EU Referendum

Energy: a choice of policies


It is interesting to see, at last, some of the MSM catching up with the implications of the growing energy crisis, not least The Daily Mail which had a robust leader on the subject yesterday.

Rehearsing issues familiar to our readers, this paper declared: "One of the first duties of any government is to ensure that the lights stay on and the wheels keep turning." It then added: "It is no exaggeration to say that energy is as important as the armed forces or the police. Without one, you can't deploy the others."

This was a welcome statement. As one of the few UK political blogs to be banging the drum about the coming energy shortage, we sometimes wonder whether, as a voice in the semi-wilderness, we are getting things out of perspective. The Daily Mail, in that context, offered some reassurance.

In fact, though, it did not go far enough. It is hardly possible to exaggerate the effects of a major power crisis on the policies and activities of this country.

For instance, much has been written about the housing crisis, and the increasing difficulty in obtaining mortgages. Not least of the problems is that mortgage companies have long ceased offering 100 percent (and higher) mortgages and are now requiring substantial deposits amounting to tens of thousands of pounds.

For those who are trying to save such sums, the erosion of their incomes by higher energy bills can only have a deleterious effect which, over term, can only delay (or even prevent) the recovery of the housing market.

If this is just one instance, look to other policy areas which the Conservative Party holds dear. Education would be a good start, where one can ask what the effects of higher energy prices might have on already stretched school budgets. What happens to plans for improvements when increasing sums are absorbed by the need just to keep schools heated and lit?

That, though, does not even begin to factor in the broader implications. If, as is widely anticipated, we do start seeing serious shortfalls in capacity which lead to power cuts, education suffers in a more direct way as children are sent home – perhaps for prolonged periods as their schools are deprived of power.

Many other examples can be given of the profound impact of electricity shortages but it is as well to remember that, long before we experience universal power cuts, the utilities will already be taking steps to deal with the problem.

Amongst these will be a rolling programme of load shedding, cutting supplies to large industrial and commercial users, as a means of keeping the home lights burning. This, over term, will have a major economic impact as production suffers, wages are cut, profits slashed, tax payments evaporate and unemployment soars.

For good reason, therefore, The Mail calls for urgent action – but we know that in the dying days of a discredited and intellectually bankrupt government, this is not going to materialise. Having neglected energy policy for eleven years, this fag-end of a Labour regime is not suddenly going to pull itself together and produce a workable policy.

More ominously, for New Labour, there are selfish and highly partisan reasons why it should not deliver. Given that the overwhelming odds are that it will lose the next election, ceding to the Conservatives, the focus is on seeking to ensure that the first term of the new government is the only one. The Labour view will be, the worse a mess the Conservatives inherit, the better.

As did New Labour benefit from the economic policies put in place by the preceding Conservative administration, Labour strategists can see value in engineering a reverse situation. The Tories must be saddled with major problems, putting them on the back foot and forcing them onto the defensive. A major energy crisis would be a highly effective means of achieving this.

From now until the election, therefore, the Conservatives should be expecting their rivals to be seeding the political terrain with minefields and booby traps, all carefully designed to maximise the stresses on the new administration. Not least of these, of course, is Mr Brown's windmill programme which industry insiders readily admit is unachievable – yet it is Mr Cameron who will be blamed for the failure.

With two years to run before Brown finally goes to the country, there is plenty of scope for more mischief, but that does not mean that the Conservatives can do nothing. The most obvious political antidote is to confront the government, making it plain that the fundamentals of its policy are flawed - thus putting down markers which will distance the new government from the policies of its predecessor.

The next thing that must be done is the production of a sound energy policy. But here, there is an interesting political dynamic. Tory strategists currently are unwilling to roll out policies for fear that Labour will themselves adopt them. But there should be no such problem with energy. Such is the long lead time required to turn policy round that anything of importance proposed now will fall to the new administration to deliver.

However, therein lies the greater political problem. Although the Taxpayers Alliance asserts that the Conservative Party "seems to have learned its lesson" from its over-enthusiastic embrace of the green agenda, there is actually no evidence as yet that this will bleed into energy policies.

More worrying is the fact that there is not even any evidence that the Tories have woken up to the scale of the coming crisis or have begun to formulate a sensible response. All we have to go on is a badly-phrased and weak statement - entirely lacking in detail - from shadow energy minister, Charles Hendry. He pledges only that he will strive "…to come up with the best policies for the UK and its future security."

Even The Daily Telegraph seems to be losing patience with this laid-back approach, declaring in its own leader yesterday that, "The Conservatives, who have finally ditched their naive view of nuclear power as 'a last resort', should start publicly championing new nuclear generation, both for its green credentials and as the only way to stop the lights going out."

The trouble is that it is not as simple as that. The Mail itself notes that in 2006 this Labour government turned its back on British expertise in the nuclear field by selling Westinghouse, our one major nuclear engineering firm, to the Japanese for a knockdown £2.8billion. This puts us in the situation of having to rely on foreign expertise. But this is only one of the reasons why the deal on British Energy was so important - getting into bed with EDF would have put us in the queue for new capacity.

