Yanis Varoufakis - Power, Markets and Power Markets
Last week’s Episode 104 of Cleaning Up was with Yanis Varoufakis. Yanis Varoufakis is an academic economist and politician. He’s a member of Greek Parliament, Founder and Secretary-General of MeRA25, a left-wing political party, and famously served as Minister for Finance in Greece in 2015. He subsequently wrote a book about the experience, called Adults in the Room (2017), about how the EU stymied his attempts to renegotiate Greece’s debts in the aftermath of the financial crisis.
Varoufakis recently wrote a piece called It’s Time to Blow Up Electricity Markets, in which he argued that this year’s huge surge in electricity prices is proof that liberalisation of Europe’s power markets has failed, and that the solution is nationalisation of the entire electrical system. I recently wrote a piece called UK energy crisis - time to split the power market?, in which I argued that the electricity price spike was driven by the combination of a surging gas prices and the dependence of the power markets on marginal price clearing, and that the solution lies in reform – splitting the power markets into clean and fossil windows.
Clearly we were never going to agree, but it was a fun discussion. My four key takeaways were as follows:
His core argument for nationalisation was that electricity is a natural monopoly because there is only one wire into each house, and therefore that the electricity market is a “fake market” constructed by (corrupt) politicians which does nothing but enrich (rapacious) oligarchs. He appeared not to have thought deeply about the value chain of the electrical system, using the “single wire” argument to demand nationalisation of the whole system, from generators to retailers. He dismissed out of hand the idea that the “single wire” could be competently regulated.
He also dismissed the idea that there was anything innovative about any private players in the electrical system. He dismissed the software developed by Greg Jackson of Octopus Energy, my guest on Episode 39 of Cleaning Up to deliver time-of-day pricing as something a graduate student working for a national utility could have coded. This mirrors the failure of Professor Mariana Mazzucato, my guest on Episode 67 of Cleaning Up, to acknowledge the innovation and risk-taking involved when private players build teams, secure and integrate technologies, navigate regulations and meet market needs.
Although I felt no listener could come away believing that Varoufakis had a credible plan for managing the electrical system if he were able to nationalise it, it turned out I was wrong! Early comments on social media made it clear that many found his arguments persuasive; they truly seem to believe that the current price spike is mainly or exclusively driven by corruption and the profiteering of middlemen. Which is a salutary reminder to all of us technocrats that energy is deeply political and irrational. No matter how obvious the optimal engineering or policy design might be, some, maybe even a majority, will refuse to accept it.
Our conversation was in some ways just the latest round of the Revolution or Reform debate from the early 1970s between radical left professor Herbert Marcuse, promoting revolution, and critical rationalist Sir Karl Popper arguing for reform. Do you get a better outcome by breaking everything and starting again, or by fixing flaws in the current system? That same debate characterises the broader fight between those espousing degrowth (revolution) versus sustainable growth (reform).
I am enormously grateful to Yanis for coming on Cleaning Up and engaging in the discussion with such good humour and passion. You can listen to Episode 104 of Cleaning Up on your favourite podcast platform or watch it on YouTube.
Next week we’ll be taking a brief pause from Cleaning Up, and we’ll be back in two weeks time with a very special guest. I know who it is, but I’ll keep you in suspense. I hope it will be worth the wait!
Yanis very kindly took the time to write a response to my four key takeaways from our conversation which, perhaps not surprisingly, he didn't entirely agree with :-)
In the spirit of good healthy debate, I wrote my own response to his response. If you are still with us by the time you read both, you'll know that I strongly urge him to take up Greg Jackson's offer to visit Octopus and get a glimpse of the future of the power markets - assuming that they are not, in fact, blown up :-)
And once again, let me thank Yanis and say that I have nothing but respect for his willingness to engage - both during the episode and here.