Tony Lodge: A Gigawatt or a Megawatt? Why the PM must get a grip on energy policy.

Tony Lodge is a Research Fellow at the Centre for Policy Studies.  His latest pamphlet, ‘The Atomic Clock – How the Coalition is gambling with Britain’s energy policy’ was published by the CPS earlier this year.

David Cameron said all the right things about energy policy yesterday.  Speaking to energy ministers from 23 leading countries he called for a balanced mix of fuels to meet future electricity demand; the need to campaign for a global carbon price and the need to reduce the large subsidies needed to support renewable energy. 

Frustratingly, Government policy looks set to deliver none of the above in the short term and instead lead the UK to becoming overdependent on foreign gas for electricity generation and resulting higher bills as generators pay a rising unilateral UK carbon price floor from next April, whilst the EU carbon price remains slow.  Worryingly (and also contained in the No 10 press release) the PM announced “more than a thousand gigawatts of new capacity”.  He meant one thousand megawatts.  Britain’s total installed electricity generating capacity only amounts to 90 gigawatts.  Mistakes like these must stop.

Calling for a balanced portfolio the PM said, “nuclear energy, cleaner coal, oil and gas...carbon capture and storage..will all have an important role to play...”  Let us analyse where progress is in each of these vital areas:

New nuclear power:  Proposals for up to 10 new nuclear plants are well behind schedule.  Where the first plant was expected to be commissioned in 2017 most accept that this has been pushed back to 2020+.  A key consortium in the nuclear race, RWE and E.ON (Horizon) have pulled out leaving just EDF and Centrica as the main interest.  Centrica have since raised doubts prompting concerns over their own commitment.

Cleaner coal and CCS:  The term has come to mean many things but the ability to deliver a policy which supports and delivers the burning of coal more efficiently with the capturing and burying of CO₂ remains stuck.  Britain had the ability to deliver an advanced and large cleaner coal plant at Kingsnorth in Kent in 2010 but political will was lacking and the developers walked away.

Oil:  Britain’s three peak-load oil fired power plants will be closed by 2016 due to EU rules.

Gas:  Since 1995, when Britain’s last nuclear power plant was opened, the construction of gas fired power plants has continued at a lightning pace.  No other large scale baseload plant-build has taken place.  Britain now regularly generates over 50% of electricity from gas and this looks set to reach 70% by 2020 as more and more gas plants are built.  80% of the gas required for these plants could be imported.

Shale gas:  Potentially a very important source which can help lessen Britain’s increasing overdependence on imports of gas but unlikely to be the game changer as seen in the US for topographical and geographical reasons.   Shale developers should explain how shale could help co-fire the UK’s large number of gas fired plants.

In the Budget the Chancellor overrode DECC and announced plans to introduce a ‘Gas Generation Strategy’ in the autumn to allow energy companies to build yet more gas fired power stations to generate electricity.  A new Dash for Gas would be unwise and could lock Britain into a new highly gas dependent future where any hope of a balanced low carbon electricity generation mix is banished for a generation. 

In his speech the PM rightly highlighted the need for a global carbon price floor.  But Britain’s policy to now to go it alone with its own carbon price floor from next April risks undermining any effective and consolidated move to deliver a minimum price for carbon in other countries, especially across the EU.

From next April, Britain will begin to tax carbon emissions by electricity generators and industry at £16 per tonne of C0₂ emitted.  By doing this it will abandon the EU Emissions Trading Scheme where its absence will allow the price of carbon on the Continent to fall to new lows.  Today the price of carbon in recession hit Europe is around £5 per tonne.  It is highly likely that from April next year, when British generators and industry are paying £16 per tonne for carbon, our European competitors could be paying a third of the price.  Also, given that over 70% of UK electricity is generated from coal and gas plants, this could cause electricity bills to spike from 2013 further boosting fuel poverty.

By leaving the EU ETS the Government has abrogated its right to lead the fight for an EU carbon price floor which would allow the UK to operate on a level playing field with Europe.  Without an EU carbon price floor there can be no global carbon price floor.  I suspect the 23 energy ministers at yesterday’s summit didn’t want to explain this point.