Energy policy in Britain has been a mess for as long as anyone can remember, and shows few signs of getting better. With customers facing swingeing increases in fuel bills, the consequences of years of neglect – and of living high on the hog of cheap North Sea oil – are coming home to roost in the most uncomfortable of circumstances, further squeezing already stretched disposable incomes ...

... the best-placed country by far for the overall price of energy is France, which through the 1970s and 1980s invested heavily in nuclear and is now sitting pretty as it enjoys the fruits of abundant electricity produced at now relatively low fixed costs. By contrast, Britain squandered the blessing of North Sea oil and gas while the price was low and is now increasingly reliant on ever more highly priced imports.

Nor is the massive programme of investment in renewables demanded by the Government going to make the situation any better, at least in the medium term. In terms of upfront capital spending, wind is one of the most expensive power sources of the lot, and it is all going to be paid for through rising fuel bills.

Any windfall tax would be likely to result in higher prices still, while at the same time discouraging the foreign and indigenous investment that needs to be made in Britain's energy future ...

Independent 31 July 2008

It is a strange sort of privatisation where one government sells its assets to another government. The UK is on the verge of selling British Energy, the UK’s nuclear power provider, to EDF, the French state-owned energy company. Although the company’s foreign ownership is not troublesome, the deal highlights structural problems with the UK energy market.

EDF is an excellent candidate for running Britain’s nuclear power plants and building new reactors. The fact that it is owned by the French state is of no importance. EDF can be trusted to behave like a conventional commercial enterprise and there is no strategic reason to prevent a French company from running UK nuclear power plants. EDF is not Gazprom and France is not Russia.

The deal, however, shows up a number of problems with UK electricity regulation. At the moment, British Energy is a monopoly nuclear provider. The government intends to build new nuclear plants, so it is important that it allows competition. But if EDF buys British Energy it will own most of the large UK nuclear sites and so will control almost all viable locations for future development. Other companies must be given access to these sites. If not, EDF will be buying a virtual nuclear monopoly.

The deal will also exacerbate a problem in the wholesale electricity market, where retail suppliers buy power from generators. Vertically integrated electricity companies that generate and sell their own electricity, bypassing the wholesale market, have become increasingly important. This has lowered market liquidity, creating a very high entry barrier for independent electricity generators and suppliers.

British Energy is now the largest supplier to the wholesale market, but EDF is vertically integrated. If an EDF-owned British Energy stopped selling to the market, it would significantly reduce liquidity. Ofgem, the energy regulator, should examine the proposals from independent providers to improve liquidity by requiring vertically integrated firms to use the markets to buy and sell a quantity of their output. The electricity market must not turn into a closed shop.

This deal highlights problems in the energy market that should be resolved in any case. The EDF deal should be allowed to go ahead – it is a good buyer for British Energy – but it should also be a spur to action for politicians. With energy prices higher than the European average, UK regulators must take action to make sure that the energy market stays stable, secure, competitive and open.

FT 28 July 2008

Household gas bills could rise by up to 37% and electricity costs by 13% as the government lines up consumers to pay for a green revolution that would move Britain from oil dependence to a low carbon economy.

A renewable energy strategy outlined by ministers yesterday signalled that energy bills could soar by hundreds of pounds, and could push over 2 million extra people into fuel poverty.

John Hutton, the industry secretary, said proceeding with business as usual was not an option in the face of climate change, and added that the price of change was "really quite modest". But he promised special measures to ensure the poorest sections of the community were not hit hardest: "We have got to provide help, if we can, to low-income families particularly those with children, to meet the rising cost of energy."

Surcharges on gas and electricity are expected to reach a peak in 2020 under the government plans, as consumers help pay for £100bn investment by the private sector in wind turbines and solar panels, in an attempt to meet EU targets of producing 15% of all UK energy from renewable sources. The first government estimates of the cost to the consumer are published at a time when British Gas customers could face price rises of a further 30-40% later this summer as a result of a steep increase in wholesale gas costs.

Energywatch, the consumer group, said that every 1% increase in power bills brought 40,000 people into fuel poverty, defined as those who spend more than 10% of their income on lighting and heating. The current number is 4.5 million. ...

Guardian 27 June 2008   Renewable optimism

MEPs threw down the gauntlet today to the 27 EU governments by voting for the break-up of energy groups as the sole way of freeing up gas and electricity markets.

The European parliament put itself on a collision course with the council of ministers and the European commission by throwing out weaker alternatives and demanding tougher consumer rights.

