Engines of abundance

The role of the state in the collapse in electricity prices in Britain, 1920-1947.

The word abundance seems to be everywhere. Especially since the publication of Abundance: How We Build a Better Future by Ezra Klein and Derek Thompson. The argument is a familiar one; regulation and the state are standing in the way of the supply of buildings, medicines, infrastructure, and all manner of other things. Once these self-imposed ‘barriers’ are removed a future of plenty awaits. ‘Scarcity is a choice’, say Klein and Thompson. The ‘abundance’ agenda is particularly focussed on building housing, rail, road, and energy infrastructure. Abundance is a construction and political project rolled into one. ‘A liberalism that builds’, in Klein and Thompson’s neat turn of phrase.

Energy has a special place in the project. Klein and Thompson claim that ‘energy is the nucleus of wealth’. They argue that solar, wind, and storage technologies have been getting cheaper to build over the last decade and this trend will continue if only the state removed barriers. Like others they also think that that nuclear generation has the potential to fall in cost, especially if it is modularised or if fusion is invented. The argument is summarised by the authors as being a remarkably simple one: ‘To have the future we want, we need to build and invent more of what we need’.

Abundance is an interesting read. However, I was left wondering: who gets to decide what ‘we’ want? Who gets to build and invent all things ‘we’ need? The history of energy is filled with evidence that technology, politics, and economic power are intimately connected. In this blog post I will focus on a historical case study that I hope is of interest for those convinced by the abundance agenda. It is about a period in British history when electricity became much cheaper and more plentiful thanks to great advances in ‘state capacity’ and a remarkable construction mega-project. This is the story of how a state-owned enterprise called the Central Electricity Board acted as an engine of abundance.

Electrical ‘abundance’ in the inter war years.

Prices are a good way to track whether a good or service is in the process of becoming more ‘abundant’. If prices are falling, in theory, it is because supply outstrips demand. In the period between the end of the First World War and the start of the Second World War the price of electricity plummeted. It was the most significant reduction in the price of electricity (adjusted for inflation) ever in British history, followed by the nationalised era (1948 to 1979). The fall in the price of electricity from 1920 to 1940 is particularly impressive when compared to its competitors, gas and coal.

Figure 1: Electricity prices in Britain, 1920-2024

Figure 2: Electricity, gas and coal prices in Britain, 1920-1950

Falling electricity prices understate the dramatic improvement in living standards. People don’t consume electricity (or at least, not safely). Electricity is an input used to create energy services – heat, light or motion. It is important to consider the efficiency of the equipment used to convert electricity into these energy services. Take the example of lighting. A gas lamp in 1915 was six times brighter per unit of energy than a gas lamp in 1820. The electric lightbulb was even more efficient. In 1930 the price of electricity was five times the price of gas, but the electric lightbulb was ten times more efficient than gas lighting. Therefore, people switched to a costlier fuel for lower price per unit of light (lumen-hours). Between 1920 and 1940 the price of lighting as an energy service fell 73%.[i]

Figure 3: Price of energy services in Britain, 1900-1940

Falling electricity prices and efficiency improvements drove up consumption. Overall electricity sales per head of population grew 6.4x between 1921-1938. Electricity demand for domestic purposes grew a staggering 18.8x, commercial 7.7x, industry 5.6x, public lighting 4.8x, and traction 3.2x.[ii] Lighting consumption went from 10 trillion lumen-hours in 1900 (80% gas fuelled) to 150 trillion lumen-hours in 1950 (95% electricity powered). Meaning the world was literally 15x brighter by 1950.[iii] A crucial enabler was that from the 1920s houses, both private and local authority constructed, had electricity installed as standard. In 1919 only 5% of houses had electrical wiring but by 1937 this figure was 66%, at a time when the housing supply grew 2% per annum.[iv] The ‘consumer revolution’ in energy appliances is often associated with the 1950s and 1960s, but it started in the 1930s with home appliances like irons, hoovers, and electric cookers.

