Neil O’Brien was until recently a Miister at the Department of Levelling up. He is MP for Harborough.
Ah, the 1970s. The nostalgia industry has given the decade a familiar iconography.
Flared jeans and Milton Keynes… Mullahs in Iran….The Magic Roundabout… My Sweet Lord and Concorde… decimalisation, stagflation and women’s’ liberation… Star Wars, Jaws, The Doors… Vietnam, Spam and Glam…. roller skates and economic policy mistakes.
Some of the most enduring images of the 1970s are the multiple energy crises. Office workers typing by candlelight during the miners’ strike. Cars queuing for petrol after the oil shock.
Among the most urgent questions facing our new Prime Minister is: are we heading back to the 70s this winter?
Gas prices in Europe went up a third last week after Russia said it will limit the flow to Germany. Goldman Sachs says recession in Europe is more likely than not. The US is already in recession. Last week saw predictions that household energy bills here could hit £4,000 a year.
Britain has decent gas supply: just under half our gas comes from our own continental shelf, a third via pipeline (almost all from Norway) and a quarter from LNG imports.
But the UK is unusually gas dependent: 40 per cent of our energy is from gas, compared to 25 per cent in the EU. Both UK and EU are in a traded market, with prices many times higher than the longer run average.
The UK also starts from really high industrial electricity prices, so increases are even tougher on industry.
A really high price becomes pretty similar in practice to a physical shutoff. Energy feeds into the price of everything else: McDonalds just raised the price of a cheeseburger for the first time in 14 years.
Countries around us are preparing for the worst. Germany is both ramping coal power and reducing demand, creating a market to reward companies that reduce gas consumption. EU members just reached an agreement to reduce gas consumption 15 per cent over the winter.
Over recent decades, policy focussed on optimisation not resilience: making things leaner, not tougher.
Now, in a more volatile world, that looks like a mistake. We stopped requiring a copper wire alongside new fibre phonelines, meaning a powercut now means phones cut too. We shuttered gas storage, sold gold, outsourced the production of vital medical kit to a dictatorship that hates us…
It’s the same story in energy, so our short-term options are limited. We can try increase our tiny gas storage. In February, the UK had just 8.5 terawatt-hours of stored gas, versus 36 in France, 79 in Germany and 84 in Italy – ten times more than us.
The Business Department just gave Centrica permission to try reopen the Rough storage facility, closed in 2017. But there are big engineering challenges. And while storage can help smooth spikes in prices, it doesn’t stop long term increases. Nor is there an option to stop exports: we export gas in summer but import in the winter. We’ll be extremely dependent on continental partners sticking to their side of the bargain.
National Grid have persuaded four out of five remaining coal power stations to delay closure which will help.
We could build a contractual market for demand reductions from businesses, as countries others are. National Grid imply they’re trying to do this, but their winter outlook is a bit opaque, perhaps to avoid people freaking out. An orderly market is better than industrial firms being forced out of business by price spikes. Public sector buildings could be the first participants.
Government could promote domestic savings too – it’s amazing that turning down the thermostat one degree can save large amounts.
In the longer term we’ve more options. What we do about nuclear is the biggest choice. Reducing reliance on gas would spike Vladimir Putin’s energy weapon.
At present, just 15 per cent of our electricity is nuclear, but only one station is being built, and all existing stations will be closed within a decade – Hinkley Point B shuts this week. The Energy Security Strategy included an aspiration to increase nuclear to 25 per cent of electricity by 2050, and said we’d take one new project to final investment decision this Parliament.
Yet the decision on nuclear is far from made.
In the new Prime Minuster’s early meetings, Treasury officials will sketch out an attractive-looking scenario with more limited nuclear, in which unproven technologies like carbon capture take the strain.
They’ll probably skim over the fact that this scenario involves us installing solar panels covering an area nearly the size of Greater Manchester.
They will argue that Great British Nuclear should be a “small, nimble organisation” and that we should “leave it to the market” to develop.
This would mean we build absolutely no new nuclear power, and the new Prime Minister should ignore them:
- Even if prices fall, Russia has shown it will use energy as a weapon, and that won’t change.
- Gas prices already soared in 2021, pre-invasion – as Dieter Helm points out, uncertainty is high and we can’t assume a future of low, stable prices.
- With the global population exploding and relative power of the west declining, we should reduce our dependence on the kindness of strangers.
- Demand for electricity is soaring: the Review of Electricity Market Arrangements last month suggested we need to triple capacity by 2035.
- Renewables are intermittent, and can’t always supply at the key moment. National Grid calculates “Equivalent Firm Capacity”: how much reliable capacity a resource can displace without increasing the risk of blackouts. A combined cycle gas turbine is rated at 90 per cent, coal and nuclear at 80 per cent, but offshore wind at just 8.5 per cent, onshore wind at 6.3 per cent, and solar at 3.3 per cent, because it’s not sunny during the UK’s winter use peak. We need firm power.
- The volume of onshore renewables we are already planning is likely to lead to extensive industrialisation of the countryside.
- By a happy coincidence, the potential sites for new nuclear tend to be in coastal locations needing levelling up – the coasts of Cumbria and Lancashire, Anglesey, Hartlepool and so on.
The second is commissioning at scale. The countries that built nuclear cheaply benefitted from learning-by-doing – having the same teams building the same thing again and again. That’s what the French did in the 1970s and 1980s (in red below) and the South Koreans more recently (in pink).
The new Prime Minister should gear up Great British Nuclear to commission a substantial pipeline of plants. It should get control over the nuclear sites and drive the use of as much British content as possible.
There are choices about which technology to use. Newly nationalised EDF are unlikely to want to do more. We could partner with the Koreans, arguably the world leaders. We could buy back technology from Westinghouse, or buy equity in it. (Gordon Brown sold it to Toshiba in 2006, it’s now owned by a Canadian fund).
Or we could order a substantial number of small/medium sized, factory-built reactors from Rolls Royce, which might also open the way to exports in coming decades. That might also give some more flexibility we would be buying in smaller “lumps”.
Either way, the key is to make a clear decision and stick with it, and not do what the UK keeps doing, and building expensive one-off reactors.
Churchill said you should “never let a good crisis go to waste”. The new Prime Minister should seize this grim moment to end our energy dependence on hostile powers.