Political murder

The political classes do seem hell-bent on murder don't they? The murder of the UK economy I mean.

Today Labour leader Ed Miliband apparent promised a two-year price freeze on energy prices as well as proposing the total decarbonisation of the UK economy. I wonder if readers can spot the flaw in Miliband's reasoning?

There are some clues here, from Peter Atherton of Liberum Capital, whose job it is to analyse the deepest thoughts of our political leaders and consider the impact on the City:

This is a call to dis-invest. Price controls are a rubicon not to be crossed

Price cap must be illegal. If govt picks up cost I estimate it will cost at least £3bn. Also drives horse through EMR

Question for DECC - is govt imposed price cap a foreseeable law change under CfDs? If so then no one can sign them. EMR dead on delivery!

If anybody thought it was impossible to come up with a worse energy policy than that of the coalition, you now know better.

Europe's top energy policy shambles

Liberum Capital are trying to identify Europe's most disastrous energy policy moves of recent years. There are lots to choose from (but you knew that). Here's one of the suggestions:

Retail Market Review (UK) - in response to some (relatively) minor miss-selling incidents, Ofgem effectively banned door step selling by energy supply companies. Unfortunately, door step selling was by far the most effective way to get householders to switch. Since Ofgem’s intervention, churn rates for the big six energy suppliers have collapsed from mid-teen percent to mid-single digit. This has saved the supply companies many £10m’s in costs and is a key reason why supply margins have risen in the past 18 months. It also probably means that around 2m households that would have switched to more suitable tariffs are now sitting on the wrong tariff. So to stop active miss selling to a few thousand consumers, Ofgem have caused the passive miss-selling to millions.

Read the whole thing. It's just great.

Energy day

BBC Radio 5 Live is running an energy day today, with the studio powered entirely by renewables.

OK, so it's a daft idea, particularly on a day when the UK wind fleet is only generating 0.46 GW, but you never know, maybe the conclusion will be that renewables are stupid and wasteful. If anyone is listening, do post it in the comments.

More evidence that green jobs are illusory

Pat Swords writes to tell me of an official report that has been published in Germany this week, featuring findings of research commissioned by the German Ministry of Environment (BMU) and the Federal Environment Agency(UBA). The report confirms that the Green economy is a dud, and produces few, if any jobs (source):

A recent contribution to the IZA-Standpunkte series cautions against overly optimistic expectations with regard to job creation through Germany's renewable energy turnaround. To date, there is no reliable scientific evidence on whether additional jobs can be expected from the transition to a green economy. Both a precise definition of "green jobs" and access to the relevant micro data would be essential for a sound judgment. Moreover, it remains unclear to what extent the green economic transition might also threaten "non-green" jobs. IZA expert Nico Pestel, who authored the study, says that "research on 'green jobs' is still at a very preliminary stage. However, the existing evidence suggests that much of the euphoria expressed by green energy proponents is overblown. I don't think Germany will see a 'green job miracle' any time soon."

Click to read more ...

Another power plant closes

The Tilbury B power station is to close, reports the FT (see also the more in-depth coverage at the Guardian):

Tilbury B was scheduled to close under an EU environmental measure known as the Large Combustion Plant Directive (LCPD). Under the legislation, Tilbury was allocated a quota of 20,000 hours of operation from January 1, 2008. In 2011, RWE decided to switch it to biomass for the remainder of its LCPD hours, due to end at midnight on Tuesday.

Click to read more ...

Public opinion on shale and energy

Yougov has published a poll of UK public opinion for the Sunday Times, which this time round includes a number of questions about shale gas exploitation and energy policy in general. These are the questions and main responses. The segmented responses can be seen in the original document here.

I'm not sure that it tells us very much, except that the public are a bit mixed up on these questions.

Shale gas is natural gas trapped under sedimentary rock, which is extracted using a method known as hydraulic fracturing, or "fracking". There are large reserves of shale gas in parts of England. Some people think that using shale gas could be a solution to Britain's energy needs. Other people think that fracking is a dangerous technique that risks contaminating ground water and causing minor earthquakes. From what you have seen or heard about the issue, do you think Britain should or should not start extracting shale gas?

Click to read more ...

The biomass industry is nervous

Energy giant RWE has announced that it is suspending work on a biomass plant at Tilbury:

RWE npower has suspended development of a dedicated biomass power plant at Tilbury Power Station blaming lack of detail in the Energy Bill and difficult market conditions.

The company announced the move in a statement released yesterday, confirming work would be halted while "options on project feasibility are assessed and reviewed".

Click to read more ...

Kelly in the Times

Mike Kelly had a letter in the Times yesterday, following on from the story about possible energy blackouts.

Sir, If we have rolling blackouts in the grid in the coming winters, where does the responsibility lie? Real engineers know that infrastructure projects take a decade to deliver. Our preoccupation with alternative energies that do not generate electricity for weeks on end in dark winters originates with the drafters of the Climate Change Bill, who should have taken heed of engineers. A lack of electricity on demand is characteristic of Third World countries, and our country has been betrayed that this should happen to us. We are contemplating sanctions for misbehaviour in the healthcare and banking sectors; why not in the energy policy sector?

Professor Michael J. Kelly
Prince Philip Professor of Technology, University of Cambridge

The insanity of central planning

Here's an extraordinary story from Friday, which I missed at the time, but picked up via Timmy.

