At the London School of Economics last Friday 5th June 2009, there was a conference called “The politics of climate change : from economic crisis to business revolution”.
In the afternoon, after Adair Turner spoke, we were treated to the pragmatic realism of Andy Duff, the CEO of RWE npower, the Energy group.
At first he reflected on the enormous change in perspectives. It had only been four years ago when he had taken a colleague from the Sustainable Development Commission to convince his employers at RWE that they should be rapidly reducing Carbon Dioxide intensity.
He said he saw the “greatest challenge of our time” as beingthe need to reconcile Energy Security with Climate Change. “The Energy companies are having a hard time of it”, he said, “[they face] volatile primary fuel costs, in a business that makes single digit margins it shows how large the risks that we have to deal with [are]. [We can’t neglect] the social element, our obligation [to offer socially affordable tariffs], [which took] 20% of our operating profit last year.”
He said that they now face huge costs for new investment, “capital spend at three times our operating cashflow for ten years.”
He guaranteed willingness to do the job : “our industry, we are up for it…£6 billion on new Nuclear build…retiring 50% of generating plant.”
On the subject of new Nuclear and his adherence to it “Just a few years ago I would have resisted…[but now I accept that] without Nuclear Power we can’t come close to our [Carbon reduction] commitments. We need to consider electrification of vehicles [which would hugely boost demand for electricity]. We need a long-term strategy – not just 30 or 40 year targets. Electrification [requires] Renewable Energy, Nuclear and Clean Coal plant.”
He noted that all these investments and developments will need strong signals from the policymakers. “It requires a level of leadership not seet since the Post-War reconstruction…new Nuclear, Carbon Capture and Storage and Offshore Wind Power. I wonder if we have the confidence to seize this leadership. I wonder why I’m concerned. It’s that the short-term cost of reinvestment in our Energy systems is immense…predominantly on the electricity system – [a] very large cost.”
He took the wider angle, “up until now we have enjoyed very low costs of [power and Fossil Fuels]. No one has really informed the public [that costs will rise] – [people have been led to believe] that continued cheap consumption [could be] expected [as a] right.”
At this, a large portion of the audience gave loud applause. We agreed that the Public need to be told the truth : that the privatisation of the Energy utilities has lead to chronic under-investment, and that we are now at the point when we are obliged to invest in not only new plant, but new technologies. And this will cost a lot.
After I too clapped the speaker, I reflected on what it was I was cheering on. I don’t support the new Nuclear push, nor the “Clean” Coal hype. I think new Nuclear and Carbon Capture and Storage are sets of technologies too risky and expensive.
I do think that Energy prices will have to rise in order to pay for new Renewable Energy investment, however, since the companies will need to recoup their investments through higher charges.
It is Nicholas Stern who has calculated that it will only take a few percentage points of Gross Domestic Product (GDP) growth to pay for all the new technologies required to combat Climate Change.
Stern assumes that Carbon Trading Markets will provide the maximally efficient way to route the cash to this new spending. Presumably by acting as a stick to beat the money out of the pockets of the Big Energy companies.
Andy Duff gave us the results of public opinion, “70% to 80% support new Nuclear and de-Carbonisation [he meant Carbon Capture and Storage for Coal by using the term “de-Carbonisation”] “.
“We trust scientists most for information. We need to tell the truth even when it’s not a nice story. In order to deliver [new Nuclear and de-Carbonisation] it will be expensive and painful in the short-term. It must come to be seen as investment – seen as benefits in the future. In order to deliver our vision of the future, with continued access to Energy in a sustainable way. We can do it. We did it before. The Post-War period. The North Sea development. Leadership does require courage.”
My wonder is this : can the UK Government shrug off the counsel of the world’s Nuclear Power businesses and the large Engineering companies who have been promoting Carbon Capture and Storage ?