Peter Franklin is an Associate Editor of UnHerd.
Even if the lights stay on this winter, can we afford the bill? The price of natural gas — on which this country relies for both power and heat — has gone through the roof.
The spot price is down from its crazy peak earlier this month, but at over 200 pence/therm it is still three to four times what we’d normally pay. It’s an inflationary shock that comes at the worst possible time for households and businesses struggling to recover from the pandemic. For energy intensive industries it is potentially ruinous.
By unhappy coincidence this is all happening while we get ready for the COP26 climate summit in Glasgow next month. With Boris Johnson bigging-up Britain’s leading role in climate policy, the backdrop of an energy crisis doesn’t suit his boosterish message at all.
However, the timing couldn’t be better for the rightwing critics of Tory environmentalism. They’ve been out in force lately trying to pin the blame on the “Jolly Green Giant”, as Andrew Neil calls the Prime Minister.
But what has the UK government’s “green virtue signalling” got to do with the worldwide surge in the price of fossil fuels? Very little, is the answer. The eco-sceptics blaming British climate policy for this energy crisis are like diehard Remainers blaming Brexit for the supply chain crisis. They’re pinning a global problem on a domestic enemy.
Far from causing the crisis, the progress we’re making on renewable energy, insulating buildings and electrifying transport is reducing our dependency on fossil fuels.
But what about the argument that we’d be even less dependent if we’d made more use of two other resources — shale gas and nuclear power? Did green ideology stop the government from exploiting these controversial technologies?
Let’s take a look at what actually happened.
Andrew Neil says that the government “turned its back” on shale gas. In fact, it passed legislation in favour of the fledgling UK industry and spent millions in support of it. However, ministers called a halt in 2019 after an earthquake with a magnitude of 2.9 was recorded near Britain’s only active shale gas site. It doesn’t seem unreasonable to expect a solution to this problem. Of course, if any MPs would like to volunteer their constituencies for a game of seismic Russian roulette, they should speak up.
As for nuclear, progress has also been glacial. Hinkley Point C in Somerset is the one and only new plant under construction — and that’s still a few years from completion. So is government greenery to blame again? Not really. Anyone who’s spent any time in the relevant Whitehall departments can tell you that HMG is desperate to go nuclear.
The stumbling block is the nuclear industry itself which is having cold feet about these time-consuming and very expensive new build projects. For instance, Toshiba withdrew from the proposed Moorside plant in Cumbria and Hitachi did the same at Wylfa in Anglesey.
In the Telegraph, Juliet Samuel says the Government is at fault for insisting that “all new nuclear plants would have to finance themselves”. But why should British taxpayers have to take on such a massive liability? Given the recent history of new build nuclear projects going very badly wrong in France and Finland, we’d be crazy to underwrite these risks.
In any case, the government is supporting the industry — by offering an extremely generous price for its electricity. For Hinkley Point C the price agreed was £92.50 for every megawatt hour (MWh) of electricity supplied. This is indexed-linked, so is now worth well over £100 per MWh. As long as they build a power station that actually works, the owners will make shedloads of money.
By comparison, new offshore wind capacity is getting built for a price of around £40 per MWh. What’s more, while the nuclear price is guaranteed for 35 years, renewables only get 15 years. Nuclear, therefore, is getting a very good deal — at the consumer’s expense, of course.
It’s about time that we stopped expecting government to do everything in the energy space. It’s right for the state to provide support in the early days of a promising new technology, but after that each industry has to stand on its own feet. Businesses that depend on permanent subsidies or permission to dump the cost of their pollution on other people are not owed a living.
Fortunately, there are plenty of examples of private sector businesses that are delivering clean technology at increasingly competitive prices. When the Conservatives took office in 2010, one of the first things they did was slash subsidies for renewables. There was a lot of whinging about that, but the industry responded by cutting costs. In the UK and beyond, the price of wind and solar power has come tumbling down. The same goes for lithium-ion batteries — which are now cheap enough for electric vehicles to own the future.
Free marketeers should celebrate these achievements, because they’re a stunning vindication of capitalism at its best. Instead, we see eco-sceptics fretting about the cost of the next wave of clean technologies — for instance, heat pumps and long-term energy storage.
This is worrying about the wrong thing. Trying to price a technology transition ahead of it actually happening is a fool’s errand. History is littered with examples — from computing power to offshore wind — where the ‘experts’ were proved laughably wrong and overly pessimistic.
But for the new techs required to deliver ‘net zero’ how can we sure that the market will achieve the cost reductions we need? After all, we didn’t get them with nuclear power which was supposed to be “too cheap to meter” yet obviously isn’t.
The best guide is to forget the politics and take an objective look at each candidate technology. Can the components be mass produced? Are the structures prefabricated? Are there economies of scale to be exploited? Is new capacity deployed in small enough chunks to allow developers to learn from experience and do better next time? Is the industry smart enough to innovate? Are there enough players to drive competition on price? Above all, is there a record of similar bits of kit getting cheaper over time?
If the answer to these questions is yes, then costs probably will come down.
What we should worry about is the part that government needs to play. Almost every new industry requires supporting infrastructure — and sometimes this is just too big for the state not to be involved. For instance, cars need a road network; aeroplanes need airports; power stations need an electricity grid.
However, politicians have a habit of wasting taxpayers money — especially on major infrastructures projects. How then do we assess the danger of things going sideways? Again, we need to ask some objective questions about the technology involved. For instance, are we talking about a bespoke facility that’s never been built before (as opposed to repetitive stuff like laying down lots of cable)? Is it an all-or-nothing construction project that’s completely useless if it isn’t finished? Does it involve buying up lots of land? Will the planning process get messy? Will the neighbours be angry? Are there lots of consultants involved?
If the answer to these questions is yes, then we can expect budgets to be overspent and deadlines to be missed.
None of this is secret knowledge. It’s all based on long decades of civil engineering experience. In choosing the technologies of the future, we need to learn the lessons of the past.