Clive Moffatt: Ministers are still in the dark over achieving energy security

14 Apr

Clive Moffatt has over 30 years of experience as an energy market analyst. He founded and chaired the UK Gas Security Group (UKGSG) from 2017-19.

The inflated long-term targets set last week for nuclear and wind power generation will not ensure security and affordability. What they will do is fuel a rapidly rising spiral in energy charges and taxation for many years before any new power is delivered. As the founder and former chairman of the UK Gas Security Group, what I outline below is what I believe to be a more coherent and realistic strategy.

Well before the Russian invasion of Ukraine, the risks to energy security (supply and price) were rising as the UK and other Western countries turned away from coal and became more reliant on natural gas to support intermittent renewable energy. What sort of policies can the Government pursue to deal with this urgent problem?

1. Abolish Price Cap and Rebates

There is no sense in capping retail energy prices when you have no influence over the wholesale market.

Caps benefit larger, better resourced suppliers by making it quicker and easier for them to grow their market share. Better to let the market compete while tightening the financial tests that are applied to existing and potential suppliers. Ofgem’s failure to check on energy suppliers that have now gone bust has already cost consumers some £2bn.

The retail price rebate scheme is based on the false assumption that the future direction of wholesale prices can be expected to fall long enough to allow suppliers to recoup the loans through higher prices. Furthermore, price rebates are a “blunt” policy instrument benefiting all but in particular those who can afford to pay more.

Fuel poverty should be addressed through the existing benefits system and not via blanket rebates on Council Tax and energy prices.

2. Support New Investment in Gas Security of Supply.

Natural gas has a critical role to play in the energy mix up to and beyond 2050. Increasing on and off-shore gas production will reduce the threat of imported gas supply shortages. Moreover, the rationing of gas and electricity and more gas storage (now only 2% of annual demand) will reduce energy price volatility.

More domestic gas production will also be required. The decision to proceed with additional North Sea gas exploration and development should be welcomed but fracking also has a role to play in reducing the UK’s dependence on gas from the Norwegian and EU pipelines and global shipments of LNG.

More gas storage capacity could be built in the next 5-10 years by imposing an obligation on suppliers and shippers to keep a proportion of their annual gas demand in storage linked to a storage capacity auction. The amount auctioned should include an allowance for the possible growth in hydrogen production to fuel heat and transport.

National Grid does not have responsibility for the real-time balancing of the gas market (unlike its role as SO in the electricity market) and so, if shippers refuse to pay high prices, or cannot access LNG when required, and suppliers see a shortfall emerging, the effect is not only to raise prices but to trigger a gas supply emergency.

More could be done now to avoid blanket industrial rationing and increase short- term liquidity in the gas market through a system of Demand Side Reduction (DSR). An option to curtail incentive would encourage some industrial users to agree in advance to curtail demand in advance of any emergency.

3 Support New Investment in Gas Power Generation

In the next 20 years, with the demise of coal and the retirement of existing nuclear capacity, the UK will be short of both regular baseload and reliable flexible power generation to compensate for the planned expansion in intermittent renewable energy.

The answer is not another 40GW of intermittent wind power which would massively increase the system balancing costs: constraint payments and the need to finance back-up fossil fuel generation. Furthermore, there are growing concerns about the “whole life” costs of wind generation linked to reduce productivity of large wind farm clusters off-shore and the costs of repair and maintenance. The target for new off-shore wind capacity should be halved pending a more detailed analysis of a quantum jump in intermittent supply.

Nor is a massive expansion in large or small nuclear capacity the right way forward, despite the attraction of zero emissions. Large nuclear plant takes too long to build and adding decommissioning it is hugely expensive on a “whole life” basis. Taxpayer underpinning of capital costs, and/or penal price subsidies, are required to make large nuclear viable.

Small modular reactors are potentially cheaper to build but, planning concerns notwithstanding, the technology is unproven and there is no established manufacturing base capable of delivering the economies of scale needed to avoid capital cost and/or price subsidies.

To ensure the delivery of affordable cleaner energy in the next 10-20 years and possibly beyond we need new investment in natural gas. In the medium term, probably some 10GW of new baseload gas generation is required and this should be provided by unabated gas via a new capacity market auction and built in the next five years.

Carbon capture and storage (CCS) to remove the C02 is still an expensive prototype requiring more gas, raising electricity costs. So, initially, some new large- scale gas plant should be CCS compatible.

In addition, a separate auction should be run to procure smaller scale (eg 300MW units) flexible generation with unabated small-scale gas competing with batteries and Demand-Side Reduction (DSR) with strict bidding rules on network locality, reliability and costs with penalties for non-delivery.

4 Cost of Carbon and Competitiveness

It would help underpin both new gas and renewable generation if the Government sets a long term, gradually rising trajectory for the price of carbon up to and well beyond 2050.

But manufacturing in the UK should be protected by a carbon equalisation tax on countries with more lenient emissions regimes and manufacturers should be able to claim tax rebates or receive subsidies to help fund high energy efficiency processes.

5 No Deadlines on Sale of Gas Boilers

There are some 25 million domestic gas boilers in the UK which are reliable and cost-effective and run on an established network. Decarbonising domestic heating is essential to the 2050 Net Zero target. But, right now, the costs involved in switching to heat pumps or using “green” hydrogen are prohibitive, and user benefits doubtful.

6 Take the Politics out of Energy

Advocacy rather than rigorous analysis has so far dominated the Net Zero energy debate and the time has come to create an independent Strategic Energy Authority (SEA.) The proposed independent ISO for power and gas addresses only one part of the problem – the conflict of interest within National Grid.