It voted by more than two to one for full "ownership unbundling" — forcing integrated energy groups to sell their power transmission and gas pipeline businesses in a move designed to promote competition and lower prices.

MEPs rejected a Franco-German plan to allow the groups to retain ownership of their grids but empower independent operators to manage them behind "Chinese walls". A stricter version of this, from the commission, was also ruled out.

There are fears the parliament's vote could see the EU's entire energy and climate change package fail to win final approval on time, with France, which takes over the EU presidency on July 1, refusing to put unbundling on its agenda. This would hand greater power to the EU's competition authority to enforce change.

Eluned Morgan, Labour MEP and co-architect of the tough stance, said: "The vote is a victory for European consumers who have been paying over the odds for electricity bills. We need a shake-up of the market to introduce true competition." ...

Guardian 19 June 2008   

The world must undergo a “new global energy revolution” and faces a huge bill of $45 trillion (£22 trillion) if it is to halve carbon dioxide emissions by 2050, the International Energy Agency (IEA) says.

The agency adds that the coming revolution will depend on sweeping changes to the electricity and motor industries, with 215 million sq m of solar panels needing to be “planted” across the globe and a billion electric or hybrid cars required.

Speaking at the release in Tokyo yesterday of its report Energy Technology Perspectives, Nobuo Tanaka, the IEA's executive director, said: “We will require immediate policy action and a technological transition on an unprecedented scale.”

The report, which set an aggressive agenda for impending summit talks on energy, included a forecast that to meet soaring demand for power from emerging Asian economies, at least 32 nuclear power plants must be constructed around the world every year over the next four decades. ...

The Times 07 June 2008   IEA

Half a million people hit by power cuts on Tuesday may just have had a sneak preview of what the future holds ...

This shortfall was a one-off, but the UK continues to sail towards a moment, seven or eight years from now, when the energy gap becomes a much more permanent reality. Despite more than 15 years of warnings that Britain must replace its ageing power stations within the next decade in order to bridge this gap, little has been achieved ...

... it is difficult to imagine work starting on large numbers of nuclear power plants any time soon. That will no doubt delight anti-nuclear campaigners, but there is little prospect of renewable energy (or even planned new coal-fired power stations) plugging the gap Mr Brown claims nuclear will fill. And it won't be long before that means more regular blackouts.

Independent 29 May 2008

In the absence of joined up thinking at governmental level, one would hope for some at the journalistic level.

Most of the sites being considered for new nuclear plants are at coastal locations, & we all know what's going to happen to sea levels in the near future. Cold sea water & hot nuclear reactors do not mix. As one former nuclear worker I met told me recently, when the Larsson B iceshelf goes, you can forget that idea.

Uranium isn't found in the ground in solid seams such as coal. According to one article I read, you need to move 1 million tonnes of earth to extract 1 tonne of uranium. How is this done? With oil powered machinery.

Most of our uranium comes from Australia, Canada or Africa. How is it moved? In oil powered ships.

Energy security: do you think these countries will sell to us or anyone else when the going gets tough? What about the hijack of these ships? Not to mention the fact the inevitably these new power plants will be built with foreign money.

This is of course, before we deal with the 'thorny issue' of how to deal with the waste.

Fact of the matter is, we are going to have to deal with the fact that the era of abundant (let alone cheap) energy is over, with all the potential problems that will bring. Buy a bike, get an allotment, turn down your heating, turn off your air-con & enjoy your next plane flight - it could be your last. We have lived through a golden age - be grateful.

Posted by Jon | 31.05.08, 11:45 GMT

Independent 29 May 2008

Energy companies are preparing to slap hard-pressed households with a second massive hike in utility bills this year. ...

Last week senior Norwegian energy executives also warned government officials and regulator Ofgem that they do not see the UK as a priority for exporting gas. Norway supplies about one-fifth of the gas consumed in this country.

With North Sea reserves dwindling, the UK is facing having to import about half of its gas from countries such as Norway and Russia by 2010.

At the Energy Markets Outlook seminar hosted by Ofgem and the Department of Business, Enterprise and Regulatory Reform (Berr), executive vice president Thor Otto Lohne of Norwegian pipeline company Gassco said that long-term contracts to supply mainland Europe meant the UK could not always rely on Norwegian gas exports, regardless of the price we were prepared to pay.

'The UK is a secondary priority. Like it or not, that is a fact,' he said. ...

Insecurity over gas supplies, and the soaring cost of oil, are factors driving up the price in the wholesale market. Wholesale forward gas and electricity prices have risen by about a third since the start of February when the last round of price rises began. Analysts said that unless these prices fell substantially, it was 'inevitable' that bills would start rising again by August or September. ...

