By Paul Homewood
It’s a pity the media did not wake up to these problems years ago, when the policies leading to the current mess were set in motion:
Power prices are soaring. Domestic suppliers are going broke. And blackouts are threatening to close down the economy. You might think that amid widespread labour shortages, the disruption to trade from our departure from the European Union and the still uncertain recovery from the Covid-19 pandemic, the British economy had enough challenges to cope with right now. And yet we are also on the brink of a major energy crisis. Even worse, our increasingly hapless Government doesn’t appear to have a clue what to do about it.
That isn’t good enough. We need a plan for securing our energy supplies, both through this winter and over the next few years. We need to recognise that while transitioning to green energy may be fine in the medium-term we are going to need lots of back-up while that happens. And we need to acknowledge that while competition is all very well, having lots of fragmented, financially flimsy suppliers of energy is not helping anyone. The UK needs to create an energy system that is both stable and secure – because power cuts over the winter would be catastrophic.
It is only September, and already the supply of gas and electricity over the winter looks perilous. Just take a selection of headlines from the last week alone. Ireland has frozen power exports to Britain after unpredictable weather sparked a squeeze on supply.
We have had to ask the French to send less power across the Channel after technical problems with a trading platform threatened a surge in supplies. Two energy suppliers, PfP Energy and MoneyPlus Energy, stopped trading after struggling to cope with rising power prices, and a whole string of smaller suppliers may collapse before the autumn is over. Two coal power plants were taken off standby amid soaring prices, while nuclear power, long dismissed as a relic of the 1960s and 1970s, was given a boost as its green credentials were re-evaluated. The list goes on and on.
Organised? Reliable? It doesn’t sound like it. In truth, add it all up and the supply of power looks precarious. Anyone could be forgiven for deciding it might be wise to have a few boxes of candles in the cupboard in case the lights go out and a really powerful battery somewhere just in case that is the only way to charge up your phone.
Whether the UK stumbles into a major energy crisis remains to be seen. We may just about muddle our way through, as we so often do. But we could be just one supply shock, or a long cold spell, away from real trouble. Any country can manage a power shortage with rolling blackouts, and shortening the week for factories and schools.
They are an everyday feature of life in many countries. But it is not really a club you want to join (the top four countries for blackouts, in case anyone was wondering, are Bangladesh, Albania, Lebanon and the Congo). If it does not get a grip soon, the UK may find itself on the list.
There are two big issues disrupting the market. First, unreliable weather is hitting the renewable energy sector. Next, the domestic market is a mess, with lots of different suppliers, any of which could disappear at any time. So how do we fix that? Here are three places we could start.
First, the UK needs more back-up supply. A huge proportion of our electricity now comes from wind farms. That may well be great in the medium term but while the capacity is being created, we need to make sure there are plenty of alternative sources of supply, and they can be turned on at the flick of a switch. It might come as news to ministers, but the weather is, er, changeable, and always will be. We can’t be left at its mercy. If that means we have too much capacity, and we are paying for plants that sit idle most of the time, then so be it.
Next, we need to reform the regulation of energy suppliers, and restructure the way the market works. There is nothing wrong with the concept of having lots of resellers. It introduces an element of competition into what otherwise would be natural monopoly and should improve customer service and bring down prices as well. But right now we have more than 60 players in the market. A choice of four or five would achieve the same results and larger companies would be a lot more financially stable, and easier to monitor. There is a difference between competition and chaos, and we have opted for the latter.
Finally, we need to build both resilience and self-reliance into the system. It is fine to trade power across the English channel and the Irish Sea. Especially with renewables, different countries can produce at different rates, and times, and trading to even out supply and demand makes a lot of sense. But energy is not exactly optional for an economy or, come to think of it, for the country. In a crunch, the UK needs to be able to generate its own power – and not rely on others.
With labour shortages, Brexit, and the recovery from Covid – the very last thing the British economy needs right now is power cuts. Our economy already has a very 1970s-feel to it: taxes are rising steeply, inflation is looking ominous, the unions are restive, and public spending is out of control. No one wants power blackouts and three-day weeks to complete the picture.
In reality, the Government needs to come up with a strategy right now for fixing the market, and making sure power supplies keep flowing – after all, it is going to be a heck of a lot harder to do that by candlelight.
Matthew Lynn is wrong on one point, when he says:
“We need to recognise that while transitioning to green energy may be fine in the medium-term we are going to need lots of back-up while that happens”
In reality the more renewable power that gets added, the less reliable the system will become and the more back up will be necessary.
And it’s not clear where he thinks this new back up will miraculously appear from. At the very minimum, he should be demanding:
- An immediate suspension of coal power plant closures, if necessary aided by subsidies.
- An immediate suspension till further notice of CfD auctions. If wind farm operators want to build new farms, let them do so without guaranteed subsidies
- A “intermittency surcharge” to be imposed on wind and solar power, so that they pay the cost of providing standby power
- A rule insisting that all new wind and solar plants include sufficient storage to supply nameplate capacity for, say, one week
- Abolition of carbon pricing, which has distorted market mechanisms, and is largely responsible in Europe for the massive rise in energy prices this year.
- Immediate suspension of moves to electric cars and heat pumps
- Abandoning strategic plans which rely heavily on imported power, and replacement with plans which prioritise the provision of sufficient, reliable home grown power.
These problems have been building up for years. Mr Lynn’s fiddling around at the edges will make little difference.
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September 11, 2021 at 07:54AM