Figure 4: Consumption of energy services in Britain, 1900-1940

The Central Electricity Board

How to explain the dramatic changes in electricity between the two world wars? At the turn of the 20^th century Britain was an energy intensive economy with the highest energy consumption per person in the world except the USA.[v] This was overwhelmingly due to abundant coal. A knock-on effect was that Britain had the highest gas consumption per capita in the world, 3.7x higher than the USA (in 1900).[vi] Yet Britain’s electricity industry was a laggard. By 1920 Britain had much lower electricity consumption per person than the USA, Norway, Germany and Sweden and it was barely ahead of France, Italy and Spain.[vii] Britain was rich in coal, which was the main fuel for generating electricity, but this hadn’t translated into high electricity consumption (unlike in gas).

Britain’s electrical woes were down to the structure of the industry. Over the late 19^th century and the early 20^th century hundreds of small, localised electricity supply firms emerged, referred to as ‘undertakings’. They were a mix of privately held and local authority owned. London epitomised the problem. By 1914 it has ten different frequencies, multiple voltages, thirteen private and fifteen local authority supply undertakings in the London County Council area, with a further sixty-five in the greater London area. In 1915 a German engineer called Georg Klingenberg published a scathing study. [viii] He compared London to two cities that exemplified the second industrial revolution – Chicago and Berlin – and showed that on every metric London’s electricity system was worse. This understated the issue. Of the ten largest cities in the Western world, London had the lowest electricity consumption per capita, the highest prices, and the lowest load factor.[ix] Load factor is the measure of the efficiency of an electricity system, calculated by dividing the total consumption of electrical energy (kWh) for a given time period by the maximum amount of energy that could be produced in that period. The map below for the East Midlands is exemplary of the patchwork quilt that emerged in every area. In short, there were too many electricity undertakings operating at suboptimal scale.

(See here for a prior blog in which I explain that local authority owned undertakings were more efficient and effective than private ones)

Figure 5: The mix of electricity undertakings in the east midlands, 1934-5

Source: GT Bloomfield, The East Midlands Electricity Board Area (here).

The only exception was in the northeast of England where the Northeastern Electric Supply Company (NESCo) operated. Newcastle had ten times the electricity consumption per capita than London thanks to a system that replicated the Chicago and Berlin model.[x] Power was generated from a combination of coal and waste heat from industrial processes. The NESCo model combines a small number of very large generation stations and transmission lines. NESCo was by far the largest undertaking in the country covering 1,400 square miles. Unlike elsewhere the whole area was under a standard system (a three-phase current and 40 hertz frequency). In 1924 NESCo achieved a load factor of 56% when the next best in country was just 32% (Manchester).[xi] The company’s success was in large part thanks to the skill of two engineers that would have a huge impact on British electricity, Charles Merz and William McLellan.[xii] Their firm, Merz and McLellan, was an electrical engineering consultancy that essentially designed the NESCo system. Charles Merz would be the most vocal campaigner for the rationalisation of the entire British electricity system.[xiii]

Repeated voluntary and private sector led attempts to reform the electricity system over the early 20^th century failed. From 1919 Electricity Commissioners were established to promote amalgamation and interconnection. However, they could only recommend and encourage. They had no power to compel. Holding companies that grouped together smaller companies emerged but were often geographically incoherent with sub-entities scattered all over the country. The holding companies were really a means to evade profit regulation and in fact were some of the most aggressive opponents of amalgamation. Overall, voluntary amalgamation was rare and in 1925 there were still nearly 600 electricity undertakings.

Stanley Baldwin, Conservative Prime Minister from 1924, was the first front bench politician to grasp the scale of the problem. Baldwin appointed Lord William Douglas Weir, an engineer, to chair a commission to investigate the matter. The Weir Report is one of the most important documents in the history of British energy. It dismissed Britain’s lack of hydroelectric power as an adequate explanation underperformance. Abundant coal, high levels of urbanisation, and industry located close to urban centres meant Britain was perfect for a highly efficient interconnected system.[xiv] The report pulled no punches in laying the blame at the feet of politicians: ‘The policy of persuasion can only be written down as a failure…. delay and procrastination are widespread… the resultant loss to the country has been heavy and becomes daily heavier’.[xv]

The Weir committee recommended rationalising generation into a smaller number of larger plants and building a nationally interconnected network to ‘pool’ the power. These recommendations would be implemented in full. This wasn’t the first time such suggestions had been made so what had changed? A crucial catalyst was the perception that the situation in electricity was sapping Britain’s industrial strength and contributing to economic decline. (Sound familiar?)