But energywatch warned this weekend that increasing utility bills by 25 per cent would consign another million households to fuel poverty.

The Observer 20 April 2008

Britain's leading scientists have told ministers that plans for a new generation of coal power stations pose an unacceptable climate risk, unless greater efforts are made to trap and store the carbon pollution they produce.

The letter, from Sir Martin Rees, president of the Royal Society, said:

"Allowing any new coal-fired power station, such as Kingsnorth, to go ahead without a clear strategy and incentives for the development and deployment of carbon capture and storage (CCS) technology would send the wrong message about the UK's commitment to address climate change, both globally and to the energy sector.

"I therefore suggest that the government only gives consent to any new coal- fired power station, such as Kingsnorth, on condition that the operating permits are withdrawn if the plant fails to capture 90% of its carbon dioxide emissions by 2020. This would send a clear policy signal to industry of the need to develop and deploy CCS as quickly as possible." ...

In theory, capture and storage technology could remove CO2 from the cocktail of power station exhaust gases and pump it underground, where experts think it should remain for thousands of years. But the technique has not yet been demonstrated on a commercial scale.

The government has announced a competition to build a CCS demonstration plant in the UK by 2014, but campaigners and power companies have criticised the scheme for having too narrow a scope.

The Royal Society letter, a copy of which has been obtained by the Guardian, said: "The mechanisms and policies in place, including the EU emissions trading scheme, do not appear to be robust enough to provide sufficient support for industry to risk investing in CCS, particularly when the costs of this new technology are uncertain."

A spokesman for the society said it was concerned that experts across Europe were not sharing the results of their work on prototype plants, and that some companies were keeping details secret for commercial reasons. ...

The Guardian 03 April 2008

When even the Government's advisers are attacking the public policy they are meant to help formulate, you know there is something wrong. The latest example comes from Dieter Helm, an academic economist who is a member of the Government's Advisory Panel on Energy and Climate Security.

In a withering attack, he lacerates the Government for "political opportunism", muddled thinking and a deliberate conflation of issues which is doing lasting damage to the investment climate for power generation and energy distribution.

...

So why has the Government started meddling to such potentially damaging consequence? The answer lies, of course, in rising energy bills, which at one and the same time is both a potential vote loser and completely trounces the Government's separate policy objective of significantly reducing "energy poverty".

The overt interference started a couple of months back when Ofgem, the nominally independent industry regulator, was told by the Treasury to conduct an investigation into whether the electricity and gas markets were as competitive as they were supposed to be. Initially, Ofgem refused. At the same time, it suggested that the Government help to alleviate the energy poverty problem by whacking a windfall profit tax on the industry, the suggested £9bn being the regulator's calculation of the free ride heavily polluting generators are getting from the the European Union's Emissions Trading Scheme.

For the time being, this operates in a perverse way, in that there is already a price for carbon which is reflected in consumer bills, but the biggest polluters don't pay it because at the outset of the scheme they were granted free permits.

Yet even assuming the regulator's calculation is correct – in fact it has no way of knowing what these generators might have paid for permits – retrospectively to slap such a tax on the industry would have a deeply discouraging effect on future investment. It would mean that whenever a rate of return was generated that the body politic deemed excessive, it would be clawed back. Nobody is going to invest knowing the gains might be expropriated.

Having said there were no grounds for investigation, Ofgem eventually caved in to public and political pressure and said it was going to investigate. To cap it all, the Government has floated the idea that it might be able to solve the energy poverty problem by introducing an industry funded vouchers system. The industry is thus obliged to become a part of the Government's social security safety net.

Energy policy is being sacrificed on the altar of political expediency. If the Government thinks it can do better than an independently regulated market in providing the cheap, clean energy that everyone obviously aspires to in an ideal world, why doesn't it go the whole hog, renationalise and run the industry itself, as it once used to little more than two decades ago? Politicians cannot both enjoy the benefits of the market and expect to abuse it at the same time. It doesn't work that way.

Independent 05 March 2008

Political opportunism and energy policy:
windfall taxes, arm-twisting and their effects on investment

The sad fact about the latest bout of public and media pressure is that under what will probably be just the first episode in a series of price shocks, both the Treasury and Ofgem cracked. They have both behaved opportunistically. With perhaps 35GW new capacity needed by 2020, a mountain of renewables investments needed to meet the new EU renewables targets, and with the government’s desire for a whole fleet of new nuclear power stations, this is one of the worst times to behave in this way [.pdf]