British energy security is in doubt without new generation capacity

 
Guy Hands
FOR those who oppose the renewables industry, the discovery of shale gas is like the US Fifth Cavalry thundering into view. Just when it was becoming difficult to dismiss the role of the renewable sector in easing energy security fears, another argument arrives. We have no need to support or expand other renewables when energy needs can be met cheaply and efficiently through fracking.

It is, of course, good news that additional sources of energy have been identified, although the potential impact of fracking on communities is far greater than that of on-shore wind farms, for example. There is work to be done to ensure shale gas can be harnessed safely in a heavily populated country.

What’s alarming, however, is that long before these problems have been addressed (let alone the first gas extracted commercially), we are seeing demands for cuts in support for existing and new renewable energy. This risks rolling back the real achievement of the sector – which is on course to generate enough energy to power one in ten UK homes by 2015, while also helping reduce carbon emissions. In addition, costs are falling sharply as the industry benefits from economies of scale and technology improvements.

But the sector’s critics claim these impressive results are only being achieved through “Soviet-style subsidies”, which give renewables an unfair advantage and badly distort the market. This is a deliberate misreading of reality.

Far from creaming off an unfair share of support, the International Energy Agency has reported that global subsidies for fossil fuels were six times those for the renewable sector. This huge figure – over $409bn (£271bn) a year – does not include the environmental cost of pumping carbon into our atmosphere. Even in Europe, where there is a carbon market, fossil fuel producers and users pay little or nothing towards their impact on climate change.

And there isn’t anything new about governments intervening in the market to support their energy industries. The US Congress, for example, first imposed tariffs on imported coal to protect their own mining industry over 200 years ago. Subsidies for the US oil industry are almost a century old. The nuclear industry could never have started without massive state support – and won’t be restarted without more public funding. The North Sea oil and gas industry has, in the past, received huge tax breaks. Similar help is already being discussed to help the new shale gas industry.

This is entirely sensible. Energy is inextricably linked to a country’s prosperity and security, which is why energy policy has long been at the heart of power and politics. It is too important and complex a sector to be left solely to the market.

This is not least because meeting a country’s energy demands requires massive up-front investment with a long wait for any return. As a result, there is little incentive to invest in generating capacity, or to keep existing infrastructure up-to-date.

This is a particular problem in the UK, where a large proportion of our generating capacity is coming to the end of its life. Without intervention, new energy production will not be developed at the scale and pace needed to replace the existing plants as they are retired.

The UK government has recognised that it cannot walk away from an area so critical to the country’s future. The new Energy Bill accepts that building this new capacity will need support. There is an understanding, too, that a diversity of supply – particularly when it can reduce dependence on imported energy – is vital. But disagreements over how this should work have already delayed the bill, now carried over into the new Parliamentary session.

With the level of support for each part of the energy industry still undecided, my fear is that the very success of the renewable sector – and the potential role of shale gas in meeting future energy needs – will be used against it by opponents. We are already starting to see the impact of this uncertainty on renewable investment and jobs.

None of this is to suggest that subsidies for renewable energy must remain untouched. In this economic climate, every penny of public spending must be examined closely and it is right that energy policy is the subject of debate. But it is critical that this debate takes place maturely and honestly, based on facts rather than prejudice.

Guy Hands is chairman and founder of Terra Firma, which owns Infinis, the largest independent renewable energy operator in the UK.