An SEA would go further and set long term investment targets for generation transmission and distribution based on the need to balance emissions reduction against security and affordability. It would also create a consistent and cost-effective policy framework to ensure fair competition between different forms of energy supply. Moreover, it would oversee the system operation of the electricity and gas market and facilitate greater liquidity in the short term balancing market. Finally, it would be able to liaise directly with Treasury to define and publish long- term budgets for taxes and levies impacting on consumers and industry.

The Prime Minister asked for a “grown-up” approach to energy. These proposed policies would deliver it.

Sanjoy Sen: The Government should address the implications of pursuing Net Zero

13 Apr

Sanjoy Sen is a chemical engineer. He contested Alyn & Deeside at the 2019 general election.

We engineers prefer to keep things simple. I’ve enjoyed working in a wide range of industries, from the traditional (such as steel and petro-chemicals) to the modern (including in renewables and clean transport). And I believe all of those sectors will evolve and continue to play vital roles in our society and economy. It’s not an either-or choice between old and new.

But things are always more complex with politicians: witness the deepening schism between the Conservative Environment Network true believers and the Net Zero Scrutiny Group outsiders.

Net Zero is fast becoming a highly polarised issue with little room for nuanced debate. That is especially the case for those of us who are positive about new technology opportunities but want to ensure that plans and costs stay realistic. Whilst internal differences can be played down for now, as rising bills start to bite and the next general election looms, positions are likely to harden. Before picking a side, we should reflect on some of the implications of Net Zero.

Does Net Zero empower or hinder Putin? 

Since the Ukraine crisis began, Net Zero has been widely touted as the answer to tyranny: an autocrat can turn off your gas supply but he can’t stop the wind blowing or the sun shining. Unfortunately, the reality is more complicated. The penny is finally dropping in the USA that swapping Arabian crude for Chinese battery lithium just creates a new form of energy insecurity. Meanwhile, Germany has long embraced green growth – yet now finds that solar and wind aren’t enough, and that it is terrifyingly dependent on Russian gas.

Here in the UK, establishing gas pipelines from a much friendlier neighbour (Norway) and constructing liquefied import terminals to access global supplies have served us better. Closing down our gas storage was perhaps less wise. But whilst Germany remains ideologically anti-nuclear (despite it being its best route for reaching Net Zero), Hinkley Point C is slowly taking shape with more to follow via the new Energy Security Strategy. But perhaps the biggest lesson from Germany is in the speed of transition: we need to prioritise establishing our new power generators before taking old stuff off-line if we are to avoid being left exposed.

Is Net Zero important to (Conservative) voters? 

It’s perhaps telling that the Energy Security Strategy makes relatively little mention of Net Zero. It’s possible that come the next election, after months of soaring energy costs, relatively few voters will genuinely have green issues as their top priority, especially if going green means being willing to accept major associated financial and lifestyle implications. Moreover, the minority that do are most likely not Conservatives, let alone Conservatives in swing seats. And, poised to help focus minds on where our core vote exists, once again looms Nigel Farage. His Net Zero referendum idea could gain traction in the no-nonsense Red Wall.

Going into the next election, selling Net Zero on emissions reductions alone is unlikely to cut it. Many voters do reflect on their personal carbon footprint (and adjust certain lifestyle choices accordingly). But most know that China emits substantially more and thus have a keen sense of their relative impact. To succeed, Net Zero is best re-framed in terms of more tangible gains. It’s a positive sign that we are starting to see these in two crucial areas: jobs and transport.

Can Net Zero ever be a vote winner? 

New employment opportunities will be key to Net Zero acceptance. EDF reckons some 22,000 are now at work on Hinkley Point C. Expect similarly impressive numbers if other large-scale nuclear projects (most likely Sizewell C and Wylfa) are signed off on the back of the current crisis. Although further off, the government is also finally backing small modular reactors: Rolls-Royce envision 40,000 regional jobs and £250 billion in export potential. Meanwhile, Red Wall industrial clusters Humberside and Teesside look set to be re-invented around hydrogen.

Net Zero is also (fairly or unfairly) perceived as an excuse to punish motorists. The government’s recent £7 billion announcement goes beyond merely swapping diesel buses for zero-emission (electric or hydrogen) alternatives. By also making bus usage easier via some long overdue and obvious measures (clearer fares, integrated networks, infrastructure upgrades) motorists outside London should begin to see some realistic alternatives to driving. Meanwhile, as technology improves and prices fall, drivers are increasingly going electric by choice, not coercion (or even wokeness). So far in 2022, 15% of new car sales have been electric. The Government can encourage further take-up by maintaining purchase plug-in grants and lower tax rates for company cars.

And should we give in to those protestors? 

The Putin-induced rush to increase domestic energy supply first has to get past some pretty determined opponents. How significant are these? Fracking potential remains something of an unknown for now (as exploration was pretty swiftly curtailed). Moreover, whilst onshore wind can play a useful role, it is perhaps not as pivotal as proponents claim. Instead, the Energy Security Strategy backs further North Sea gas investment; this can deliver more domestic production in the short term. But let’s be aware that future output is never going to get anywhere near the millennium peak.

The Energy Security Strategy is very much focused on increasing supply, not tackling demand. But as every engineer knows, the heat losses from uninsulated pipes and structures can be eye-watering. UK buildings often perform far worse thermally than those in Europe. Improving our building stock could well prove a quick and cost-effective means of reducing utility bills and import dependence. Polling suggests little public sympathy for protestors and their glue-based antics – but whilst we might not be too impressed with Insulate Britain, we should not lose focus on how vital it is to insulate Britain.

The best energy strategy possible – in the absence of fracking and onshore wind.

