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Energy security should be a high priority


For a number of years, commentators have warned of the impending gap between electricity supply and demand in the UK. In the meantime, policy has progressed along a fixed course: reduction in carbon dioxide emissions, increases in capacity for electricity generation from renewables, and a few nods towards energy efficiency. The need for energy security has taken second priority, and British consumers and industry may soon be paying the price.

This is not a problem just for the UK; overall EU policy is forcing Member States to make irrational decisions about their energy systems. Not that they have anything to complain about. After all, this policy was voted in by the very same countries. Admittedly, the UK government, in a typically British move, made a difficult situation worse by passing the Climate Change Act in 2008, making it a legal obligation for the country to meet emissions reduction targets set independently by the Climate Change Committee. Having, in the words of Sir John Seeley, once acquired an Empire in a fit of absence of mind, this same trait seems to have been at work in the acquisition of a self-imposed statutory burden on the economy.

But this policy direction has had consequences which are now being more widely recognised. For example, the Sunday Times in its latest edition talks of the country running on empty. In fact, the article argues largely (and quite rightly) for more exploration of shale gas resources to replace declining North Sea reserves, but this misses the real point, which is about generating capacity. A similar story was run by the BBC: Energy watchdog Ofgem chief warns of bill rises.

Alistair Buchanan, whose term as Ofgem’s chief executive finishes later this year, has been spreading the message that electricity prices will increase as more gas has to be imported. To some extent, this is inevitable in the current market as the country becomes less and less self-sufficient in gas. But it is greatly compounded by the impending retirement of a number of coal-fired power stations. In his words Britain “will be very tight on power station capacity in three to five years time”. Spare capacity is projected to decline to less than 4% by 2016, which may be very uncomfortable indeed.

The phasing out of significant coal-fired capacity was expected and, to some extent, planned for. The Large Combustion Plant Directive makes it obligatory to close generating plant which has not been equipped with equipment to remove sulphur dioxide and other pollutants from the exhaust gases. Since this was not an economic option for some older plant, they were due to shut down by 2016.

However, they also could only operate for a limited number of hours before then. With gas prices rising and coal getting cheaper (partly because demand in the US has fallen as shale gas has come on stream), the most profitable thing has been to run the coal stations flat out. Because of this, five plants will close by April, with a loss of 10% of the country’s capacity. From next winter, things begin to get very tight.

Mr Buchanan makes a rather surprising statement about this situation: "There isn't a single person or people to blame. In my view it was a single event - the financial crisis. Before the financial crisis the government had backed a visionary approach to energy on wind, water and nuclear... then came the financial tsunami." The government may have ‘backed a visionary approach’ but only after much dithering and prevarication. Even without the ‘financial tsunami’ we would be in a mess. The latest Energy Bill is another complex attempt to fix the situation, but in reality the market successive governments have created is incapable of delivering the affordable, secure energy supply the country should expect.

Things are hardly better in Germany. The government’s knee-jerk reaction to the Fukushima disaster was to accelerate the demise of the country’s important nuclear generating sector (perhaps to be reversed at some stage?). Apart from completely disrupting the business of companies running the reactors (and, as a knock-on, ensuring their drop-out from plans for nuclear new build in Britain), this had a particularly perverse consequence: the country has spent huge amounts on solar panels and wind farms, but the (zero carbon) nuclear capacity is set to be replaced by plant burning high carbon (and dirty) lignite because of market prices.

Germany’s large renewables capacity has also given problems with integration into the electricity grid, and caused difficulties for the grids of neighbouring countries when excess electricity has been dumped on their systems. At the same time, the intermittency of solar and wind generation has contributed to difficulties with maintaining an adequate supply across the country at times.

In neither country (nor across the EU as a whole) is this a rational approach to policy. Whether or not it turns out that radical cuts in carbon dioxide emissions are needed, the present way of achieving this is clearly failing. Rather than simply setting targets for cuts and allowing generators to find the most economic way to achieve them, politicians have been persuaded to set unnecessary targets for renewable energy. They have then gone further and introduced the dysfunctional and fraud-prone emissions trading system, while accounting for European emissions with no allowance made for the ‘carbon content’ of the goods which are increasingly imported.

Perhaps it is too much to hope that politicians make rational policy, particularly when so few of them are scientifically literate or have even worked outside the rarefied atmosphere of politics.  But if they want an effective policy to cut emissions, a flat-rate carbon tax (in place of other taxes) would be simpler and cheaper and may even work. And if they want – as we all do – a secure, affordable energy supply which is compatible with that, then nuclear is the only answer at present. Making consumers and industry pay escalating subsidies to uneconomic wind and solar generators is just throwing good money after bad.