Energy security and lower prices must take priority after Paris climate change agreement

Tony Lodge
Over the last ten years, household electricity bills have risen by 131 per cent in real terms (Source: Getty)
George Osborne told Conservative Party Conference four years ago: “We’re not going to save the planet by putting our country out of business... so let’s at the very least resolve that we’re going to cut our carbon emissions no slower but also no faster than our fellow countries in Europe.” These encouraging words alerted many to the fact that the Treasury was finally taking clear control of UK energy policy after years of drift.

Given what was agreed at the Paris climate change summit last weekend, however, the situation may no longer be so rosy.

The carbon reduction targets agreed at Paris will be left up to each country to decide and their implementation will not be legally binding. The legal obligation will be for countries to set increasingly steep targets for cutting carbon emissions and to submit to five yearly reviews. But most states will not be committing to the kind of targets already set in the UK’s Climate Change Act.

After Paris, Parliament now needs to know what the government plans to do against its existing and legally binding carbon reduction and renewable growth targets. Is the government planning to saddle energy intensive industry and the electricity generators with even more costs, particularly relative to our competitors? This would come after months of skilled job losses in industry and early power plant closures.

There are echoes here of when Tony Blair took it upon himself in 2007, at an EU Summit, to commit the UK to unilateral and steep increases in renewable energy growth to 2020, which the government has now accepted it cannot meet. Governments have spent hundreds of millions of pounds of taxpayer’s money on subsidies for wind, solar and wood pellet technologies. The new Conservative majority government has started to rein in some of this spending but not by nearly enough. These schemes receive subsidies at more than twice the present price of electricity.

Any move by the government to further increase its targets for carbon reduction after Paris, beyond their already steep trajectory, will risk energy price spikes and more job losses, and will carry the very real risk of electricity supply issues in the future. But why?

Over the last ten years, household electricity bills have risen by 131 per cent in real terms, up by £705, easily outstripping any other household essential. High energy prices also burden British industry, jeopardising in particular the jobs of 225,000 workers in manufacturing, as businesses consider closure or overseas relocation due to unaffordable production costs. These companies are highly energy efficient but nevertheless consume large quantities of energy, which can account for between 20 per cent and 70 per cent of their production costs. High energy costs have especially hurt the British steel sector.

Importantly, the trend of bad policy has been developing over many years as a result of EU-imposed rules and repeated domestic interventions from Whitehall. Over the last five years, Britain has lost more than 15,400MW (20 per cent) of its dispatchable electricity generating capacity (these are supplies which are there when needed) as coal, oil, gas and nuclear power plants have closed with no equivalent replacement. EU rules and high UK carbon taxes are to blame.

New Centre for Policy Studies research shows that Britain’s average dispatchable electricity generating capacity available next April is calculated to be just 52,360MW; this contrasts with National Grid’s 2015-2016 Winter Outlook electricity demand forecast of 54,200MW. In short, we are losing too much vital dispatchable capacity too quickly; such thin or non-existent margins will not only affect electricity availability but also lead to price spikes. Last month, National Grid used emergency measures for the first time to call on industry to reduce its power usage in order to avoid shortages. Ministers want to see new gas-fired power stations built to generate electricity, but their construction is nearly five years behind schedule. The last government’s Energy Act was designed to fast track these plants but the policy isn’t delivering.

If the government wants to keep the lights on and avoid shortages and price spikes, it must now show that it is serious about delivering security of energy supply with new policies. It needs to set out how it will encourage plant for plant replacement of vital power stations despite the failure to encourage new gas-fired power plants in last week’s capacity market auction.

It must change policy to encourage and deliver the construction of up to 30,000MW of new power plants over the next ten years. These new gas plants will run through until around 2045-50. Consequently, unless it wants to put Britain’s future energy security at risk, the government must do nothing – including tighter carbon budgets on the back of Paris – to undermine the case for their construction and delivery.

Related articles