8 Apr

Yesterday brought us the long-heralded arrival of the Government’s new ‘Energy Security Strategy’. With the crisis in Ukraine demonstrating how relying upon Russian oil and gas might not be the best option from a geopolitical perspective, this strategy promises to end decades of ducking the big decisions on the UK’s energy needs. Did it deliver?

The proposals are certainly ambitious. The Government aims for 24 GW of Britain’s power to come from nuclear fission by 2050, delivered by eight new large reactors and several smaller ones. Since Britain is on track to have only one nuclear power station by 2035, this is a rather large change of tack. The strategy also calls for 50 GW of offshore wind by 2035 – more than the UK’s current average electricity consumption.

Alongside these headline proposals is also mentioned new oil and gas exploration in the North Sea and a push to expand the number of solar farms. All in all, it is certainly the most forward-thinking approach to energy in living memory. But since it took a major land war in Europe to shake ministers out of the torpor that usually surrounds energy policy, this is not saying much.

There are a few very obvious issues with the policy, the biggest being that it does not address the primary current political problem with energy: household bills. Launching your big new energy strategy with the confirmation that bills may not fall for five years was hardly the best look for Kwasi Kwarteng. These measures are good comfort to the consumers of 2050, not 2022.

Due to Treasury penny-pinching, there is nothing in the strategy on insulation. Some have touted insulation as the fastest way to reduce demand for energy by plugging Britain’s heat-leaky homes. Households could save up to £500 a year, according to reports. But the Treasury balked at the £200 million cost for a scheme designed to help the lowest paid insulate their homes, so any strategy to reduce household demand appears a non-starter.

Indeed, this strategy focuses entirely on supply at the expense of demand, and, in that context, looks at only those forms of supply which are least likely to set off Tory backbenchers. When the Prime Minister’s Chief Whip is the man who bounced his predecessor but one into opposing onshore wind farm construction, it is hardly surprising that Johnson’s energy strategy prioritises offshore turbines.

Onshore wind does get a mention, but it is a far cry the potential push for mass liberalisation of planning rules that Kwarteng and Michael Gove were reportedly pushing for in Cabinet two weeks ago. Instead, the Government only says it will be aiming to develop partnerships with a limited number of supportive communities who want new wind infrastructure for guaranteed lower bills.

This idea of bribing local communities with lower bills in return for new energy infrastructure is one Craig Mackinlay highlighted on this site earlier this week. But he did so in the context of fracking. For those for whom the f-word is the solution to our energy needs, this strategy is not a shale of a time. Fracking does not get a mention, although Kwarteng did announce a review into it earlier this week.

That onshore wind and fracking do not feature in this strategy is unsurprising. Again, this is an energy policy driven not only by the obvious necessity of securing our energy supplies in a dangerous geopolitical environment, but also of securing the Prime Minister’s own position in an oft-dangerous domestic political environment for him personally.

So turbines are pushed into the sea, deadlines are pushed into the future, and the centre piece of the strategy becomes a big announcement on nuclear – the likes of which, as Peter Franklin has shown, have been made by many previous governments. This strategy is not so much for facing the future, as for facing down backbench revolts. A depressing prospect for a government with an 80-seat majority.

It also suggests that ministers have missed out on a subtle shift in the political mood. In the same way that Russia’s invasion has forced the Government to confront an energy security issue it would much rather duck, voters appear to have grasped that surging bills require hard choices over supply. That’s if they want to see costs come down any time before I’m middle-aged.

Robert Colville has highlighted how polling suggests that onshore wind is more popular than often thought. A poll from Savanta ComRes has shown that more voters support an expansion of fracking than do not. A strategy that pushed further with Mackinlay’s idea of winning around local communities to both these two approaches could have achieved something much more radical.

But, alas. Even if Number 10 was in a mood to be radical at the moment, the Treasury is unwilling to stump up the cash for it to be so. So whilst the ‘Energy Security Strategy’ may be a worthy attempt to tackle a long-neglected topic in a way that addresses pressing needs within a hostile political climate, its bold ambitions are not backed by bold actions.

And with voters worrying about tripling bills, this will not enough to spare the Government the political pain this cost-of-living crisis will inevitably bring. It may have kept a few backbenchers and ministers happy, but it is not the answer to Britain’s current energy needs.

Anthony Browne: Now is not the time to go slow on Net Zero

21 Mar

Anthony Browne is MP for South Cambridgeshire, and chair of the All Party Parliamentary Group on the Environment.

Does the invasion of Ukraine – and the commodities price crisis that it has exacerbated – mean we should “press pause” on Net Zero? Gas and petrol prices have rocketed up in the past few weeks, increasing the cost of heating and driving, and causing real financial pain to households, particularly those on lower incomes. The Government has unleashed a £9 billion package to bring bills down, but there is a limit to how much it can buck global markets. The call has come for further action – in particular, to start fracking in the UK again.

I fundamentally disagree that Net Zero needs to be paused. Many of the arguments put forward are not just self-serving, but patently irrational. If they were acted upon, we would be repeating rather than learning from the mistakes of the 1973 oil price shock.

I have always seen three major reasons for aiming for net zero – one is to curb climate change, and the other two are to enhance national security and to improve economic resilience.

Weaning ourselves off fossil fuels – which is completely achievable – is not only critically important for the environment, but would mean that we would no longer be funding and dependent on some of world’s worst authoritarian regimes, and the change would make our economy more resilient against volatility in global energy prices.

In 1973, a six day war in the Middle East produced an oil price shock that unleashed explosive inflation and a deeply scarring recession, sending our economy into turmoil for nearly 20 years. That is a critical weakness on an otherwise powerful, diverse economy.