NHS hospitals are being asked to cut their power demand from the National Grid as part of a government attempt to stave off power blackouts, which the energy watchdog Ofgem warns could arrive as early as 2015.

According to one energy company, four hospitals have already signed up to a deal under which they will reduce demand at peak times by using diesel-fired generators.

So in order to save the planet from the perils of carbon dioxide, we are going to run major power users on diesel generators. Canny, Mr Davey, canny.

The sheer idiocy of the situation the environmentalists in DECC have got us in to is almost unbelievable. I see no alternative to closing the whole department.

Mothballed plant

Robert Wilson (no relation to the paleoclimatologist of the same name I assume) has examined the amount of mothballed capacity in the UK energy market, and concludes that there is 4GW or so, enough to raise the safety margin from 5% of demand to 10%.

There is a potential problem, however, in that, operators don't actually want to unmothball their gas-fired plant at the moment. With renewables so grossly inefficient, the playing field has been tipped so far against the fossil fuel operators that nobody is going to risk a sou in the UK market. The hope seems to be that gas operators will be made eligible for a bung too and will be encouraged to play ball again. The government and their environmentalist advisers in DECC are presumably only too aware that this is going to mean that they will be handing out subsidies to both renewables firms and to fossil fuel generators. Selling this to the public as part of a sane energy policy is going to be a struggle, I think.

And whether it will be enough to actually get anyone to play along remains to be seen. Investors in new capacity have already largely been scared off, refusing to believe that the government will be able to get taxpayers to agree to vast subsidies and guaranteed profits gifted to politically connected energy businesses, while at the same time getting them to swallow sustained long-term rises in energy prices. Will operators of mothballed plant see the situation differently? It's possible - the capital costs are sunk after all - so if they are thrown some cash to reopen perhaps they will go for it. But then again, for the cost of unmothballing to be incurred, the generators are going to need some guarantee that they will get a return. That depends on the taxpayer swallowing the costs and the slap in the face of the new subsidy regime.

It's a mad, bad, crazy system. Who'd want to risk their money in it?

Ian Fells on energy shortfalls

Professor Ian Fells was interviewed on the BBC's PM programme about the story that Britain recently came within 6 hours of running out of gas. He is very interesting on the electricity supply problems a couple of years ago, suggesting that, despite official denials, these were due to a lack of gas.

The audio file is attached below.

Ian Fells, PM programme

Electricity prices

No comment required.

Head of SSE on the energy crunch

Ian Marchant, the head of Scottish and Southern Electricity is interviewed on the BBC. The section on the lights going out, on government energy policy, and some diplomatically worded thoughts on renewables starts at 18 minutes.

Another devastating indictment of energy policy

The FT's Nick Butler has added to the chorus of condemnation of government energy policy. His article is almost as good as the Liberum Capital briefing last week, and suggests that the whole policy is close to collapse:

The problems facing the Government’s plan to reform the UK’s electricity market go well beyond the departure of two of the limited number of civil servants who actually understand the proposals. The reality is that the Government is losing its appetite for a scheme which is liable to disintegrate under the weight of its own complexity...

The real problem is that the plans freeze the system in aspic at a time when the market and new technology are producing dramatic changes. The prices (we are not allowed to call them subsidies) represent corporate welfare on a very big scale – a transfer of wealth from consumers to suppliers which means that those who win the lobbying battle will be celebrating for decades to come.

With the roll-call of ministers responsible for DECC including Ed Miliband, Chris Huhne and Ed Davey, that the policy should by turns be corrupt, incompetent, and risible is hardly surprising. Its collapse cannot come a moment too soon. Nevertheless, it's hard to see the coalition (or indeed HM Opposition) being able to pull a more coherent alternative out of the bag: they have painted themselves into a corner with their green rhetoric.

Read the whole thing.

Between the lines of the energy market

Professor Jonathan Stern has written a letter to the Guardian about the possibility of the lights going out. Apparently it's not going to happen, a view that tallies with the view from the markets I reported last week. While I'm not entirely convinced that price spikes will be enough to prevent blackouts, I think it's fair to say that forcing people to switch the lights off through pricing and having their lights switched off for them when the grid can't deliver amounts to the same thing anyway, so it's probably not worth arguing about.

There is, however, plenty in Stern's letter that raises eyebrows:

It's quite correct that a great deal of old coal and nuclear capacity will be retired over the next few years. For the rest of this decade, that will be replaced by as much renewables as can be built (mostly wind) and gas. Most of the gas-fired power generation which is needed has already been built; around 4GW is currently not in operation because it is unprofitable and most of the rest is running at far lower load factors than in previous years. If "the lights threaten to go out", existing gas-fired generation will run at higher load factors and more can quickly be built.

I wasn't aware that any gas fired power stations were not in operation because it was unprofitable to run them, although I know this is happening in Germany. I guess this is the double whammy of low coal prices and subsidised wind power. Presumably the plan is that once the coal fired stations are shut down then gas will pick up again. The idea that we have built all the gas-fired capacity we need strikes me as highly suspect, given that wind power needs 1:1 backup for when conditions are still.

Stern's thoughts on shales are little more than wishful thinking though:

Towards the end of the decade, the UK may produce some shale gas if drilling and fracking prove to be environmentally acceptable; the volumes will not be great and are unlikely to be "cheap" in comparison to imports.

Given the likely size of the resource and the thickness of the shales, it is most likely that the volumes will be large, if the country chooses to exploit them.