In a new report published today, the think tank Policy Exchange examines the case for building a whole lot more interconnectors so that we can import electricity from overseas, in particular availing ourselves of hydro power from Scandinavia and geothermal from Iceland. The existence of a big pipe between the UK and Norway would also allow us to store energy generated in windfarms here in pumped hydro stations up there.
According to the authors, interconnectors are super-duper and will give us access to much cheaper power prices from these overseas markets. But the idea that we can interconnect our way out of trouble all starts to fall down when you read the chapter on barriers to building new interconnections. Given the opportunities for arbitrage, people should be building interconnectors on their own initiative - the profits available should be enormous. Unfortunately this doesn't happen. Reading between the lines the reason is that nobody in the investment community is going to place a massive bet on a UK electricity market which is built on a premise of fleecing the consumer for the forseeable future - they simply do not believe that politicians are going to be able to sustain such a policy. So in order to get investment politicians have to guarantee returns, an approach that is common in Europe.
And so the report moves on to discussing some of the problems arising, for example:
Pretty soon you are left with the impression that the whole thing has become so absurdly complicated as to be completely unworkable. Here you need to take a step back. The whole approach to energy policy is so fundamentally flawed as to make the Policy Exchange report an irrelevance. It's a straw in the wind of a policy approach that is blowing the wrong way.