Our economy is less dependent on oil prices now than it was – the energy intensity of GDP has fallen – but we are still vulnerable, as we are experiencing.

After 1973, other countries had deliberate strategies to wean themselves off oil – France went for nuclear power, Denmark for wind power, and Japan for solar. By contrast, we went for North Sea 0il. But since our output is part of global markets, that did nothing to insulate us from global price shocks.

We have more recently boosted renewable energy. Few people realise that more of the UK’s national electricity supply is now produced from wind power than it is from gas. No foreign dictator can stop the wind from blowing on these shores. The fact that over half our electricity comes from zero carbon sources (wind, solar and nuclear) means that its price has been less volatile than if it was produced solely from oil and gas, whose prices are decided by highly volatile international markets.

France, where nuclear power generates three quarters of electricity, and Norway, which is 100 per cent hydroelectric, have suffered from electricity price spikes, but only because they have been exporting power other countries which are vulnerable.

North Norway, which is isolated from the main European power networks, has seen more stable electricity prices from its hydroelectric plants. Two thirds of Norway’s homes are warmed by electric heat pumps, and so are not directly affected by global gas prices.

The UK could produce more fossil fuels, but the UK cannot much influence international oil and gas prices, whether it fracks or not. For as long as our heat and light and transport depend on fossil fuels, we will still be at the whim of international markets. 

But imagine if all our (and Europe’s) electricity production were from zero carbon sources – renewables and nuclear – and if we drove electric vehicles, and had electric heating for homes, then homeowners and drivers would be more insulated from international energy price movements and no longer funding foreign dictators.

The answer to the current crisis is more people driving electric cars, and less electricity produced from fossil fuels – not pressing pause on Net Zero, producing more fossil fuels and doing less to get people to drive electric cars and heat their homes with electricity.

That would simply exacerbate the problem, not solve it. You won’t make the UK less hostage to global fossil fuel prices by making the UK more dependent on fossil fuels. We need to learn from 1973, not repeat the mistakes.

As we get to Net Zero by 2050, there will still be a continued demand for oil and gas as transition fuels, and there will be some residual demand afterwards for industries such as chemicals.

Where that fuel comes from is less an environmental issue than a security one. Since Russia only supplies four per cent of our gas, it is not really an issue for the UK: giving the go-ahead to the wind farms and solar farms already in the pipeline will more than make up for the shortfall from Russia.

The energy gap is more an issue for the EU, which is heavily dependent on Russian oil and gas. If Europe stops buying fossilsfuels from Russia, it will have to buy them from elsewhere, but that does not in any way mean it needs to stop aiming for Net Zero.

The Russian invasion in Ukraine is not a reason to give up on Net Zero. Rather, it is a reason to redouble efforts to get there as quickly as possible.  That will benefit the environment, economic resilience and national security.

 

James Kirkup: Sunak’s task next week. To get cash into the hands of those who need it. And launch an energy efficiency mission.

17 Mar

James Kirkup is Director of the Social Market Foundation.

Perhaps it’s because now, as then, I have Covid, but when I ponder Rishi Sunak’s approaching Spring Statement, my thoughts go back to March 2020. Then, Sunak made his bones with the British public with nerveless statements about the support he’d offer for an economy – and a population – teetering on the brink of panic.

Those early days of his chancellorship seem a long time ago now: it’s been a long two years. But there’s a lot to learn from those moments, even if both economics and politics have changed since then.

Then, the dominant issue was a pandemic that would prove to be longer and more serious than most people realised. Today, the same is true of what Westminster calls the “cost of living crisis”.

That phrase is so familiar that a lot of people who use it think that it’s old news – that everyone out there “up and down the country” knows full well how much prices will rise and real incomes will be squeezed.

Well, if they think that, they’re wrong. Rising prices, especially on energy, are still going to come as a nasty shock to a lot of voters. Just because us media and political types know something will happen, don’t assume the wider public does too.

So the first job for next week’s not-a-Budget statement is ruthless honesty about what’s coming – and the limitations of what the state can do, in the short term, about energy prices.

That doesn’t mean doing nothing. The compassionate, responsible response to rising prices should be to concentrate help on those who need it most. That should start with benefits uprating. As things stand, benefits will rise by 3.1 per cent in April, because that’s what CPI inflation was in September. But it’s now at 5.5 per cent and will likely exceed six per cent for the rest of the year.

If Britain really is One Nation, not two, then preventing a deep real-terms cut in the incomes of the poorest should be a priority for Sunak next week.

There’s more to do, of course. Current plans for a £150 council tax rebate for most homes and what amounts to a £200 loan towards energy bills are both over-complex and poorly targetted.

Instead, HMT could simply give £500 to every benefit-claiming household, and £300 to non-benefits households where no-one pays higher rate tax. That wouldn’t cost any more than the current plans: the SMF proposal would cost around £8.4 billion, pretty much the same as existing measures.

Simplicity and speed are key here. What’s needed is a return to the spirit of furlough: just get cash into the hands and accounts of people who need it.

And some people who don’t: the Treasury’s natural objections to the waste involved in universal payments are normally reasonable, but these – still – are not normal times. The strong and natural desire to declare that the exceptional circumstances of the pandemic have passed should not blind us to the fact that Russia’s war on Ukraine is another event of arguably even greater historical significance.

And that offers something of an opportunity, for a politician big enough to seize it. Here’s how Sunak can do so next week.

The immediate and obvious impact of Russian aggression on British lives is via energy. Even though we buy relatively little fossil fuel directly from Russia, we’re still exposed to international prices that are directly and badly susceptible to Russian malfeasance.

