The UK Conservative government is pursuing a dangerous path on energy, which could lead to lights going out next year.
The government is preoccupied with what it calls an “overallocation of renewable energy subsidies”. Lest you think this signifies a surplus of renewable energy in the UK, it simply means that the amount of money permitted to be spent on building renewable energy capacity by the Treasury, known as the Levy Control Framework, has been exceeded. This ideological policy is not based on any scientific or independent economic evidence but on a willingness to please a certain sector of Tory supporters.
The cuts are being made under the cloak of pretending to be keeping costs down for energy consumers. Yet other energy subsidies the government is doling out include £26 billion to the oil and gas industry this year (this figure is from an IMF report). Coal, the most climate-unfriendly fossil fuel, will receive nearly £18 billion of this subsidy. And most of the producers are overseas.
It is also promising £40 billion of subsidies for one new nuclear power station (see below).
This compares to £9.1 billion due to support renewable energy.
The latest cuts to the domestic renewable industry, announced at the end of last week, prevent renewable energy suppliers from “locking in” the level of subsidies they will receive for the energy they supply in the future from the moment they register as suppliers.
This might seem fair enough, except when you look at the government’s other actions on energy, and you see it in the context of wider attacks on the renewable energy industry. These include plans to reduce the tariff for small scale installations (as used on schools and community buildings) from 12.47 pence a kilowatt hour to 1.63p/kWh from January, and the announcement at the end of last week of the refusal of planning permission for another offshore windfarm (did you think that the Tories just opposed onshore wind farms on the grounds of visual intrusion? Think again).
You’d think the government would want to support a successful industry. According to its own latest figures, renewables’ share of electricity generation increased from 19.6 per cent to a record 22.3 per cent between the first quarters of 2014 and 2015, due to increased capacity, mostly of solar PV and wind.
But no. These developments are causing chaos in the industry. They have prompted 13 investors, from the UK Sustainable Investment and Finance Association (UKSIF) to write to Chancellor George Osborne asking to reverse these cuts.
The Trillion Fund, a crowdsourcing funding project launched in 2011 with the aim of driving forward of $1 trillion of annual global investment into renewable energy, with 7000 members, announced on 10 September it would no longer be making any more loans to the industry for the foreseeable future because of the uncertainty generated by the government, and its CEO Julia Groves has quit.
EDF Energy as also announced plans to scrap wind farms it was going to build.
And this week EY reported that the UK had fallen out of the top 10 on renewable energy country attractiveness since it started the index 12 years ago, citing a “death by a thousand cuts”.
Not all Tories agree with the way things are going. There are green Tories, such as Zac Goldsmith, the MP for Richmond Park and North Kingston, who is campaigning to be the Conservative candidate for Mayor of London, who said this weekend that the government should “accelerate not reduce incentives” for clean technology.
The irony is that Britain needs more energy to replace coal plants that are closing. Amongst the recent closures or announcements of closures are the 2GW Eggborough plant in Yorkshire, which will close in March “because carbon taxes and low wholesale power prices have made it financially unsustainable”; and the 2.5GW Longannet power station in Fife, Scotland, closing because it lost a contract bid. Together, the two plants supply about eight per cent of the UK’s electricity and employee about 520 people.
Meanwhile, the government pursues its obsession with fracking, which is unlikely to produce any new power for many years.
To any impartial outsider, its policies appear to be reckless in the extreme.
Never mind. Having less to do with generating energy supply means that the Department for Energy and Climate Change can concentrate most of its effort on what at least two-thirds of its budget is actually directed towards: finding somewhere to store high-level nuclear waste.
Yes, last financial year it cost £3.31 billion a year to manage the nuclear waste mountain, of which £2.09 billion comes from taxpayers (source: NDA), and DECC’s total annual budget last year (2014-15) was £3.4 billion. But this figure is not the same every year. In 2013/14, 95.8 per cent of the roughly £7.9 billion DECC budget (£7.5 billion) went towards cleaning up the UK’s nuclear legacy (source: Cabinet Office and DECC annual report and accounts).
They’ve only been looking for a place to store this nuclear waste for 30 years, but the problem is nobody wants it buried in their backyard. A new program of work also announced last week involves setting up another committee – which will deliberate for another two years. That will give them something to do.
Just as well that plans for a new nuclear power station at Hinkley Point C (the first in 20 years, and which will generate even more waste) have been put back again by French company EDF – despite the fact that DECC would love it to happen. It’s also been delayed because Austria has filed a legal complaint at the European Court of Justice against the use of subsidies for the planned plant.
Of course the exorbitant cost of these subsidies – put at a staggering £40 billion by a nuclear expert – would put up energy prices for consumers by far more than the cost of renewable energy.
The agreed strike price for electricity from Hinkley Point C, were it to be ever built, is set at £92.50/MWh, about double the current price.
E.ON doesn’t like nuclear power either, now that the Germans have seen sense and refused to let their energy consumers foot the bill for cleaning up nuclear power. Pity that the UK government won’t do the same thing. But, of course, looking after the nuclear industry is what DECC mostly does.
It all goes to show that perhaps energy policy shouldn’t be left to politicians but, just as the setting of the bank lending rate is outsourced to the Bank of England in the UK, energy policy could be outsourced to an independent body of experts. As David Porter, a former chief executive of the UK’s Association of Electricity Producers and chief executive of Energy UK, recently pointed out, there is “an awkward mismatch between the investment horizon of a steady, long-term, capital-intensive industry and the capricious nature of politics in a five-year election cycle”.
No kidding.