Excellent article as always but please don’t defend the DNOs too much. The scale of profitability for a monopoly is incredibly difficult to justify.
Electricity North West, for example, has just 2,000 employees, but generates £598m in revenue and £229m operating profit or a whopping 38% profit. It then has £89m in finance costs, which is used to justify the retained profit. Yet these costs are paid on servicing debt that was loaded on to the business by its owners to effectively buy a formerly state-owned business for effectively nothing. If all DNOs were the same you are looking at over £15 billion taken in dividends in the last 10 years.
I am much more inclined to blame Ofgem for the scale of monopoly profit-taking; it is, after all, their job to efficiently regulate the sector. But given that there are grounds to believe they have not, it makes the case for injecting competition even stronger!
Profitability isn't a hugely relevant figure for a large fixed-cost, capital intensive firm. Rather you should look towards their return on capital, which is regulated by Ofgem and is ~3.9%, not at all excessive.
I think this concept of breaking the monopoly of origination could be made more feasible combined with a mindset of viewing pylons, substation sites, etc as analogous to mobile phone towers. Mobile phone towers rent space to network operators. Similarly, the TOs could rent 'space' out to IDNOs or your SPVs to upgrade or install new equipment on their various network assets. I imagine there would need to be open access obligations on this specifically to truly break the monopoly on origination.
Perhaps I'm simply expressing a variation on your Coasean principle with an eye towards the IDNOs.
The BEA and its successor CEGB had a remit to coordinate generation and transmission and we need that now not the disparate group of companies all with only one interest there's.
Coordination was probably easier under large-scale, centralised generation. In a world of highly decentralised, smaller scale generation then I suspect the BEA / CEGB coordination powers break down.
IT was easier for sure but doesn't mean it can't be done and the overhaul of the connections policy is a halfway house attempt to at least target generators that are wanted and ready to go.
Excellent article as always but please don’t defend the DNOs too much. The scale of profitability for a monopoly is incredibly difficult to justify.
Electricity North West, for example, has just 2,000 employees, but generates £598m in revenue and £229m operating profit or a whopping 38% profit. It then has £89m in finance costs, which is used to justify the retained profit. Yet these costs are paid on servicing debt that was loaded on to the business by its owners to effectively buy a formerly state-owned business for effectively nothing. If all DNOs were the same you are looking at over £15 billion taken in dividends in the last 10 years.
I am much more inclined to blame Ofgem for the scale of monopoly profit-taking; it is, after all, their job to efficiently regulate the sector. But given that there are grounds to believe they have not, it makes the case for injecting competition even stronger!
Profitability isn't a hugely relevant figure for a large fixed-cost, capital intensive firm. Rather you should look towards their return on capital, which is regulated by Ofgem and is ~3.9%, not at all excessive.
I think this concept of breaking the monopoly of origination could be made more feasible combined with a mindset of viewing pylons, substation sites, etc as analogous to mobile phone towers. Mobile phone towers rent space to network operators. Similarly, the TOs could rent 'space' out to IDNOs or your SPVs to upgrade or install new equipment on their various network assets. I imagine there would need to be open access obligations on this specifically to truly break the monopoly on origination.
Perhaps I'm simply expressing a variation on your Coasean principle with an eye towards the IDNOs.
The BEA and its successor CEGB had a remit to coordinate generation and transmission and we need that now not the disparate group of companies all with only one interest there's.
Coordination was probably easier under large-scale, centralised generation. In a world of highly decentralised, smaller scale generation then I suspect the BEA / CEGB coordination powers break down.
IT was easier for sure but doesn't mean it can't be done and the overhaul of the connections policy is a halfway house attempt to at least target generators that are wanted and ready to go.