Hence the various Government schemes afoot to reduce that exposure: some more wind power, some more extraction from the North Sea, and some wishful thinking about the Saudis and others agreeing to pump more to prices down.

The remarkable thing about all these efforts is ministers almost totally ignoring the best path to reducing British exposure to international energy prices and so easing household energy bills: use less energy.

This is Sunak’s opportunity, though he’ll have to override Treasury orthodoxy and his own inclinations to take it.

By any international standard, Britain’s homes are poorly insulated and badly energy inefficient. This is one of those big, slow and boring national problems that successive governments have nibbled at then pushed aside over several decades.

There are many reasons for this. Voucher schemes are hard to design and easy to exploit: the people most likely to use them would probably have made home improvements anyway. There are always sexier, more immediate things to promise, which are more likely to pay off in time for the next election. No one wants to be the politician telling people to clear their lofts out and fill their wall cavities. Lagging is boring.

More recently, the Treasury has been resisting energy efficiency drives on the grounds that UK industry can’t deliver: not enough workers, not enough material, inadequate supply chains to provide it.

None of these problems is imaginary. But none is insurmountable, to someone with adequate ambition and understanding of how markets work.

The ultimate reason British energy efficiency schemes have failed over decades is a lack of consistency. No policy has stood for long enough to provide confidence and certainty, either to households or industry. The evidence from successful efficiency policies worldwide — New Zealand, Japan, the Netherlands, to name a few – shows that what’s needed above all is the long-term certainty that only strong government policy can offer.

And that’s what Sunak should offer next week: nothing less than a national mission to make Britain’s homes more energy efficient. That mission will take a decade and more, and should be put above party politics: the Chancellor should make a Big Tent offer to Labour to sign up to his aims.

Importantly, this can all be done without so much as mentioning the words Net Zero. The Chancellor’s public ambivalence on climate issues is regrettable, but might not hurt at all here. The best way to get the public to buy in to the national energy efficiency mission isn’t to talk about carbon foregone but pounds saved. The difference between Energy Efficiency Certificate Bands C and D is around £100 per year. And that’s a recurrent saving: who wouldn’t fancy £1000 more in their pocket over the next decade?

This doesn’t all have to be state provision, incidentally. Some banks and building societies are gagging to lend to households to fund home efficiency measures. The Chancellor should use his bully pulpit to egg them on, and prod the rest to do more.

This advice isn’t original or novel, because the energy efficiency issue is a longstanding one that hasn’t really changed. What has changed are the times.

Britain may not be a direct combatant in Russia’s war, but we face wartime economic impacts. That requires a response of similar scale, a great national effort to defend our homes and incomes from unnecessary over-exposure to international energy markets. If he wants to be

the leader of this decade, Rishi Sunak should use his statement next week to launch that unabashedly patriotic drive for energy efficiency, declaring loudly and proudly that it’s time to Lag for Victory.

Steve Baker: Wanted – a politically and economically viable path to low emissions

23 Feb

Steve Baker is MP for Wycombe, and served as a Minister in the former Department for Exiting the European Union.

No serious person doubts that CO2 is a greenhouse gas or that human emissions of it have contributed to our changing climate. Our legal target of Net Zero carbon emissions by 2050 is water under the bridge, nodded through without a division in parliament despite the scale of the implied changes to all our lives.

I admit I will miss petrol engines, especially in motorcycles, but I have no in-principle objection to Net Zero – other than that there has never been a democratic choice about a policy which means, as our Chief Scientist, Patrick Vallance, wrote in the Guardian, “transformation is required at every level of society”.

My objections are practical questions about how we get there – questions usually evaded by turning back to what we ought to do and why, or by doubling down on misinformation. That can’t go on because socially, economically and politically-unviable policies will not survive contact with the public.

Our current energy crisis is substantially a result of the emissions reduction policies of previous governments, particularly Tony Blair’s. Blair changed course away from the gas and nuclear path established by Conservative governments, which had reduced prices while cleaning up electricity generation and domestic heating. Blair’s renewables drive, which was maintained by all subsequent administrations, has left the UK critically exposed to the regional price of gas, because it is natural gas alone which ultimately guarantees security of supply for the UK electricity network.

It’s rational to have a climate policy, but our climate policies aren’t rational. Our acute crisis is a result of chronic, long-term strategic extremism in energy and climate policy. Policy which has been naïve about geopolitical realities, too inflexible, too dogmatic, too hasty and far too expensive.

Just as with our Covid response, the root of our problems is a failure to conduct robust cost–benefit analysis while focussing too narrowly on a particular problem.

Economists can value the harm done to human welfare by emitting a tonne of carbon dioxide – the Social Cost of Carbon. Estimates vary, but most think it is somewhere between £10 and £40. So if reducing emissions by a tonne costs over £40, we are probably doing more harm to human welfare than the climate change we are trying to prevent.

That is, above £40 per tonne the cure is worse than the disease. Worryingly, nearly all our climate policies are significantly more expensive than the social cost of carbon. Onshore wind costs over £100 per tonne and offshore over £200. Rooftop solar can cost over £1000 per tonne.

In 2009, the then government stopped using Social Cost of Carbon, and switched to what is a called a “Target Consistent” value, which is the price that will have to be paid to meet the target. That is, government stopped considering the overall welfare of the population, focussing instead on meeting the targets.

That change is even more important now we have a Net Zero target. By neglecting the already strained budgets of British households and by loading the public with more and more ambitious targets – for renewables, and heat pumps, for EVs, you name it – ministers have put climate policies on a collision course with socio-political reality.