In March 1926 the Central Electricity Board (hereafter CEB) was established, with broad cross-party support. Its mission was to construct a new national electricity network, rationalise generation, and standardise frequencies.[xvi] It was a not-for-profit entity responsible to government but not parliament. Baldwin was insistent that it wasn’t a government department but rather a business-like board. Keeping the CEB outside the civil service meant that it could pay higher salaries. Its grand headquarters would overlook Trafalgar Square in central London (in the same building as National Grid’s offices are today).[xvii] Sir Andrew Duncan was made Chair, a lawyer, industrialist and wily negotiator with no background in electricity (which was seen as a strength).

The CEB would need capital to pay for the new electricity grid. This was accomplished by issuing non-voting fixed interest stock. The rate offered was between 4% and 5%.[xviii] Stockholders had no voting rights and did not own any equity. The government was the sole owner of the CEB. The Board had the option of using a Treasury guarantee, but Duncan refused to use it. This helped the organisation evade government scrutiny over its finances. The CEB was in many ways more autonomous than any private corporation at the time because, other than government, it didn’t have voting shareholders to deal with.[xix]

The CEB’s plan was bold and simple. It would select the best generating stations and buy power from them. By constructing a national grid, it could then transmit the power and sell it to the existing local undertakings. The ‘bulk tariff’ was born – the price that the local undertakings paid for power from the grid. Local undertakings would then shut down their smaller stations. The overall efficiency of the system would improve and the cost per unit of electricity would fall. It was essentially a scaled-up version of the system that Charles Merz and William McLellan had developed in the northeast.

The CEB had tremendous power. In effect it controlled the location, design and operating plans for all major generation stations. The Weir committee had recommended selecting only 118 stations, but Duncan went with 140 (to win buy in from the industry because selection was prestigious). Selected stations had to sell their power at a price set by the CEB. In return the Board guaranteed to cover all operating, installation, construction and financing costs. Non selected stations could only stay open with the permission of the CEB. The CEB could also compel selection into the national scheme at any time. Contrary to the popular conception that public ownership is less efficient than private ownership, selected municipals and selected private stations had the same level of productivity.

The centrepiece of the CEB’s plan was to build a new national grid to interconnect the county. Raising the voltage would reduce the line losses. A voltage of 132KV was chosen, which was double the highest voltage line in Britain at the time (a 66KV line in the northeast). The grid was built in nine regional area schemes, evidence of a modular approach that infrastructure experts cite as crucial to the success of mega projects.[xx] The project moved at lightening pace. The CEB was created in March 1926 and all contracts with suppliers for equipment were signed by December 1927, a remarkably short time by modern standards. The first sections were completed in Central Scotland, Southeast England, Central England, Northwest England and North Wales in 1928. The whole grid was completed in 1933 with the erection of the last tower in the New Forest.

Figure 6: The first National Grid, 1933-34.

Bloomfield, British Electrical History, London: Electricity Hub of Britain (here).

In other posts I have explained how the construction of the first National Grid was done at lightening pace when compared to today. It was a massive project, using 150,000 tons of steel, 28,000 transmission towers, 12,000 tons of aluminium, and 200,000 porcelain insulators. Almost all contracts for equipment and services were with British firms. The CEB faced strong opposition over the visual impact of the towers (especially Keswick, the South Downs and the New Forest). In the Midlands a part of the route passing through Frampton-on-Severn had some powerful opponents. The Bishop of Gloucester wrote a letter in The Times complaining that ‘the whole proposal seems to be as indefensible as it is unnecessary’. The cleric was joined by the Rural District Council and the local Archaeological Society. The CEB conceded and relocated the line inland to avoid the village. There were many other examples of local inquiries leading to route modification. However overall CEB seemed very successful at using persuasion to quell opposition.[xxi] The CEB had to deal with 22,000 landowners to secure access rights and wayleaves. The programme went to great lengths to persuade landowners to accept standard renumeration (e.g. 5 shillings per tower) and resisted escalating to the Secretary of State for a compulsory purchase order. The board only needed to use this option for 600 cases (2.7%).

