ac.uk Public Services International Research Unit (PSIRU) University of Greenwich, UK October 2012 www.psiru.org

2. PSIRU www.psiru.orgwww.psiru.org 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)Overview of energy in Africa Remunicipalising public services in Europe May 2012Remunicipalising public services in Europe Why we need public spending October 2010Why we need public spending Global experience with electricity liberalisation December 2009;Global experience with electricity liberalisation Electricity companies in Latin America 2007 October 2007Electricity companies in Latin America 2007

3. PSIRU www.psiru.orgwww.psiru.org 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

4. PSIRU www.psiru.orgwww.psiru.org 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

5. PSIRU www.psiru.orgwww.psiru.org Problems with liberalisation in OECD countries 1Consumers – both large and small – strongly oppose restructuring. 2Restructuring has not resulted in ‘‘real’’ or ‘‘true’’ competition. 3Restructuring has brought higher electricity prices. 4Technological innovation has not been realized. 5High concentration of generation ownership, and joint ownership of generation and transmission, throughout the restructured world. 6Single-price, bid-based auctions are easy to game and difficult to police. 7It is very difficult to negotiate reasonable long-term contracts. 8Disincentive to invest.. failure to build necessary infrastructure > concerns re reliability 9Inadequate transparency and cooperation 10Regulators have not protected consumers from the problems of restructuring. 11Developing renewables requires move away from liberalised markets. “the structure of today’s ‘organized markets’ is neither competitive nor sustainable” (Andersen 2009)

6. PSIRU www.psiru.orgwww.psiru.org A British business success……. Sales £m. (£422m. In 2009) Return on capital employed (42% in 2009) Aggreko (international power projects)

7. PSIRU www.psiru.orgwww.psiru.org …. 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”

8. PSIRU www.psiru.orgwww.psiru.org 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)

9. PSIRU www.psiru.orgwww.psiru.org 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 )http://www.theccc.org.uk/reports/progress-reports Historical investment in renewables is by governments Consensus that liberalised markets cannot deliver in EU

10. PSIRU www.psiru.orgwww.psiru.org 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

11. PSIRU www.psiru.orgwww.psiru.org Higher GDP, higher public spending 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)

12. PSIRU www.psiru.orgwww.psiru.org Even in the USA…… 1903-2010

13. PSIRU www.psiru.orgwww.psiru.org Public solutions along the energy chain Energy chain sectorPublic/democratic solution adopted or demanded ExtractionOil, gas, frackingIraq, Argentina, Bolivia CoalSouth Africa RenewablesHydroUSA, etc SolarDemands: Desertec WindChina GeothermalIndonesia, Chile OtherNuclearJapan, Ukraine Waste: incineration, biogas stovesHamburg, India BiofuelsDemands: Africa EfficiencyPublic transport, buildingsPublic transport ElectricityGenerationmany inc. Germany, Bolivia, etc Transmissionmany DistributionMany inc. Germany, South Africa, India Lighting GasTransmission, storage, distributionSlovakia, Bolivia District heatingGermany etc

14. PSIRU www.psiru.orgwww.psiru.org 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

15. PSIRU www.psiru.orgwww.psiru.org 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

16. PSIRU www.psiru.orgwww.psiru.org 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

17. PSIRU www.psiru.orgwww.psiru.org 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

18. PSIRU www.psiru.orgwww.psiru.org 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

19. PSIRU www.psiru.orgwww.psiru.org 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

20. PSIRU www.psiru.orgwww.psiru.org Anti-privatization struggles,