By Paul Homewood
h/t Paul Kolk
For a change, a slightly more objective analysis of our energy policy from the BBC:
It covers some of the main factors, such as:
- The dash for gas in the 1990s, and consequent over reliance on imported gas
- The failure by successive governments to build nuclear power stations
- Lack of gas storage, going back to cancellation of plans in 2008
- David Cameron’s cancelling of subsidies for onshore wind and solar power
The first two items are clearly making the UK more vulnerable now. But quite astonishingly I can find no mention at all of the deliberate policy of phasing out coal power, begun in Tony Blair’s day. It is this which more than anything which has made us too reliant on gas.
Gas storage is a bit of a red herring, as it can only help in the short term, and does not address the underlying problems.
But I want to focus here on the last item on the list. We have seen frequent claims this year that energy bills would not have been so high if we had built more renewable capacity. This is what the BBC say:
Another explanation with more weight, he said, hinges on choices made by Mr Cameron’s government.
“The first and most important one was ‘getting rid of the green crap’,” he said.
The crude phrase, splashed on the front page of the Sun newspaper, was the “PM’s solution to soaring energy prices” in 2013. Back then, Labour was campaigning hard on the cost of living, promising to cap energy bills if the party won the 2015 general election.
In a surprise reshuffle, Mr Hendry was replaced as energy minister by John Hayes, who vowed to put “coal back into the coalition”.
“He wanted to see a huge growth in coal,” Mr Hendry said. “He did really throw the low-carbon agenda into reverse.”
Over the next two years, subsidies for renewables were cut, planning rules for onshore wind were tightened, and a zero-carbon homes policy was scrapped.
Had those green policies remained, estimated annual energy bills would have been £9.5bn lower under the October price cap, according to research by energy analysts Carbon Brief.
The culling of the green deal for home insulation was particularly disappointing for Mr Huhne, who sees the policy as one of his key legacies.
So, what is the truth?
Below is the Table from the Carbon Brief report quoted:
Of the £9.5 bn saving claimed, £7.4 bn is from onshore wind and solar projects, which would supposedly have been built without the cancelling of subsidies. (They fail to explain why they were not built anyway, if they were so “cheap”). I’ll ignore the savings from “efficiency” as the report fails to calculate the cost of fitting insulation etc – they even ludicrously include electric cars in this, conveniently ignoring the fact they cost ten grand more to buy!)
For a start, it is puerile to argue that we would be better off now if we had built more renewables, when nobody at the time forecast that gas prices would rocket.. You might just as well beat the wife for not choosing the right lottery number!
The missing capacity is calculated from 2017 capacity construction, detailed in an earlier Carbon Brief report here. For onshore wind, this works out at 5.4 GW over the period 2018 to 2021. Solar power is not mentioned in that earlier report, but we are looking at about 8 GW on the same basis.
If that extra capacity had been built, we would be getting an extra 11.8 TWh from wind and 8.0 TWh from solar.
The last wind and solar farms built under the CfD subsidy system are currently priced at £100.31 and £96.33/MWh respectively. There is no evidence that construction costs have come down since they were built. However until energy prices started spiking last year, the wholesale market price for electricity has been around £50/MWh:
In other words, we would all have been overpaying for that wind and solar power for the last four years, to the tune of £963 million a year, or £3.8 billion over the four years. It is painfully obvious that from a purely economic view, the right decision was made to end subsidies given the facts at the time.
Even then though, it would appear that Carbon Brief have grossly overestimated their “bill for cutting the green crap” Based on their own figures, the savings from onshore wind and solar are £379 and £368/MWh respectively. But according to OFGEM, whole sale prices in September were £364/MWh, and have been around £200/MWh this year.
Therefore, with wind and solar costs of £100.31 and £96.33/MWh, the potential saving would only have been £2 billion, not the £7.4 billion claimed. (The Carbon Brief was written in August 2022, when market prices spiked at £592/MWh).
While electricity wholesale prices may be higher next year, at this year’s levels it is clear that current savings would not yet have offset the cost of subsidies between 2018 and 2021.
There is a second chart in that Carbon Brief which is highly relevant:
As we still have to keep gas and other dispatchable sources of power as back up, we still have to keep on paying their fixed costs. Indeed the intermittent working of gas power stations actually makes them less efficient and puts up the prices they have to charge.
The only correct way to compare costs is to look at avoided marginal costs of gas, which the above chart does. Between 2018 and 2022, they reckon we would have had to buy an additional £33.5 billion worth of gas, if we had not had renewables.
Sounds impressive? .
Well, not really, because in the last five years, subsidies for renewable energy have cost the UK £75.7 billion – see here. These are the costs officially listed by the OBR as “Environmental Levies”. This actually understates the true cost, as it does not include the tens of billions spent on upgrading infrastructure and balancing the grid, both necessary to cope with the intermittency of renewables.
The Broken Energy Market
Instead of trying to second guess past decision making, what both the BBC and Carbon Brief should be doing is addressing the current situation.
If they really believe that market prices will stay high, then wind and solar farms will spring up all over the place, without the need for government intervention.
But the most effective and immediate way to cut energy bills is to reform the broken energy market. It may have worked well twenty years ago, but it is actually making the energy crisis much worse now.
It is ridiculous that electricity from all sources should be sourced at the price of the costliest generation, ie gas. It is even more unacceptable that renewable generators should not only make windfall profits from this market malfunction, but that they also continue to receive subsidies worth up to £10 billion a year. Unsurprisingly Carbon Brief fail to mention any of this.
Instead of the current broken system, we should implement one based on Power Purchase Agreements, PPAs, which are commonly used in the US. Prices for power would be agreed on a long term contractual basis from major generators, with preference given to dispatchable sources. Top up power for periods of peak demand/power shortages would be separately negotiated.
Meanwhile, intermittent wind and solar power would be paid a much lower price, one which recognised their lower value within the overall system.
One final factor, which again is not mentioned by the BBC – carbon taxes.
UK carbon prices are still around £80/tonne, about four times historic levels. This is directly increasing costs for gas generators, thus putting their prices up. And, as we have seen , this also puts up prices for all generators. These carbon prices could be reduced to zero tomorrow.