Tony Lodge is a Research Fellow at the Centre for Policy Studies.
Britain and its leaders are learning the hard way. For the first time since the early 1970s, the country is facing an energy cost and supply crisis and – as then – a Conservative Prime Minister is largely helpless as he grapples with the climax of bad policy making which stretches back over a generation.
Whilst Edward Heath in 1972 faced the wrath of coal unions who had been allowed a stranglehold on energy supplies for too long, Boris Johnson endures a far worse situation – Britain’s growing inability to generate and supply the affordable power it needs. This is coupled with a desperate and growing dependence on imports of gas and electricity to keep the lights on, homes warm, and industry working.
The biggest domestic story of 2022 is likely to be energy prices. Forget parties at Number 10, channel migrants, or Covid fraud. The real crisis for Conservatives will be the steep rise in household bills, and the clear and obvious inability of Ministers to do much about it. Expect power company CEO summits in Whitehall, more urgent statements in the Commons and more public spending intervention to artificially fix prices.
On energy strategy, Britons have endured an unrivalled record of bad policymaking since the 1970s. Contradictory plans and missed opportunities have seriously eroded security of supply, affordability and helped drive jobs and key industries overseas. The die is cast for the short term and here is why.
Lessons could have been learned and the right decisions taken in the 1970s, 80s and 90s, but were ducked. We are now paying the price. The right policies then would have shielded Britain now from a creaking system which is wildly exposed when the wind doesn’t blow, and we desperately hold out for the next shipment of liquefied natural gas (LNG) as North Sea supplies fall and gas storage remains poor. How did it come to this and what can we do?
Following his mauling in the first miners’ strike of 1972, Heath foolishly rejected a plan to build over 30 new nuclear reactors totalling almost 40 gigawatts (GW) of new electricity generation. The first plant would have opened in the early 1980s, started insulating Britain from high oil prices and helped wean the country off unionised coal.
Surprisingly and regrettably, Heath, the great Francophile, had ignored the bold plan and leadership from France to build no less than 40 nuclear plants between 1965 and 1985, which today still generate around 70 per cent of comparatively cheap electricity. Instead, Heath left the field open for Labour plans to increase coal burn via the 1974 ‘Plan for Coal’.
In 1980, Margaret Thatcher announced plans for eleven large reactors totalling 20GW of new electricity capacity, but only one was built at Sizewell. The then huge oversupply of coal, power generation overcapacity, abundant North Sea gas and a deep recession had together hurt the short-term commercial case for new nuclear build.
As coal wasn’t the answer and the case for nuclear lacked friends, Britain turned to its precious North Sea gas resource. It is this choice which is now hurting and will continue to do so for some time. The 1990s ‘Dash for Gas’ has led to Britain becoming one of the world’s largest gas consumers per capita, both for household use and particularly for the generation of electricity. Over 30 years, Britain’s North Sea gas bounty has been squandered to a perilous state where supply is increasingly now met from imports.
John Major and his ministers were warned during the early 1990s that the UK Continental Shelf (UKCS) would be significantly run down by the mid-2000s if the proposed fleet of large new gas burning powered stations went ahead. Michael Heseltine reassured the Commons in 1992 that UK gas reserves would last for 55 years. He was wrong.
Many argued, including the then Chairman of British Gas, that North Sea natural gas is a valuable premium fuel and should not be wasted to generate electricity, where 50 per cent of its efficiency is lost in the process, unlike when used for direct heating or cooking. This argument was lost and gas replaced King Coal, generating over 50 per cent of UK electricity for the first time in 2010.
Britain’s gas overdependency and growing electricity import habit is the problem, and I first highlighted this for ConservativeHome 13 years ago. The focus must now be urgently to prioritise more domestic gas exploration and extraction, stop supporting plans to import more untaxed electricity from overseas and now turbo-charge new nuclear power. The latter should receive the same focused policy support as that enjoyed by those tasked with beating Covid.
This strategy must surely be Treasury-led. After all, when gas is produced overseas the Treasury loses huge revenues. When electricity is increasingly imported from Europe (as a result of the EU forcing Britain to close power plants early), its generation does not pay British carbon or transmission taxes because the power plants are overseas. Britain is offshoring its fuel supplies, power generation, and consequently losing billions in revenue alongside the erosion of energy security.
Between 2019 and 2020, liquefied natural gas (LNG) represented 40 per cent of all gas imports compared to an average 14 per cent in 2017/18. Imported gas pays no corporation tax in the UK, but it is perversely treated as producing ‘zero emissions’, despite it travelling thousands of miles by ship and carrying a large carbon production footprint. It therefore doesn’t face the same carbon costs, as UK producers which means gas imports are effectively subsidised compared to home production. This import dependency could reach as high as 75 per cent within the next 10 years, so new price spike crises are guaranteed to increase in frequency.
Britain’s dash for gas was a medium-term fix based around a once rich but now dwindled national resource – which has led to huge over-exposure to volatility and imports. Everything must now be done to invest in new domestic gas production to help us through, whilst prioritising the transition to new nuclear power with which renewables and green storage will co-exist. We must stop offshoring our ability to keep the lights on and keep households warm.
Edward Heath lost in 1974 after his second battle with the miners, the three-day week and soaring prices. Conservativs should beware.