We are seeing the first signs of public resistance now, and the situation will not improve on our present course. A rational policy for reducing emissions must deal with runaway cost problems, growing concerns about security of electricity supply and pressure on business competitiveness.

The cost to consumers of the renewables drive now stands at around £14 billion a year, around £500 per household. Most of that is subsidies, but the cost of dealing with the intermittency of wind and solar is also rising alarmingly. Despite that vast expenditure, once one sets aside incorrect claims which could amount to misinformation, hopes that renewables would become significantly cheaper have been disappointed. The industry claims their capital and operating costs are falling, but their financial accounts tell a different story. And there is a large queue of renewables operators with rights to extraordinary, index-linked levels of subsidy.

On our current path, there is no scenario in which energy prices return to normal in the next decade. It’s anyone’s guess when this unsustainable position will end but end it must. In the short term, we must cut the multi-billion pound cost of green levies, and admit they have not succeeded and bring these programmes to an end.

We will also need a different medium and longer term approach, reducing emissions but being realistic about what can be engineered at reasonable cost to the British people. We need to think a little less about the targets, and much more about what people can afford.

That leads us to a strategic gas-to-nuclear policy, not all that different from the sound Conservative energy policies inherited by Tony Blair and trashed. Government must allow people to go on using their gas boilers for longer, perhaps mixing in hydrogen, and not force the adoption of heat pumps. The drive to EVs should be relaxed: Government is demanding too much too quickly.

Ministers should restore confidence in North Sea oil and gas exploration to increase domestic supply of these fuels. And it is time to get on with using shale gas. Thanks to outrageous misinformation, the public are concerned about fracking, but the evidence shows it is a technique which can be safely used.

Natural gas is an excellent and a clean fuel. It can give us time to start a major rebuild of nuclear electricity generation. There are real signs that advanced modular reactors are the answer to the production of high-grade industrial heat, one of the hardest areas to decarbonise without pricing our manufacturers out of the international markets.

In the future, there may even be nuclear fusion, but banking on it would be a huge gamble. We will need to maintain a sophisticated and capable society if we are to overcome that technology’s known difficulties, and that means keeping energy costs low today.

The quickest win for the public and the government would be to encourage the construction of a new generation of gas-fired power stations. These would have much higher efficiencies than the existing fleet, which is mostly rather old, and could reduce wholesale electricity prices by as much as a third.

This gas-to-nuclear policy is a sound, balanced approach to emissions reductions. It doesn’t rule out anything – there can still be voluntary adoption of heat pumps and EVs – but it allows the public much more freedom to decide what works for them and how fast they can afford to decarbonise.

That is rational. That is Conservative. And it would work.

Sanjoy Sen: Our current energy problems have been a long time in the making. It’s time for a rethink.

16 Feb

Sanjoy Sen is a chemical engineer. He contested Alyn & Deeside in the 2019 general election.

Energy is complex. Policymakers constantly wrestle with a trilemma of how to keep prices low, reduce emissions and maintain security of supply. All whilst demand soars (rising population, improved living standards) and new challenges emerge (electric vehicles, environmental legislation). It’s never going to be perfect.

But when the Chancellor has to sub you two hundred quid to keep the lights on, it might be time for a bit of a re-think. Our current energy problems have been a long time in the making and clearly can’t be fixed overnight.

But we do need to start by recognising what is and isn’t working. And coming up with some alternatives, both short- and long-term. The public needs this urgently – and our electoral fortunes depend on it.

Keeping prices low

By 2017, the concept of a price cap had morphed from Milibandian Marxist madness into sound conservatism – and my concern was that we weren’t levelling with the public. Generating energy and distributing it to every single home is an expensive business. Yet we were determined to keep daily utility costs cheaper than a take-out coffee – even whilst factoring in green levies.

The first consequence of promising to drive prices ever downwards was that there could never be a price point which the public would consider acceptable. Meanwhile, attempts to introduce apparent competition ended predictably: the numerous defunct businesses weren’t increasing our energy supply, they were simply buying others’ output and selling it on. Any market shock was always going to leave them exposed. And the price cap that drove them out of business is now meaningless to voters.

Tackling emissions

The most cost-effective means of delivering the low carbon power needed to meet Net Zero remains large-scale nuclear. (In fact, it’s also the best option even if you don’t much fancy Net Zero, as it delivers big, steady outputs without dependence on imported gas.) Sadly, the much-delayed, over-budget Hinkley Point C is fast becoming a textbook example of how not deliver it. The technology remains unsurprisingly problematic and its delivery lies in the hands of France and China, countries with whom we now enjoy dismal relations.

And as nuclear has faltered, our dependence on alternatives has increased. Renewables clearly have a vital role to play and it is encouraging that the UK is world number one in offshore wind capacity with more to follow. But we need to reflect on whether such heavy reliance on intermittent sources is the most cost-effective and reliable solution, especially when energy storage and the hydrogen economy are still under development.

Security of supply

As I noted after COP26, Narendra Modi recognises the consequences for India of ditching cheap, domestic energy: unemployment and rising prices that disproportionately hit the poorest. Plus the political ramifications of over-dependence on imports. Would that EU leaders felt the same. Proudly shuttering their own generating capacity, their citizens’ energy supply has never been more precarious. Germany is conspicuously silent with Vladimir Putin’s hands on the NordStream gas taps as he surveys Ukraine.

Here in the UK, we might have been in a stronger position thanks to our domestic assets. But we needed to back the giant Cambo North Sea development when it came under fire. And closure of the Rough gas storage facility eliminated our ability to buffer against market spikes.

So, where next?

New policies require a change of mindset. The public have always prioritised the cost of living and job creation – even more so following recent price shocks and Covid. We need to get back to those priorities. And we need to remember where our support now is: banning a Cumbrian coal mine doesn’t gain us much in north London but approving it is likely to go down very well locally.

