IF IT is set to be a cold comfort winter for households as domestic energy bills are hiked, the political temperature is heading in the opposite direction: an explosive boiling point.
The truth of UK energy policy has been lost in a maze of subsidies, charges, floor prices and renewables targeting that has led to relentless price increases.
The latest 8.2 per cent rise announced by SSE will almost certainly be followed by the other energy suppliers and will raise the average domestic dual fuel energy bill by £106 to £1,380.
It is, said one industry expert, “the final nail in the coffin for affordable energy”. But it is only a wonder how it has taken so long for this nail to strike home.
Last week’s announcement may have given the impression of hapless energy companies struggling against the impersonal forces of world energy markets. But this is a crisis largely created by successive UK governments. I am grateful to leading energy expert Tony Lodge for an analysis published by the Centre for Policy Studies. Not everyone will go along with some of his radical suggestions, but his account is a useful aide-mémoire of how we got here.
Back at a meeting of the European Union Council in 2007, Tony Blair committed the UK to have 15 per cent of our total energy derived from renewables. The level at the time was just 1.2 per cent. No economic impact assessment was put before the prime minister, or indeed commissioned, though in fairness such an exercise could only have been speculative guesswork.
This ambitious target was dwarfed by the commitment to source 35 per cent of electricity from renewables by 2020. Given the tide of political enthusiasm for green energy at the time, when the PM’s finger pointed at the moon, who dared to examine the finger?
Last year renewables, including biomass, provided less than 11 per cent of UK electricity, against coal and gas combined at 70 per cent. So the huge switchover inevitably involved substantial costs and sharply higher bills both for business and household consumers. But there was another problem: decommissioning of existing coal-fired plants could land the UK with a crisis of supply. National Grid recently warned again about blackouts and price spikes.
The 2007 commitment was followed in 2008 by the Climate Change Act setting a legally binding framework for a 34 per cent cut in greenhouse gas emissions by 2020. Alongside this was a commitment to close 12 gigawatts of coal and oil power plants by 2015 to meet EU emissions rules. The coalition went along with this and the Scottish Government embellished it. However, new gas plants remain unbuilt.
Further intervention brought a new UK price for carbon emissions from power plants, much higher than in the rest of Europe. It was supposed to encourage the building of low-carbon power plants. Instead it resulted in higher prices being slapped on coal and gas plants, pushing up consumers’ bills. The UK carbon tax is expected to add about £1 billion a year to renewables subsidies in 2017.
Meanwhile, a new Emissions Performance Standard will be introduced to ban new coal plants, irrespective of the coal price being low, largely as a result of the US shale boom.
Contrast all this with Holland and Germany, where new coal plants are being completed, with more planned. These efficient plants will be able to take advantage of record low coal prices.
Lodge says: “We must drop the pretence that the UK enjoys an electricity market – it doesn’t. Instead it has created, through decarbonisation targets, a heavily interventionist and subsidy-drunk sector which is highly regulated.”
Among his recommendations are that we should stop building wind turbines (“expensive and do not provide electricity on a viable, reliable or economic scale”); amend the Emission Performance Standard so that new modern coal power plants can be built; stop subsidising solar and re-examine subsidies for biomass wood imports; develop a shale industry; continue to improve energy efficiency and drop the carbon price floor which has been raising electricity bills.
The 2007 Blair pre-crash draconian targets should be dropped. They were “ill-founded and unworkable and the UK should no longer be bound by them”.
Finally, he urges that “we should cut the ‘greenwash’ and lies about green jobs. Redundant shipyards and factories across northern England and Scotland were promised a bounty of marine and wind-related manufacturing work generating tens of thousands of jobs. It wasn’t and isn’t true.”
And if this is not enough to concentrate minds, perhaps this might help: renewable subsidies look set to rise from just under £2bn this year to more than £5bn by 2018-19. Onshore wind will receive a guaranteed electricity price double the typical wholesale price and offshore wind will receive triple the typical wholesale price.
Renewable energy subsidies have failed to deliver reductions in cost. Government policy was supposed to reduce costs by creating economies of scale and driving technological innovation, but renewable energy still requires very similar levels of subsidy.
Despite this, the Committee on Climate Change has warned that “required investment is at risk” unless higher subsidies for offshore wind are provided. Matthew Sinclair, chief executive of the Taxpayers’ Alliance, says: “If the government are serious about easing the pressure on people’s living standards, they need to take action and scrap lavish renewable energy subsidies. And it is a joke for Ed Miliband to pretend he is taking on the Big Six on behalf of consumers, when he is proposing to keep the targets in place.”
His conclusion is hard to dispute. If politicians are serious about helping families struggling with their bills, then they need to do something about their “dysfunctional and painfully expensive energy policies”. Amen to that.