Sober, scary

Gordon Hughes explains to the readers of the Glasgow Herald why their electricity bills are soaring out of control. His assessment is sober, starkly critical of government policy, and really rather scary:

Stripping away the complexity, the net effect of subsidies for renewables and taxes on CO2 emissions is to offer an average price for electricity generated from the main sources of renewable energy - wind and wood chips - that is at least double the equivalent pool price of electricity which is determined by the cost of running gas-fired generating plants. The incentive is somewhat lower for new plants but the margin is sufficient to sustain long term costs of wind and wood generation that are 60-80% higher than for the most efficient gas plants. The cost differentials are much greater for offshore wind (at least 150%) and solar photovoltaic panels.

Lurch

Underlining the UK's growing isolation on the carbon reduction front, Japan has announced a dramatic slashing of its carbon reduction target.

Japan has warned that it will fall short of an ambitious greenhouse-gas reduction target it set for itself four years ago, saying that under the most extreme scenario – involving an immediate and permanent shutdown of its nuclear industry – emissions would rise slightly rather than fall by 25 per cent as promised.

Yoshihide Suga, the chief cabinet secretary, said on Friday that the government had committed to a new target of cutting carbon dioxide emissions by 3.8 per cent over the 15 years ending in 2020. That would represent a rise of 3 per cent over the longer span covered by its previous commitment, which used 1990 as its base year.

Everywhere you look, the involvement of politicians in the energy market bring nothing but wild policy lurches from one extreme to another. This lurch is in the right direction, but who knows what the next one will bring. Politics is the problem, not the solution.

Cost concealment

Painting "Don Quixote, Sancho, and the Prairie Turbines" by Phillip Epp. Click for link.David Rose has a an article in the Spectator this morning, looking at politicians' evasions on the energy crisis. This bit struck a chord.

The total renewable subsidy which UK consumers will have paid via higher energy bills for the ten years to 2020 will be an almighty £46 billion. Even this eye-watering figure is a massive underestimate. This week, the National Audit Office said bills were likely to rise above inflation for at least 17 years, with the cost of government commitments likely to be at least £700 per household. According to the energy experts Professor Gordon Hughes of Edinburgh University and Peter Atherton of Liberum Capital, the Energy Bill figure does not factor in the enormous cost of connecting wind turbines to the National Grid, nor the complicated switching mechanisms needed to deal with the fact that no turbine will actually produce power for more than a third of the time. They say the true green bill by 2020 could be more than £100 billion, with households paying around £400 more per household for electricity alone.

The persistent dishonesty of DECC ministers and officials in pretending that grid connections are nothing to do with the renewables industry is something that can and should be held against them. They know they are misleading the public and their political colleagues simply give them a free pass.

The missing secondee

Updated on Nov 11, 2013 by Bishop Hill

I have been pondering the idea of putting in an FOI to DECC to find out who has been seconded to them from green organisations. Then this morning I discovered that I no longer had to because Greenpeace have already done the work for me, obtaining a list of all secondees, both inwards and outwards. It can be seen here.

Greepeace's Damian Kahya is, not unreasonably, somewhat exercised about the appearance of two gas company lobbyists on the list, but there are plenty of greens as well. We see someone from green consultancy Ecofys, plus all the other big consultancy firms too; there are a couple from the Met Office, one from the Committee on Climate Change, one from GLOBE and a whole cohort from the Carbon Trust. However, I was struck by one outfit that was not represented.

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Quote of the day, heavy industry wipeout edition

I don't yet believe there is any understanding in this country of the crisis we are facing in terms of the energy supply...we will not have energy intensive sectors in this country twenty years from now unless we do something about it.

Tom Crotty, director of INEOS UK, in evidence to the House of Lords Economic Affairs Committee.

Transparency and culpability

I return to the blogging saddle to find little changed. The Guardian's campaign to put the lights out continues apace, promoting a campaign to get universities to divest from fossil fuel companies and trying to pin the blame for power system chaos on the big six energy firms.

Looking on the bright side, there are at least the hint of some changes in the government line:

Some green charges will be scrapped while others will be taken off bills and instead funded by Government directly. If extra public money is needed to pay for this, that will be provided by additional spending cuts.

I imagine that no charges will be scrapped, although at least we might get some transparency over costs if they become direct rather than hidden in power bills. If so, it would be interesting to see if the Guardian's campaign against the energy companies holds water.

Investment freeze

The latest briefing note from Liberum Capital makes for fairly terrifying reading. According to authors Peter Atherton and Mulu Sun, energy investors have now digested Labour's announcement that it is going to institute a price freeze if it wins the next election and they are, not to put to fine a point on it, appalled:

As we noted at the time this is a dramatic intervention that immediately increased the political risk faced by all participants in the UK power market, not the suppliers themselves. We warned that a price freeze would chill investment in new generating capacity, something confirmed today by SSE who have said that moving to FiD on any major new generation investment was not possible until the outcome of the election was known.

And as the note makes clear, since Miliband made his intervention, investors have been selling out of UK energy utilities just as fast as they possibly can. This should kill off any new investment in capacity for the foreseeable future.

Suppliers of emergency operating reserve - diesel generators in other words - will be rubbing their hands in glee.

Update on Oct 14, 2013 by Bishop Hill

Scottish Power are dropping fairly unsubtle hints that they will freeze new investment too.

Consistent industrial policy

Winnington works by Berit Watkin (click image for full size and details)It is said that a consistent industrial policy is important, providing certainty for investors as governments come and go. In the UK, we have certainly been sending businessmen a consistent message of "Go away" and "Not wanted here".

The message seems to be getting through:

A chemicals factory which has supplied industries such as glass and soap-making for 140 years is to close because of "massive" energy bills, costing 220 jobs.