The Board had estimated the project would cost £26.7m (£1.4 Bn in today’s prices). Unlike most mega projects today, the first National Grid was completed on time and on cost. What is even more remarkable is the way the CEB constructed a grid in parallel to undertaking market reform. As each section of the grid was completed regions rationalised generation and standardised frequencies. This meant multiple counties could move onto the new trading arrangements soon after a section of the National Grid was finished. Therefore, citizens started to feel the benefits without waiting for the whole national project to complete. By early 1935 nearly 90% of the grid was fully operational, just nine years after the founding of the CEB.

The CEB orchestrated a significant investment programme. Between 1920 and 1935 the electricity industry accounted for about 7% of domestic gross fixed capital formation. The generation capacity of the electricity system grew by an average of 16% per annum between 1914 and 1940.[xxii] The CEB succeeded in achieving the desired economies of scale and concentrated generation in only the largest and most efficient stations. By 1935 of the 148 selected stations only 28 were tier one ‘baseload’ providers.[xxiii] The Board also succeeded in cutting down the amount of generating plant needed in reserve.

The best measure of efficiency was the system load factor. It had improved from just 8% in 1894 to 30% by 1918 but stagnated between 1922-1929 at around 28%. From 1927, after the CEB started its work, the system load factor rose to 38.4% by 1939. Thermal efficiency, how effectively generation stations turned coal into useful work, also improved from just 10.4% in 1922 to 21% in 1940.

Figure 7: The efficiency of the British electricity system, 1890-1980.

The actions of the CEB were the main reason why electricity prices fell. We can rule out falling coal input costs, because as shown in figure 2 coal prices did not fall. More capacity and better system efficiency was the engine that drove down the price of electricity and in turn the increase in consumption.

How did Britain compare to other countries? In 1927 the output of the electricity system in the USA was 5x greater than the British system. The CEB closed the gap and by 1937 it was only 3x. Britain may have lagged the USA, but it compared much more favourably to Europe. Whilst Britain never bridged the gap to Germany or the hydro rich Nordics, electricity consumption per person increased more between 1920 and 1938 in Britain than in any other European country.

Figure 8: Consumption of electricity in Europe and the USA, 1920 and 1938, ranked from highest relative growth (the UK) to lowest (Norway)

Conclusion

The Central Electricity Board was an ingenious policy. The state constructed, owned and operated a new transmission network, and used it to drive competition between generators. Creative language allowed the Conservatives to deny it was nationalisation. The founding statements were deliberately ambiguous: ‘We propose not a change of ownership but a partial subordination of vested interests in generation to that of a new authority for the benefit of all, and this only under proper safeguards and in a manner which will preserve the value of the incentives of private enterprise’.

Despite the ambiguous language the CEB was nationalisation. The state might not have owned the generation stations, but it had almost total control over what they did and were financially responsible for them. The state also became the sole owner and operator of the most critical component of the system, the National Grid. It was an exercise in central planning and state directed coordination unlike anything seen before, and one of the most radical exercises in industrial policy in British history.

The state-owned Central Electricity Board was an engine of abundance. A pioneering and entrepreneurial public enterprise that oversaw a remarkable transformation of an industry.[xxiv] Conservative and industry voices that argued that the ‘dead hand of the state’ would stifle innovation were proven comprehensively wrong. The CEB even turned in an accumulated profit of £16m (£600m in today’s money) upon industry wide nationalisation in 1947.[xxv]

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[i] Fouquet, ‘Divergences in long run trends’, Review of Environmental Economics and Policy, 5, 2, 2011; WD Nordhaus, ‘Do real output and real wage measures capture reality? The history of lighting suggests not’, in The Economics of New Goods, ed. T.F. Breshnahan and R. Gordon (1996).

