With almost daily updates on the climate change and energy crises, it seems like we should convert all our power generation and fuel systems to renewable resources. As of yesterday.
It would seem that sooner rather than later is the best timeframe for any adjustment and renovation of energy systems.
The current debate in the United Kingdom about state subsidies to solar photovoltaic electricity generation systems is strongly focused on financial aspects, but really should be centred on pragmatism.
Privatisation of electricity generation has resulted in decades of under-investment. Many power stations and grid components needs updating or replacing. This needs to be done soon, as the Regulator Ofgem has reported in their “Project Discovery”.
With such a short time to renew electricity generation, it would seem wise to adopt both a top-down and bottom-up approach, by investing in a range of electricity production systems of all scales.
Yet there is a remarkable intransigence in the power industry. Those players with the access to credit and the capital that have the capacity to invest in new installations are simply not budging.
Despite the UK Government’s keen interest in nuclear power, as far as I know there is only one serious reactor build project in motion.
The one remaining project in the demonstration competition for Carbon Capture and Storage has effectively lodged itself into a hole in the ground and probably won’t come out to play for a while until it gets a fistful of new European money.
Despite a clutch of new gas-fired power stations on the “to do” list of approved plans, only a couple are envisaged to roll out in the next few years.
What is going on ?
Well, this was partly revealed by the end of the Radio 4 “File on 4” programme, aired on 4th October 2011, “Energy prices” :-
Gerry NORTHAM: “The Government is upbeat about its chances of transforming the industry. But despite the current talk of drastic measures to shake up the Big Six, we’ve found a sense of caution about the likelihood of radical reform. They are, after all, the same Big Six the Government will need to renew and green-up most of the generating infrastructure at a cost of £200 billion by OFGEM’s estimate. David Porter, the electricity industry spokesman, believes it’s time for some very frank talking.”
David PORTER: “Whether £200 billion can be raised is a huge question. There are serious doubts about whether that money will be forthcoming and it’s absolutely clear that it can’t come just from six companies. We have a number of other generating businesses in our association that also want to invest in this industry, and they have big plans, but the Government’s role in this is absolutely critical, because unless public policy for our industry is clear and stable, this money will not be forthcoming. And that means that we put at risk the replacement of ageing power stations and we certainly put at risk the transition that we’re beginning to see towards a low carbon power industry.”
NORTHAM: “It sounds almost as if you’re saying that your industry has got the Government over a barrel, because the Government needs the electricity infrastructure to be updated, and if it wants that it’s got to pretty much play ball with the companies you represent.”
PORTER: “Well, there has to be a good working relationship between an industry which is as important as ours and the Government of the day.”
NORTHAM: “Are you effectively saying to the Government, you interfere with the way we run our business at your peril?”
PORTER: It’s not quite like that, but Government should unders …”
NORTHAM: “Not quite?”
PORTER: “No, Government should understand that public policy decisions about our industry have to be taken very carefully.”
The Electricity Market Reform is making proposals for a “carbon price floor” amongst other things, which could result in heavy penalties on high-carbon generation. Despite producing less emissions than coal burning, a carbon price will definitely eat into profits for those burning Natural Gas for generation. And Natural Gas is the fuel that is most frequently used to burn to generate electricity.
It’s not easy to turn a whole industry around overnight, and so carbon pricing is not going to do anything apart from raise Government tax revenues. Having a new charge for carbon won’t help companies invest in new lower carbon generation. They cannot ditch their high carbon assets and build new low carbon facilities at the flick of this policy switch. And with extra charges, they will have less profits to put towards new investment. It is likely that the carbon revenues will be committed to highly expensive developments like new nuclear power and Carbon Capture and Storage, two technologies that may have already hit a dead end because of the disruption in the global economy. And Fukushima Dai-ichi. And the cost of the carbon price will inevitably be felt by the energy end consumer as energy companies scramble to offset its impact on their balance sheets.
The wholesale prices of coal, oil and Natural Gas will remain strong, so electricity generation, in particular, stands the risk of squeezing the margins of profit for generation companies. They will continue to avoid new investment without Government support. But it appears that Government support will all be going towards the most difficult projects.
The energy companies appear to be playing a game of brinkmanship. If the Government can blink first over carbon pricing, then the energy companies can feel safe to survive.
The Government is openly criticising the energy companies for raising retail prices of energy, and the regulator will pursue allegations of “tacit collusion” in the sector.
If carbon pricing is pushed home, and the companies cannot defend their ability to make profits from sales, then there is little prospect of seeing new energy investment in the UK for another decade.
So, the British will end up paying more for their energy, and the country won’t see any new low carbon energy investment.
The two things that were apparently able to buck the trend were the development of large scale wind power and small scale solar power. But the NIMBYs have resisted profitable onshore wind power. And now the Government is pulling the rug out from underneath the fledgling household solar industry, with a fast and deep cut in the feed-in tariff, that was designed to create incentives for wide deployment.
The Department of Energy and Climate Change is considering massive payouts to promote new nuclear power, whilst still shouldering the burden of the disposal of the last fifty years of radioactive waste from the nuclear power industry.
The money would be far better spent on rooftop solar, despite the high latitude of the country. This is because it can be done now. Today. We don’t need to wait any longer to increase the amount of low carbon generation in the United Kingdom. We can build wind farms and install domestic solar power.
I would rather that my taxes went to pay for small scale solar power and incentives for large wind farms, than pay for weaponry to kill people and destroy countries in the Middle East and North Africa, where most of the world’s remaining oil and gas are.