Tata Chemicals Europe said it was shutting its soda ash factory at Winnington in Northwich, Cheshire, which has produced the chemical since 1874, as it was being squeezed by rising gas prices.

Job losses will be split across Winnington, support services and Tata's nearby Lostock plant, which will continue making soda ash and sodium bicarbonate - used in baking, detergents and reducing power station emissions.

Bravo Mr Cameron and Mr Clegg; bravo Mr Miliband.

Energy wave in the Telegraph

Not now, can't you see we're saving the planet?The cost of energy is all over the Telegraph this morning.

First up, Iain Martin outlines the whole sorry history of Britian's energy policy over the last twenty years. In the same outlet, Booker reviews the week's developments, and reiterates the point that the decision to balance energy supply with diesel generators is going to be very expensive indeed. Meanwhile, Robert Colvile and the paper's cartoonist manage to find something to laugh about.

This will of course have precisely no impact on the thinking of Ed Davey, Greg Barker and the other grandees in DECC.

Reign of madness

Paul Homewood's analysis of expected future increases in household electricity bills is sobering stuff. Buried in the back of a House of Commons report on electricity prices we find that the cost of greenery is currently 10% of the average household bill (say £1200). This is expected to rise to 33% by 2020, which would make the bill £1450 or thereabouts, and to 41% (£1540) by 2030.

However, the costs of all this greenery fall, in the first place, mainly on non-domestic users - two thirds in fact. But the charges to industrial users simply gets passed onto consumers anyway (some of them being overseas consumers, but the majority are in the UK). So while domestic users are picking up an extra £450 in green costs (1540 - (1200/1.1)), in fact they are also eventually going to have to pick up most of the tab for the £900 charged to industrial users as well. That means by 2030, costs to consumers will have doubled.

The cost of climate

We could be doing so much more, Prime MinisterThis posting came to me in an email this morning. It's from a correspondent who prefers to remain anonymous.

Some 7,800 people die during winter because they can’t afford to heat their homes properly, says fuel poverty expert Professor Christine Liddell of the University of Ulster. That works out at 65 deaths a day. 

Hitler managed to kill 65,000 civilians in the UK during World War 2, an average of  about 12,000 tragic deaths annually for each of the five and a half years of the war. So, ConLibLab's expensive energy policies are killing us at 2/3rds the rate Hitler managed. WW2's civilians can be said to have died in the struggle for our freedom. How can ConLibLab justify the lonely death of people in their own homes in peacetime, what noble cause are they dying for?  Do Mr. Cameron & Mr. Clegg feel proud of their policies to make electricity more expensive? How does Mr. Cameron's father in law feel about pocketing a reported £1,000 a day from the windmills sited on his land?  Does Mr. Clegg's lawyer wife feel working for one of Europe's largest installers of windfarms is socially acceptable?  Does Mr. Milliband still feel comfortable with his record as a minister in bringing into law the 2008 Climate Change Act which set targets for the reduction of CO2 which underpin today's expensive energy bills?

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Slip sliding away

I was going to start this morning by writing something about the House of Commons Science and Technology Committee, currently taking evidence from people like Lord Deben and David Warrilow, the UK's representative on the IPCC. However, it's a bit of a waste of time, to tell the truth, with the committee so far interested in exchanging platitudes with the witnesses.

Instead, take a look at the latest from Euan Mearns' blog, where he examines oil production in the UK which, despite massive new investment, is in precipitous decline.

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Shale will be too late

Benedict Brogan sets out the painful truth that any developments on the shale gas front are likely to come too late to prevent a power crisis in the UK. With the energy policies of successive governments disjointed, disconnected, uncoordinated, unthinking and unfeeling we are left with the likelihood of power cuts, brownouts or, more likely in my opinion, price rises on an unimaginable scale.

The National Grid yesterday announced that its reserve supply of domestically produced electricity had dropped to troubling levels, and that only the availability of power from the Continent would prevent blackouts. Long before we might hope to begin banking the shale windfall, the lights will go out.

This is the inevitable consequence of handing over control of a key industry to politicians. It is planning that is the problem, not the solution.

What's in the papers?

A couple of excellent pieces in the morning papers. Both fall into the category of "not news to BH readers", but they are great none the less.

In the Mail, Peter Atherton sets out his despair at the energy policies of the government and opposition

Labour’s price freeze idea is bad for investment, bad for security of supply, and bad for consumers. But if it forces the political class in this country to wake up and tackle the reasons why costs are actually rising then some good may come of it.

Meanwhile, in City AM, Peter Lilley examines what the IPCC and the political class didn't say about the global climate last week:

...Miliband, who was environment secretary when the Climate Change Act committed future governments to replace fossil fuels by renewables costing two or three times as much, promises to freeze energy prices. The fact that even he didn't mention his Act, which is incompatible with his pledge, shows it is politically indefensible.

The crisis starts here

Peter Atherton at Liberum Capital has written another of his trenchant newsletters about energy markets, today responding to Labour's new policy proposals (if I can dignify the party's grandstanding with that name).

Yesterday the affordability crisis that we have foreseen in our April report became a reality. In response to rising gas/electricity costs, the Labour party promised to impose an arbitrary price freeze on energy suppliers from May 2015 to January 2017 should they win the next general election. Labour predict a £4.5bn hit to suppliers. In other words Labour are proposing that the supply companies pick up at least £4.5bn of the cost associated with government policy implementation.

The implications are horrifying. Read the whole thing, it's staggering.

Meanwhile, Joss Garman of Greenpeace tweets that Atherton's views are 'utter bollocks'. He seems to actually believe that investors are going to be forthcoming with the vast sums of money required to meet decarbonisation targets and, more critically, to keep the lights on, while all the time operating under a price cap! This is so otherworldly as to almost defy belief.