In the short term, we need to start backing domestic energy production again. The North Sea may be past its peak but viable reserves remain. Options for gas storage re-instatement should also be investigated. Critically, potential investors need to be reassured that the offshore sector enjoys unswerving government support. Far from a political liability, there is much to be gained here, especially with an SNP administration dependent upon Green support.

Longer term, we need to get big nuclear back on track quickly via a range of partners. Plans were shelved in Cumbria, Gloucestershire and Wales in 2019 but interest remains strong if government support exists – it’s time to get after these urgently. (But this time, let’s use some proven technology, please.) And looking further ahead, we need to keep backing Rolls-Royce in their development of Small Modular Reactors. If we’re going to do this, it’s going to need continued support, not a loss of heart if the first one doesn’t go exactly according to plan.

Just as we tackle our current problems, new ones will inevitably emerge. China dominates the battery supply chain, an increasing concern as transport becomes electrified. We already need to start thinking about sourcing domestic supplies (Cornish lithium) and the recycling of spent batteries to hedge against future supply issues. Energy policy doesn’t get any easier but we do need to keep re-assessing – and changing tack where necessary.

Sam Hall: The solution to a gas crisis is not to deepen our dependence on gas

10 Jan

Sam Hall is the Director of the Conservative Environment Network.

With Ofgem’s price cap review weeks away, political attention is turning to an inevitable hike in energy bills and the rising cost of living.

Conservative MPs were right last weekend to highlight that affordability is a critical energy policy goal and that steep bill rises should be curbed. But this can and must be pursued in tandem with our net zero goal, which insures us against much greater economic costs and national security impacts in the future due to dangerous levels of climate change.

There is little disagreement among experts on the root cause of the current price spike: rocketing wholesale gas prices, which increased by more than 400 per cent across Europe last year.

It’s important not to conflate security of supply and cost. The UK will keep the lights and the heating on this winter. The issue is that we are having to pay over the odds for gas because it’s in high demand, particularly in Asia, and supply to the European market is being strategically constrained by Vladimir Putin.

Some commentators have argued that the UK is in a poor position to manage this global price rise due to climate change policies which prevent us exploiting domestic fossil fuel reserves.

But the fact is that climate policies have not constrained gas production from the North Sea, as gas production has been roughly flat for a decade according to the latest official statistics. The main constraint on North Sea production is the relatively high cost of production compared to other gas basins.

In fact in 2015, seven years after the Climate Change Act, the government passed legislation to give the oil and gas regulator new duties and powers to maximise the economic recovery of oil and gas from the UK Continental Shelf. Arguably, this should be amended now to include a Net Zero duty, reflecting the faster projected falls in fossil fuel demand and increased risk of stranded assets, but the maximising economic recovery duty remains in law and Ministers have been clear that North Sea gas will be needed during the transition.

Climate policies are not to blame for blocking fracking, either. Despite the Government removing multiple regulatory barriers to fracking in the 2010s and expending huge political capital in the process, shale gas companies were unable to frack without exceeding legal limits on earthquakes and alienating local communities.

It was the regulator’s report on seismicity which led to the government’s decision to impose a moratorium, not any climate policies. I’m sure the fact that only 19 per cent of the public support fracking made the decision easier still.

But even if we’d offered more tax breaks to North Sea producers and somehow overcome the various economic, environmental, and political barriers to fracking, it is highly unlikely that the UK could have produced sufficient gas to make a significant dent on the 400 per cent increase in natural gas wholesale prices currently being experienced in the European market to which we are connected via multiple pipelines and whose prices we therefore follow.

The fact is that if we’d had more renewables on the grid, and had put in place a long-term set of financial incentives for homeowners to insulate their homes, we’d have lower demand for gas for heating and power now and therefore be less exposed to the current price rises.

Yes, more variable wind power on the grid would have reduced aggregate demand for gas over the course of the past year, enabled gas power stations to be used more as back-up on calm days rather than as baseload all year round, and reduced our exposure to European gas prices.

And yes, clean technologies already exist, from hydrogen and battery storage, to interconnectors and demand response, to keep the lights on when the wind doesn’t blow.

But rather than relitigate past debates, we must deal with the current acute situation and look to our future energy policy.

First of all, the Treasury should consider providing some short-term relief – with options including targeted support to vulnerable households via Universal Credit or existing schemes such as the Warm Homes Discount, or wider measures such as funding some of the legacy environmental and social levies on bills out of general taxation on a temporary basis.

Funding some of the levies from the Exchequer would be expensive, but would also support Net Zero by making lower-carbon electricity cheaper relative to higher-carbon gas, which the government has already committed to doing in the Heat and Buildings Strategy.

Long-term funding could come from a carbon tax on gas, once prices stabilise. In the short-term, this would offer a de facto tax cut to the many businesses and middle-income households who will struggle with rising energy bills, as well as the fuel poor. While none of these proposals would be sufficient to halt the rise entirely, this is a key opportunity for the Chancellor to burnish his tax-cutting credentials and alleviate some of the cost of living pressures this spring.

In the medium-to-long-term, though, the focus must be on reducing our dependence on gas, by insulating more buildings, improving industrial energy efficiency, and investing in new home-grown energy generation that delivers reliable, clean, and affordable electricity, as well as creating jobs and export opportunities in sectors that are forecast to grow rapidly.

