Matt Ridley, The Times
The liberalised energy markets introduced by Nigel Lawson in 1982, embraced by the Blair government and emulated across Europe, delivered both affordability and reliability. But they were abandoned. All three parties share the blame for Britain’s policy fiasco.
Shortly before parliament broke up this month, there was a debate on a Lords select committee report on electricity policy that was remarkable for its hard-hitting conclusions. The speakers, and signatories of the report, included a former Labour chancellor, Tory energy secretary, Tory Scottish secretary, cabinet secretary, ambassador to the European Union and Treasury permanent secretary, as well as a bishop, an economics professor, a Labour media tycoon and a Lib Dem who was shortlisted for governor of the Bank of England.
Genuine heavyweights, in short. They were in general agreement: energy policy is a mess, decarbonisation has been pursued at the expense of affordability and, in particular, the nuclear plant at Hinkley Point C in Somerset is an expensive disaster. Their report came out before the devastating National Audit Office report on Hinkley, which said the government had “locked consumers into a risky and expensive project [and] did not consider sufficiently the risks and costs to the consumer”.
Hinkley is but the worst example of a nationalised energy policy of picking losers. The diesel fiasco is another. The wind industry, with its hefty subsidies paid from the poor to the rich to produce unreliable power, is a third. The biomass mess (high carbon, high cost and environmental damage) is a fourth.
The liberalised energy markets introduced by Nigel Lawson in 1982, embraced by the Blair government and emulated across Europe, delivered both affordability and reliability. But they were abandoned and, in the words of the Lords committee, “a succession of policy interventions has led to the creation of a complex system of subsidies and government contracts at the expense of competition. Nobody has built a power station without some form of government guarantee since 2012.”
All three parties share the blame. Labour’s Climate Change Act of 2008 made Britain the only country with mandatory decarbonisation targets, a crony-capitalist’s dream. The Lib Dems who ran the energy department for five years, Chris Huhne and Ed Davey, negotiated the disastrous Hinkley contract. The Tories reviewed the decision in 2016, by which time it was clear we had managed the unique feat of finding a technology that was untested yet already obsolete. They decided to go ahead anyway, missing the chance to blame the other parties for it. As the energy analyst Peter Atherton put it, the three parties “have managed to design possibly the most expensive programme for delivering nuclear power we could have come up with”.
The chief Lib Dem mistake was to ignore the shale gas and oil revolutions under way in America and assume that fossil fuel prices would rise from already high levels. By 2011, influenced by peak-oil nonsense and lobbied by professors of “sustainability”, the department of energy and climate change was projecting that the oil price would be between $97 and $126 per barrel in 2017. Today it is about $50 a barrel, roughly half the lowest of the 2011 projections. Gas prices were expected to be about 76p per therm by now, whereas they are actually about half that: 37p.
The shale revolution is gathering pace all the time. Britain has very promising shales and could prosper and cut emissions if it joins in, so let us hope the first wells about to be drilled in Lancashire by Cuadrilla, against the determined opposition of wealthy, middle-class protesters, prove successful. (No, I don’t have a commercial interest in shale.)
This forecasting mistake is behind much of the rising cost of Hinkley. In 2015 the whole-life cost of its power was expected to be £14 billion. Now it is £50 billion. Because consumers are on the hook to pay the difference between the wholesale price of electricity and the “strike price” for Hinkley, we must hope that the project is badly delayed, because that way our children will at least spend fewer years paying inflated electricity prices.
These bad forecasts, widely criticised at the time, make all strike prices horribly expensive, for onshore and offshore wind and solar as well. Lib Dem ministers kept saying at the time that subsidies for renewables and Hinkley would protect the consumer against “volatile” gas prices. Yes, they have done so: by guaranteeing high prices. Oh for a little downward volatility!
Britain’s industrial and commercial users now have some of the highest electricity prices in the developed world, which find their way to households in cost of living and a downward pressure on wages. American industry pays about half as much for its electricity as we do, and everyone benefits. Energy prices are not just any consumer price: they determine the prosperity of the entire economy.