Britain's economic suicide
Here's (belatedly) a piece I published in the Times last week.
British Gas is putting up the cost of heating and lighting the average home by up to 18 per cent, or about £200 a year. Indignation at its profiteering is understandable. But that can only be a part of the story: the combined profits of the big six energy supply companies amount to less than 1.5 per cent of your energy bill, according to the regulator, Ofgem.
Gas prices have gone up this year mainly because of demand from post-Fukushima Japan and booming China. With energy now a big part of household bills, genuine fuel poverty threatens many Britons next winter.
So what does the Government plan to do? This week it publishes a white paper on electricity market reform that will be predicated upon, indeed proud of, pushing up prices even faster. To meet its self-imposed green targets, the Government’s policy is to tax carbon, fix high prices for renewable electricity and load extra costs on to people’s electricity bills — but without showing them as separate items.
This policy is beyond foolish. While you might just get away with driving up energy bills in a boom, to add green stealth taxes on top of supply-driven price increases at a time of economic misery is asking for political trouble.
Cheap energy is the elixir of economic growth. It was Newcastle’s cheap coal that gave the industrial revolution its second wind — substituting energy for labour drove up productivity, creating jobs and enriching both producers and consumers. Conversely, a dear-energy policy destroys jobs. Not only does it drive energy-intensive business overseas; according to Charles Hendry, the Energy Minister, the average British medium-sized business will face an annual energy bill £247,000 higher by 2020 thanks to the carbon policy. That’s equivalent to almost ten jobs it must lose, or cannot create.
So the pain of this policy is huge. Yet even if it works, the gain is tiny. The target is to get 15 per cent of total energy from renewables by 2020 — the current figure is just 1.8 per cent, not counting biomass and landfill gas. Most of that is old hydro; wind contributed less than half a per cent.
And that was the cheap bit. The next generation of wind farms are going to be offshore and their electricity will cost three times as much. Even if we cover half the North Sea with wind farms, at gargantuan expense to the wretched consumer, and they manage to stay upright, we would still have to build gas turbines for when the wind fails to blow — as usually happens in exceptionally cold weather.
And, surprise, the energy companies are demanding subsidies for building gas-fired power stations that are to be unprofitably switched off when the wind blows.
Raising the costs of electricity to subsidise irrelevant wind farms will fail to make the slightest dent in British carbon emissions, let alone global ones. In any case, natural gas is going to do far more than renewables ever could to accelerate the decarbonisation of the world economy, as it replaces high- carbon coal and oil in coming decades.
So the hijacking of energy policy by carbon targets is mad. Far more urgent questions face us than that. How do we replace the one-third of coal-fired stations that will close by 2015? Not by renewables, that’s for sure. How do we replace the capacity of our nuclear power stations, all but one of which will close by 2023? How do we compete with China, where it takes five years, not 15, to build a nuclear power station? How do we compete with America, where companies are now swimming in cheap domestic natural gas, half the price it is over here, thanks to shale gas exploration?
Gas already dominates the British energy market, providing about half of all joules. That dominance will only grow as abundant shale gas joins Russian and Iranian supplies. Given that renewables are an irrelevance in terms of supply, and that coal is being slowly phased out, the key question the Government needs to answer this week is where it wants to fix the price of nuclear electricity to ensure the long-term certainty nuclear investment requires.
Twenty years ago Britain liberalised its nationalised energy markets, introduced competition and the result was one of the cheapest and fairest regimes in the world. Gradually, the bureaucratic yearning to interfere and pursue ideology gained the upper hand again, especially with Tony Blair’s ludicrous “renewable obligation certificates” (ROCs) whose perverse consequences include the shipping of Californian native forest timber to Drax power station in Yorkshire at consumers’ expense.
This week’s White Paper is likely to suggest the replacement of these ROCs with a guaranteed price for renewable and nuclear power, partly reversible in the event that market prices exceed the guarantee. Unless very well designed, this too will have perverse consequences. In May alone National Grid paid wind farm users £2.6 million to switch their wind farms off.
Yet government has done very little to unleash energy entrepreneurs. We could have started the shale gas revolution here, as we started the fossil fuel revolution itself. We could still start the underground-coal gasification revolution here: according to a Newcastle firm called Five Quarter, huge amounts energy could be extracted from coal seams under the North Sea by partial combustion of the coal to make gas underground. We could push thorium reactors. But starting a business in Britain’s regulated economy and planning system is like swimming in treacle.
The future belongs to countries that can get their electricity, heat and fuel supplied as cheaply and reliably as possible. That is the priority, not the carbon fetish.
Comments (8)
Great article pointing out the definite suicidal behavior of a particular government in regard to energy production. All governments are in "suicidal" in the sense that they are killing the productive elements in the societies they rule, and often in others through direct intervention beyond their borders.