As we do so, we must be extremely cautious about adding further costs to energy bills through future policy choices. As ministers commission a new fleet of nuclear power stations, for example, the industry must demonstrate it can achieve significantly lower costs than Hinkley Point C. Bioenergy should do more to prove its positive climate impact and reduce costs before it gets new subsidies. And when establishing support schemes for nascent technologies, such as low-carbon hydrogen, the Treasury should opt for taxpayer-funded mechanisms rather than bill levies.

Ultimately, we need to break away decisively from this cycle of fossil fuel price shocks, which have been weaponised for decades by unsavoury regimes to advance nefarious geopolitical objectives. Russia provides a third of Europe’s gas, and this is unlikely to change any time soon due to Nord Stream 2.

With Russian gas exports to Europe around six times total UK gas production in 2019 (the last ‘normal’ pre-Covid year), there is no plausible scenario for increased domestic production which would insulate us from Putin’s grip on the European gas market.

The solution to a global gas crisis is not to deepen our dependence on gas. For the sake of our bills as well as our security interests, we need to double down on homegrown green energy instead.

John Redwood: The UK’s energy policy increasingly looks like self-inflicted harm on a huge scale

13 Dec

Sir John Redwood is MP for Wokingham, and is a former Secretary of State for Wales.

Keeping the lights on should be the prime purpose of energy policy. In the UK in recent years, the first aim – and sometimes, it seems, the only aim – has been to decarbonise our energy supply.

The UK has rushed ahead of others to close all its coal power stations, to avoid putting in new combined cycle gas stations, and to rely on a growing forest of windmills. I asked how we will keep the lights on when the wind does not blow – or when it blows strongly requiring shutdown to protect the turbines. The experts and officials told me they are putting in interconnectors to the continent so we can import. Let’s hope the wind is still blowing there.

Ministers now tell me they will keep the lights on by building more nuclear. That could be an answer for some time in the next decade. They need to recognise that over the next ten years, whatever they now do, the amount of power coming from nuclear in the UK will decline, not rise.

Currently supplying 17 per cent of out typical needs, every nuclear station bar one is scheduled to close this decade. Only one new one opens. It means we need to find even more additional power for most of the years up to the early 2030s to make up for closing nuclear stations. I repeat my question. How do we keep the lights on?

Despite the big push to rely on wind and solar the UK still depends most days on a substantial contribution from gas-powered stations. Here the same decarbonisation policy seeks to manage “transition” or the progressive closure of North Seal oil and gas.

Under half the gas we now need for electricity generation and heating comes from our own sources. Once again experts assure us we can depend on imported gas, as they hastily put in more pipes to allow easier import of this “transition fuel”. Even so we need to use LNG tankers to ship a fuel many thousands of miles which then produces more CO2 when burned than our own natural gas.

This is a kind of madness, a self-inflicted harm on a huge scale. Making us import gas from abroad does not cut the world output of CO2, but it does stop the UK having any of the better paid jobs and investment that comes from replacing our own declining fields with new ones at home.

Instead those jobs and investment go abroad to provide us with the gas from a longer distance away. Importing electricity may well end up importing power from continental generators that need coal or Russian gas to fuel their power stations. It makes us dependent on the goodwill of foreigners like Mr Putin of Russia.

As we are emergency buyers when the wind does not blow or when our own gas resources are reduced, it could also lead to us paying much higher prices to procure energy when we are visibly in a weak bargaining position. This policy fails to deliver a greener answer, puts our own people out of work and undermines national security. Energy is a crucial weapon in world diplomacy, as we see with Russia’s use of its ownership of some important gas taps.

Decarbonisation is also the main driver of much of our industrial and levelling up policies. The main urge is to invest in renewable energy, but not in the sinews that deliver such investment.  Any project that entails activities needing to burn gas or coal as part of the process is at a great disadvantage in the UK from high energy policies and the wish to exit fossil fuels early. We come to depend more and more on imports for steel, glass, ceramics, aluminium, and other basics that need a lot of fuel to produce high temperatures for their creation.

Once again it does not save the world carbon dioxide output, merely shifts where the carbon dioxide is produced. It ensures the UK is at a disadvantage when it comes to making these crucial materials. You do not have windfarms or electric cars or greener buildings without these essentials they are made from. Indeed, by importing you usually increase the amount of carbon dioxide used in their manufacture and delivery. You have much higher transport costs and carbon output from long distance haulage, and often older and dirtier factories for their production. Many of the windfarm towers, blades and turbines were made abroad along with the materials needed to fabricate them.

In my new small book about building back green, I have a simple message for the Government. There will only be a successful green revolution when there is widespread public buy in. Only when the public are rushing to buy electric cars and new heating systems will we succeed in getting carbon dioxide down on a large scale.

For that to happen the new cars and the new ways of heating need to be affordable and visibly better than what they replace. The digital revolution sweeps on without laws to require it or taxes and subsidies to boost it. That is because people think smartphones, laptops and pads offer them new access and the better and wider service they want. They improve on  what went before. I am all for the UK leading a green revolution but it must be a popular one which works for people.

If green policy means bossing us all around, telling us what to do and what to buy it will be resisted by many. If a green policy is based on taxing or banning us from buying existing products we like it will not succeed. If decarbonisation is pushed to the point where power cuts become common or where the prices of electricity and gas are pushed too high because we do not produce enough of our own, there will be few people thanking the green movement or wanting them influencing government.

In the last General Election the Green Party urging us to go further and faster with bans and taxes polled under three per cent. That should be a warning that the state-led version of green policy is not popular. We need a popular green revolution, which must start and finish with keeping the lights on and creating and investing in suitable jobs in the UK. Relying on imports and pretending that means we have decarbonised should suit no-one in this big debate. We need the iconic new cars, the affordable new heating systems and the more efficient industrial processes that can power us to success.