On this, before even the deal collapsed, we were drinking in the last chance saloon and "time" has now been called. Few people seem to realise that the nuclear industry is undergoing a resurgence in terms of orders. Plans are already in hand, world-wide, to build as many as 50 new reactors by 2020. But, after decade of neglect, there is no longer the industrial capacity to meet demand. As the Energy Policy Blog points out, only a handful of companies are capable of manufacturing the highly specialised components of reactors and pressurised vessels.

As orders pile up, the waiting list for deliveries is getting longer and, with a growing number of US utilities lining up to build nuclear power plants, experts reckon completion times would stretch from 2015 to 2020. And that assumes no major regulatory or licensing hurdles. We are now not even at the back of the queue - we have not even joined it.

Taking a realistic view of our current predicament, therefore, new nuclear plants are not, as The Telegraph avers, "the only way to stop the lights going out." In the short to medium-term they are no answer at all. There is simply not enough time to bring new capacity on stream.

However, relying on gas for the "quick fix" is the route to disaster. Although natural gas prices might have currently stabilised – owing to a recent slackening of demand - in the longer term demand is expected to expand substantially. Prices will be driven up to unsustainable levels. For increasing numbers, electricity and heating might become an unaffordable luxury. Hundreds of thousands more will be forced into poverty, the economy will suffer and the balance of payments deficit will soar.

Any Conservative government must, therefore, look to solutions in the short to medium term which lie outside either new-build nuclear or gas plants. Nor are renewables a solution, as recently emphasised by E. on's Paul Golby. For relief, it must look elsewhere.

Golby, in fact, suggests a mixture of nuclear, renewables and coal, but the reason new plant is so urgently needed is because we are shortly to lose a third of our generating capacity through the combined effects of the EU's Large Combustion Plants Directive and the retirement of our ageing nuclear plants.

The short-term answer, therefore, is obvious. The plants which are to be closed by the EU must remain open, at least until replacements are assured. And, if that means confronting the EU, so be it. If Mr Cameron wishes to prove his eurosceptic credentials, there is no better issue on which to drawn the line.

Of course, there may be scope for renegotiating the timescale, as other EU member states are in the same mess with their energy policies. But utilities need notice if they are to delay the wind-down of the plants scheduled for closure, otherwise the wind-down may be too far gone to arrest. Cameron must signal his intentions now.

Secondly, the industry must be encouraged, by whatever means necessary, to invest in a major life extension programme for the existing nuclear plants – which are due for closure by 2015. This again needs to be signalled well in advance as the earlier the decision is taken, the easier it will be to spread the not insubstantial costs.

Thirdly, reliance on imported coal must be reduced – if not eliminated. Demand for coal world-wide is increasing, leading to a substantial hike in prices. Continued reliance on foreign supplies will incur a substantial cost penalty.

As of last year, the UK consumed 62.7 million tons of coal, of which 52.4 million tons was used for electricity generation. Yet, while known UK reserves of coal are sufficient to last 200 years or more at current rates of consumption, the British coal industry actually produced 17 million tons in 2007 (with 2.9 million tons lifted from stock). Yet it imported 43.3 million tons. Of this, 22 million tons came from Russia and 12 million tons from South Africa. Supplies were also obtained from Colombia, Australia, Indonesia and the United States while 852,000 tons were imported from Poland, 46,000 tons from Spain and 41,000 tons from Germany.

That determines a fourth element to a rational energy policy. Clearly, there must be a significant policy shift towards support for indigenous coal production, followed by a switch from gas-fuelled plants back to burning coal for electricity generation.

To pursue these four solutions, however, it is essential that the regulatory framework and matrix of financial penalties and incentives must be drastically revised - the fifth leg of a new policy. As it stands, through the EU's emission trading scheme (ETS), the climate levy and the renewables obligation certificate (ROC) scheme (as well as the Large Combustion Plants Directive), the use of coal and nuclear energy is penalised while renewables are actively encouraged with huge financial incentives.

Pulling out of the ETS, and ending the ROCs and the climate change levy, would, by 2013, liberate over £5 billion a year, making it avaialable for investment without adding to energy costs. Redirecting that income into funding generation capacity and developing indigenous coal production would go a long way towards solving our energy crisis.

That, in effect, dictates (or should dictate) the direction of future energy policy. Currently blighted by the obsession with climate change, affordability, energy security and supply have taken the back seat. What the Conservatives need to do is redress the balance, putting these three parameters first.

Furthermore, a highly desirable outcome would be to put a new government directly in conflict with the EU's climate change programme, not least because it would necessarily mean that the 20 percent renewables target would have been abandoned. That would be another test of Mr Cameron's euroscepticism – to say nothing of evidence of a more "pragmatic" approach to green issues.

Of course, this would provoke the global warmist fraternity and the rabid eco-warriors into a frenzy. But, given the choice between expensive and wholly irrelevant measures aimed at limiting global warming – especially following a few bad winters – and the assurance of affordable and continuous electricity supplies, the odds are that the large majority of British voters would opt for the latter.

The alternative for Mr Cameron would be the prospect, in the not too distant future, of standing at the despatch box explaining to the nation why the lights have gone out and why it is that there is nothing he or his government can do about it. In electoral and practical terms, the choice is a no-brainer.