"But starting a business in Britain’s regulated economy and planning system is like swimming in treacle." I had to check this last word out in the dictionary... From Webster's Unabridged:
2 chiefly Britain a : MOLASSES b : a blend of molasses, invert sugar, and corn syrup used as a table syrup -- called also golden syrup
a blend of molasses, invert sugar, and corn syrup used as a table syrup.
Now that makes perfect sense to me, a USer :) Yes, living in a ruled (government) society is like swimming in molasses or quick sand....
darn good.
It's commonly said that this policy is absurd because the dangerous climate change theory is absurd. That's wrong: it’s absurd even if the theory is valid. Here’s why: the UK’s share of global CO2 emissions is a tiny 1.7% - so, unless it’s matched by the rest of the world, a UK cut would not make the slightest difference.
But the rest of the world has lost interest: the USA, Russia, Japan and Canada have said they will not join a second round of carbon cuts under the Kyoto Protocol – and, after Copenhagen and Cancun, it’s obvious that the so-called developing economies (especially China and India), haven’t the slightest intention of stopping their relentless fossil-fuel based expansion. (See, for example, this:
http://www.huffingtonpost.com/robert-bryce/another-climate-change-meetin...).
So, if the theory is valid, our optimum course is to strengthen our economy so we can adapt to whatever hardships may come – and that means ensuring that (like China) we have a sound, reliable energy supply. But this policy would have the opposite effect. And that’s why it’s absurd.
Hmmm sounds exactly like what's happening down here in Australia
Matt, The Rational Optimist was a revelation to me - the most interesting and educational book I have ever read. I now realise why the solution I wrote in my book about a better government for Australia, KiS - Government for the Silent Majority, will have to wait until 'things' get much worse and the 'silent majority' rebel. I now plan to modify my book to bring in your rationale (suitably referenced, of course). The next version on my website, www.better-management.org, will be even more 'rational'.
While the MSM headlines are screaming about cell-phone hacks, the country is going down the energy toilet.
It takes a special sort of person (politicians) to make sure everyone's a loser.
While the poor consumer gets stung with rising bills, those wicked capitalists must be profiteering, right?
Wrong.
EDF has to buy energy for distribution at above its own retail price, so it is slowly going bust. Stock price down from €80 in 2008 to €26 today.
But wait! (I hear you cry) what about the spin off company EDF Energies Nouvelles? They must be coining it what with those subsidies and the stock price must be going through the roof.
Floor, more like. €55 in 2008, €39 today. Dividend yield about 1%.
It is madness not to mine the resources that we have in abundance, that is coal. What is the sennse in cutting down forests in far away countries that emit oxgen in their growing to burn and create greenhouse gases when coal has, through its natural development, converted this growth into efficient fuel, which is by far the cheapest method of electricity production and is by far more efficient than burning wood.
Wind turbines are "NOT GREEN", far from it, because they use approx. two years worth of energy production in the non-green building costs as a significant carbon usage in their build. And then there is the fact that most wind turbines produce less than 25% of their installed capacity to energy output (and onshore wind turbines in low windy areas like the Midlands, as little as 10% to 15%). This requires additional power stations to be built and these build and running costs should be added to the non-green elements of wind turbines energy production.
For reliability these standby power stations have to produce the undelivered capacity to energy outputs of wind turbines. All this additional energy is so called 'non green' and has to be delivered from either standby reserves or partly-loaded generation 'spinning reserve'. These additional costs go into a separate charging mechanism called 'balancing and use of system charges' costs which are borne by National Grid but charged back to the electricity consumers through the electricity suppliers. These costs are rising dramatically, and are effectively hidden from the costs of the 'so called' green energy costs. i.e. the electricity consumers are being forced to pay these additional costs.
So what is the true picture for wind turbines:
(1) they certainly are 'NOT GREEN', and probably no greener than the conventional 'coal-fired' power stations that they are supposed to be displacing.
(2) they are costing the consumer, through the electricity tariffs, at least double the cost of conventional coal fired power stations and if all the costs were untangled, it is likely to be as much as three times the costs of the old reliable technology in which the UK probably has 400 years of coal reserves still unmined beneath our green and pleasant lands.
Where is the snense in this current madness in pursuing a green energy myth which is 'NOT TRULY GREEN' and destroying our countries beautiful, pastoral country landscapes in the process, by building wind turbines.
MADNESS,SHEER MADNESS.
MR Cameron, Prime Minister, RH gentleman, please wake-up to these real issues which will push this country further into debt if this so caleed grewen energy policy is pursued. Take a 'REALITY CHECK' of these issues and put the UK back onto the right road in terms of electricity energy production costs so that we can compete in the industrial world and the commoner will not be taxed for this 'GREEN ENERGY MYTH'.