Friday 22 February 2013

by Alan Simpson

 

 

 

What a grubby little energy market we have constructed in Britain.

As Alistair Buchanan, the head of Ofgem, warns of looming gas and electricity price rises, it is worth a brief look at the politics behind what is going on. It boils down to energy companies “gaming” the energy market and government incompetence hanging the public out to dry. Plus ca change.

I began to warn about the great energy stitch-up shortly after Ofgem produced its electricity capacity assessment in October last year.

At that point Ofgem was concerned that Britain’s “capacity margins” – the safety net surplus of electricity supply over peak demand needs – would fall in 2015-16 to somewhere around 5 per cent. At the moment, the margin is closer to 15 per cent.

News reports at the time trumpeted fears of “the lights going out” in 2015. This was mainly Horlicks, and wasn’t what Ofgem was saying. All it meant was that, on current policy assumptions, Britain’s electricity safety margin could drop to the same levels that other parts of Europe currently work on.

However, if Britain installs more renewables the margin improves. If we insulated the homes of the fuel poor it would do the same. Ditto if we built new interconnectors or energy storage systems. But the most intriguing Ofgem reference was to gas supplies.

“Some of the most difficult issues to form a firm view on are whether new gas-fired generation will be built over the next four years [and] whether new gas stations (CCGTs) that have been taken out of operation (‘mothballed’) will return…”

Ofgem isn’t allowed to speculate about reasons, but as soon as you lifted the lid on this you could see what was going on. Energy companies were starting to “game” the market. Existing gas plants, and permissions to build new ones, were being put on hold.

You might not convince the public about this, but the argument given by power companies was that British energy prices were too low to keep gas stations running.

My view was that we were being set up for an artificial crisis, and that this would come much earlier than 2015. That is where we are today.

Britain has some 11GW of older, mainly coal, power stations that will be closing by 2016, because they will not meet new European emissions standards.

Companies not intending to clean up their power stations were all given coal quotas for production up to that date.

This was where energy companies saw the space for an enormous scam. Use up your coal quotas as fast as you can, mothball gas plants, and you have a ready-made energy crisis that the government has to throw money at.

To make the scam all the easier, the government decided to bring its own confusion to the party.

The Energy Bill currently going through Parliament must be the worst energy Bill I have seen in the last 20 years.

It is a shambles from start to finish, Britain’s equivalent of the Maginot Line – a hulking great monster of a Bill that will do nothing for Britain’s energy security, will cost the public a (not so) small fortune, and will be completely unsuited for the energy future the world is already moving into.

The Energy Bill will be completely rewritten long before it is implemented. But in the midst of its policy confusion, energy companies spotted the scope for some lucrative profiteering.

The Bill includes a “capacity mechanism” that will pay energy companies to have back-up plant to supply electricity when demand threatens to outstrip supply.

Energy companies want these payments to be as handsome as possible. Mothballing gas plants helped to remind ministers that generous subsidies will be needed to avoid an energy/political crisis they might wish to avoid.

The government will dutifully oblige and the public will (grumpily) pay up. But it will do nothing to break the extortion racket that is Britain’s current energy market.

Worse still, it will push the number of British households living in fuel poverty up towards the nine million mark long before 2020.

Those who argue that this is a loveless coalition government may draw comfort from the mutuality in their pursuit of follies.

“Climate deniers” in the Treasury continue to throw money at fossil fuels, while “financial reality deniers” in the Department for Energy and Climate Change (DECC) do the same with nuclear.

For two parties devoted to market liberalism, this Bill could be the biggest act of corporate socialism in my lifetime – redistribution from the many to the futile.

Ofgem’s warnings are not to be scoffed at. DECC has often looked incapable of negotiating an unconditional surrender, and its discussions with the nuclear industry are not going well.

It looks as though new nuclear will need a price guarantee of twice (three times?) today’s wholesale price of electricity, for 40 years.

Ministers do not even bother to ask why their preferred source of energy requires subsidies of so much, for so long. Even less do they question the spiralling cost trajectory that new nuclear is on.

For the public, the cost will be paid in bills, other choices – and lives.

For less than the cost of a single new nuclear power station, Britain could take seven million households out of fuel poverty.

For less than the cost of the bribes that we will pay for reopening mothballed gas power stations we could have a renewable energy programme that would deliver sustainability, and a decentralised system of generation, and distribution that would turn a cartel into an energy democracy.

As it stands, hundreds of thousands of the fuel poor will die in this decade, waiting for energy that will not arrive until the next.

Millions more will face rising fuel bills for energy set to become less and less affordable, while better choices slide off the table.

This is not a programme, it’s a road crash. The only sources of energy with genuinely falling cost curves are all being sidelined.

The only technologies able to democratise the energy sector are being squeezed out of the market. And the delusions of the past are all set to blight the future.

In the face of the Ofgem warnings, fossil fuel addicts are already clamouring to keep the old, polluting power stations running. Sod the planet, just prop up the past. It’s the price, we will be told, for keeping the economy going.

In addressing Britain’s great energy stitch-up, I’ve tried to hold off on comparisons with choices being made in Germany. But let me finish on this note. The biggest indictment, the most cruel comparison, is to look at what the Germans have been doing.

The Germans understand the future in a way that we don’t. Smart technologies will drive their future energy systems far more than power stations.

Markets will sell non-consumption (energy saving) more enthusiastically than new energy consumption. And lower carbon emissions will be seen as the engine of economic prosperity, not its enemy.

Just look at what this has meant for Germany over the last decade.

• Over 400,000 jobs have been created in their renewable energy sector in the last five years.
• The German renewables market will be worth €2,200 billion by 2020.
• German solar prices have already fallen so much that they are equal to the price of purchasing power from the electricity grid.
• The avoided cost of fossil fuel imports will be worth €22 billion by 2020.
• Renewable energy investment increases German GDP by over €20 billion per year
• German national debt will be €180 billion lower, in 2030, than it would be without their climate protection measures, and
• The German economy will create a surplus of €0.34 for every reduced tonne of CO2 it delivers.

If there is a difference between patching up the planet and stitching up the public, this is it. Britain may not get the message, but we will certainly pick up the bill.

• Alan Simpson was Labour MP for Nottingham South from 1992 to 2010.