[ii] Hannah, Electricity before nationalisation (1979), pp.430-431.

[iii] Fouquet, ‘Long run demand for energy services: income and price elasticities over two hundred years’, Review of Environmental Economics and Policy, volume 8, issue 2, Summer 2014, pp.186-207.

[iv] Hannah, Electricity before nationalisation, p.187-188.

[v] Paola Malanima, ‘World Energy Consumption, 1820-2020, A Database’, 2022.

[vi] R. Millward, Private and public enterprise in Europe: Energy, Telecommunications and Transport, 1830–1990 (2005), p.33.

[vii] Millward, Private and public enterprise, p.78.

[viii] Georg Klingenberg, ‘Electricity supply of large cities’, The Electrician, 72, 1915; T. Hughes, Networks of power: Electrification in Western Society, 1880-1930 (1987), p. 197

[ix] Hughes, Networks of power, pp.228, 258.

[x] T. McGovern, and T. McLean. “The Genesis of the Electricity Supply Industry in Britain’, Business History, 59, 5, 2017; Hughes, Networks of power, p.250.

[xi] G.T Blomfield, The North Eastern Electricity Board Area: Regional and Local Electricity Systems in Britain; Hughes, Networks of power, pp.444-7.

[xii] John Rowland, Progress in Power: The contributions of Charles Merz and his associates to sixty years of electrical development 1899-1959 (1960)

[xiii] McLean and McGovern, ‘The genesis’ pp.667-689; Thomas Hughes, “Managing Change: Regional Power Systems, 1910-30.” Business and Economic History 6 (1977), pp.52–68; R.A.S Redmayne and Albert Snow. "Merz, Charles Hesterman (1874–1940), electrical engineer." Oxford Dictionary of National Biography. 23 Sep. 2004; Accessed 14 Feb. 2025; F.A. Orchard, “The history of a pioneer undertaking”, Journal of the Institution of Electrical Engineers Vol.84, 1939,

[xiv] Hughes, Networks, pp.352-3.

[xv] Cochrane, Power to the people: History of the Electricity Grid, (1985), p.13.

[xvi] Ministry of Transport, Report of the Committee appointed to review the National Problem of the Supply of Electrical Energy (London: HMSO, 1927); Hannah, Electricity before, p.93; Millward, Public and private, pp.136-137.

[xvii] Leslie Hannah “A failed experiment: the state ownership of industry,” in R Floud and P Johnson, eds., The Cambridge Economic History of Britain, vol 3, Cup, Cambridge, 2004, p.92; Hannah, Electricity before, pp.96-106.

[xviii] Hormell, Orren C. “Ownership and Regulation of Electric Utilities in Great Britain.” The Annals of the American Academy of Political and Social Science 159 (1932), p.136.

[xix] Bloomfield, British Electricity History: London, p.34; E.D. Simon, A city council from within (1926), p.13; Hannah, Electricity before, pp.106-107; R. Millward and J. Singleton, The political economy of nationalisation in Britain 1920-1950 (1995), p.9; Millward, Public and private, p.137.

[xx] Bent Flyberg and Dan Gardner, How Big Things Get Done (2024).

[xxi] Bill Luckin, Questions of Power: Electricity and environment in inter-war Britain (1990), chapter 6.

[xxii] L Hannah, Engineers, managers and Politicians: Electricity Supply Industry in Britain from 1948 to the present (1982), p.291; Hannah, Electricity before, pp.212, 430-433.

[xxiii] J. Foreman-Peck and R. Millward, Public and private ownership of British Industry, 1820-1990 (1994) p.281

[xxiv] Leslie Hannah ‘A pioneer of public enterprise: The Central Electricity Board and the National Grid, 1927–1940’ in B Supple (ed.) Essays in British History (1977).

[xxv] Cochrane, Power to the People, p.15; Hannah, Electricity before, pp.137-147.