Casting fresh light on energy policy

Saturday 23 March 2013

Keeping the lights on is one of the most fundamental tasks of government.

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It has been common knowledge for more than a decade that the UK faces a "capacity crunch" as nuclear power stations reach their retirement age and dirty coal-fired power stations are forced to close by EU emissions restrictions. (ScottishPower closed its 1000 MW coal-fired plant at Cockenzie last week.)

Successive governments have exhibited complacency in the face of this looming threat and a misplaced faith in the free market to save households and businesses from the dark and cold.Last month the energy regulator Ofgem warned of a one in 12 risk of blackouts, with a 10% fall in capacity by April. This week Ian Marchant, chief executive of Perth-based SSE warned of "a very real risk of the lights going out". Yesterday, Ignacio Galan of Iberdrola, the parent company of ScottishPower, added his voice to calls for the Government to clarify details of the energy market reforms currently going through Parliament, warning of power shortages by 2015 if work did not begin now on new gas-fired power stations. Until the low carbon revolution is much further along the road, gas is required to plug the energy gap.The UK's big six energy suppliers have been in the firing line for making big profits while raising prices for gas and electricity customers. They argue that to cope with future demand massive capital investment is required. Centrica, SSE and ScottishPower all have "shovel ready" projects ready to go, the very sort of capital boost needed by a construction industry that shrunk by 8% last year and which George Osborne's Budget conspicuously failed to provide. (The limited capital spending he announced will not kick in until 2015.)However, these companies are now kicking their heels, unable to commit investment until the UK Government clarifies what is known as the "capacity market". Following the rapid expansion of wind power, these gas plants will only run some of the time, to fill in when the wind does not blow. That will necessitate a subsidy but the Government has yet to tell companies how this will operate and what it will be worth. The Scottish Government talks of being able to deliver "a significant amount of secure low carbon energy from Scotland" but there is nothing secure about wind power when Scottish winters often generate periods of cold windless weather. Meanwhile, David Cameron once spoke of new nuclear stations being completed every 18 months after 2018 but Fukushima has put paid to that timetable, if not the entire nuclear project. This week UK Energy Minister John Hayes struggled to sound reassuring when he insisted the Government would "make sure [the amount of spare power] stays manageable". The power companies take a lot of stick but this is a commercial market and they are not charities. It is not their job to keep the lights on but to sell gas and electricity and turn a profit for their shareholders. It is the Government's job to guarantee a secure electricity supply, even at times of peak demand. Some of those who have spent their lives keeping the national grid running smoothly are concerned privately about whether the Energy Bill is capable of providing a framework or a timetable to ensure sufficient investment to minimise the chances of blackouts.In the US the Government only put such mechanisms in place after rolling blackouts became commonplace. Will the UK Government only make this issue a priority when we are fumbling in the dark?

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Casting fresh light on energy policy

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