Our energy crisis, like America’s debt idiocy, is self-inflicted

 
Allister Heath

IT is easy to laugh at America’s political system, which is once again showing itself to be hopelessly defective as it trundles along towards a possible default.

In a development which oozes geopolitical significance, China and Japan, America’s top creditors, yesterday made their displeasure known in no uncertain terms. It is exactly what those of us who had worried that the US has been over-extending itself feared would happen, though the day of reckoning would, under this scenario, be self-inflicted rather than imposed on it by Asian powers.

But before we in the UK poke too much fun at America’s woes, we should remember that we are no better. Forget about the government’s reshuffle, which will have barely registered outside of the political world. The news that should have been preoccupying Westminster yesterday was the latest worries about the possibility of a partial blackout this winter, with the system expected to be at 95 per cent capacity. The safety margin will thus be just five per cent under the central forecast, the lowest for years and far too small for comfort, though thankfully the National Grid remains confident that the system will cope.

Yet the narrowness of the cushion is almost incredible: we are one of the richest countries in the world, and yet first the Labour party and now the Tories and Lib Dems have deliberately adopted or reinforced a set of deranged energy policies that are pushing us ever closer to the brink of catastrophe. It’s as mad as what the Americans are doing to themselves.

Coal plants have been shut, even though they should have become a more competitive energy source as market prices have fallen; and the UK is struggling to increase its output of renewables, which are costly and often unreliable (wind power obviously fluctuates). As the National Grid put it yesterday, the contraction in electricity margins has been driven by the Large Combustion Plant Directive, issued by the European authorities in October 2001 (during Labour’s time in office) and economic pressure on older gas fired power stations (which has caused them to close or mothball).

The EU Directive’s full effects have been felt over the past year or so, with massive generating stations being shut last December and in March and August this year. This counter-productive and ill-timed process is described in typical Euro-jargon as combustion plants “opting-out”, an Orwellian turn of phrase if ever there were one.

This contraction in supply has been partially offset by the fall in peak demands as a result of greater efficiency and the recession, increasing wind generation and the construction of gas fired power stations. There are lots of other things wrong with our energy supply and infrastructure, and there is a genuine risk of some sort of collapse at some point this decade, a prospect which is making many industrial users of energy very nervous.

The worst thing about all of this is that the UK would be toast had its industrial and manufacturing output not collapsed so disastrously during the recession. It is hard to see how electricity production would have coped had demand been significantly higher, as it would have been had the downturn not been as bad. It is true, of course, that many Tories within the coalition are becoming increasingly restive about all of this, and now realise that the onslaught of environmental restrictions on energy production has had hugely costly side-effects, pushing up prices and reducing supply. Many now also realise that the government made a big mistake cracking down on shale gas exploration: the industry was dealt a devastating blow when the coalition over-reacted to a very minor tremor caused by fracking two years ago and has yet to recover, despite George Osborne’s best efforts. Tragicomedy isn’t the preserve of the US federal government; we are becoming pretty good at it ourselves.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath