Michael Grubb
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The UK energy strategy is both incoherent and cowardly

FULL VERSION OF A FINANCIAL TIMES OP-ED (Abridged, FT 7 APRIL 2022) WITH THIS TITLE. SIX MONTHS LATER THE UK GOVERNMENT RELAXED ITS DE-FACTO BAN ON ONSHORE WIND ENERGY IN ENGLAND

The defining feature of the UK Energy Strategy is its incoherence. It doesn’t know what problem it is trying to solve – and thus fails to solve any. By largely ignoring energy efficiency and kicking the only possible short-term supply option into the long grass, by “consulting” about cheap onshore wind through “local partnerships” in a “limited number of supportive communities in England” – it most certainly won’t help families – or companies – struggling with energy bills for the coming winters.

The most credible element is on offshore wind, the great success story of the past decade. After the government effectively blocked most onshore in 2015, we’ve shown we can go offshore where capacity has grown sharply in recent years.  Up from almost nothing fifteen years ago, we are approaching 25 GW of wind overall, generating a similar percentage (almost 25%) of UK electricity split almost equally between offshore and onshore generation.  The strategy ups the offshore target for 2030 from 40 to 50GW.

That’s very ambitious but possible. At that level, wind (including existing onshore) would supply around two-thirds of current UK electricity demand, but UK demand is projected to rise with electric vehicles and heat pumps.  Wind generates more in winter, when energy demand and gas prices are highest.

But offshore wind involved very big and complex kit from only a few suppliers, it usually takes 3-4 years from contract to completion, and the pace of expansion could stress supply chains and drive up costs. If it were all concentrated in the North Sea, there would be immense challenges for the grid – both transmission, and in managing the peaks and the troughs. Wind is best when distributed more widely.

The cowardly failure in the Strategy concerns onshore wind. It is not only our cheapest energy resource – onshore wind would typically cost about third to a quarter of what people are now paying for their electricity. It is, along with solar, the only one that could make a dent in the short term. Any energy company or local authority can buy a wind turbine off-the-shelf.  It would take a few weeks or months to install.  But getting planning consent would take years – because the planning regulations were redesigned in 2015 to stop it. To “consult” with a “limited number of supportive communities” on our cheapest and quickest option for clean, cheap energy is hardly a Churchillian response to our national energy crisis.

Solar PV

50GW of solar PV – about four times current levels – was being floated, but doesn’t in the end appear in the Strategy. When the government first introduced incentives for solar, the capacity rocketed from 1 to 10GW within barely 3 years, so 50GW could be possible within a few years.  50GW PV would supply around 20% of UK currently UK electricity demand. There is little solar in mid-winter, but it would be a great complement to wind energy and take pressure off gas during long summer wind lulls, and annual needs particularly if the UK developed inter-seasonal gas storage – another silence in the strategy.

Nuclear

The Strategy proposes 24GW of nuclear power capacity by 2050, from 6.9GW at present. The initial proposal is to commit one new plant, likely the £20bn Sizewell C project in Suffolk, before the next general election. That illustrates the problem – or rather three – facing nuclear.

  • It is slow. Based on all our past experience, a new big nuclear would take a decade. If it takes an energy crisis for the government to actually take a decision, sobeit, but it wont help to solve the crisis.
  • It is expensive. Nuclear depends on public subsidy, with the government committed to taking a sizeable financial stake to make it viable.
  • A nuclear fleet would need to be flexible, to ramp up and down with the swings of demand, wind, and solar, which further undermines the economics.

The Treasury might be pressured into forking out for Sizewell, but don’t expect them to underwrite 24GW, let alone see any of that built in this decade.

Energy efficiency

Energy efficiency was ignored in the Press Release for the UK Strategy, but – after a curious delay in publication – appeared up front in the Strategy itself.  On the surface, it’s an impressive list.  On closer inspection, it is almost entirely a reiteration of existing bits and pieces; fragments of support for what, before it was wrecked during the early 2010s, had once been a significant national effort to bring our antiquated buildings stock up to modern standards.  If the government can set out a 30-year strategy for nuclear, why can’t it manage even a 30-month strategy for energy efficiency even with the impetus of a major national crisis?

North Sea oil and gas

The Strategy confirms plans to issue licences this year for production from existing discoveries, considered as “pretty much ready to go” if oil and gas companies would exploit them. If and when those do get onstream, they won’t significantly affect the price since producers sell on international oil and gas markets –they’d hardly touch these assets otherwise. And there is a reason why UK output has been declining – we’ve depleted a lot of our reserves, and it will get harder and/or more costly to get more out. We can stave off the decline a bit.  And in the aftermath of the IPCC reports on climate change, it is – rightly – a tough sell trying to tell the world that we need to move away from fossil fuels, whilst aiming to squeeze out every drop from the North Sea.

Shale gas

Proposals to re-open the door to fracking – somewhat muted, it seems – upset environmentalists. Probably, they shouldn’t be too worried, apart from the wider signal it sends.  A decade ago many European countries opened up for shale exploration and almost nothing came of it.  You need to drill dozens, maybe hundreds of wells just to find out exactly what is down there and what it will take to get it out.  Whatever the government does, don’t hold your breath for shale to be – if and when anything actually emerges – anything more than an uneconomic trickle.  It sure won’t help with our energy price crisis.

Rationing?

The government has reassured us all that the government will not consider rationing gas supplies, unlike some European countries that have set in motion contingency plans.  The UK situation indeed differs, because our supplies are mainly divided between North Sea – Norway, and our own – and global trade in liquified natural gas.

But our pockets – and the Treasury – should be worried.  In the Russia-EU standoff, if either side really cuts off the gas, all hell will break loose in the international markets, and we would have to outbid both the EU and Asia for gas supplies.  That wont be pretty.  Indeed It could look like the oil shocks of the 1970s which rocked the entire global economy, and slashed GDP growth globally. The UK would be just a bit player in that, and the energy strategy does nothing for that scenario either.

Conclusion

The ultimate irony of a Strategy borne of a crisis is that by the time most of its proposals see fruition – if they do – the crisis will be long past. Global energy markets will have completed their gyrations and returned to normal, and Putin may no longer be in power.

But a lot of consumers and companies will have suffered horribly. We also risk undermining much that the UK has achieved on climate change. By failing to focus centrally on a joined-up strategy to solve these twin crises together, it fails to offer the energy sector the consistent signals that investors need, and may even worsen the short-term bills crisis, whilst our international credibility teeters on a knife-edge.

This blog was written on 7 April 2022 and appeared in abbreviated form in the Financial Times on 11 April 2022, at https://www.ft.com/content/3fe73617-5f8f-4b70-8856-ca53e2ec92b3

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