Unafraid of the Big Bad Wolves

Uh oh. Just when you thought that energy pricing and profiteering might be reigned in by a Competition Commission Inquiry, the Old Growlers play the fear card (again) and either ‘the lights will go out’ or the blame gets shifted onto renewable energy.

I don’t know how many times I’ve heard that Britain’s electricity margins are perilously tight, and that “If you don’t give us more subsidies, the lights might go out.” And it doesn’t stop there.

“If we don’t get new tax allowances … the lights might go out. If you want to cut energy prices … the lights might go out. If we don’t get best seats for the World Cup, invitations to the Palace, included in the New Year’s Honours List, …and a date with Angelina Jolie”.

The demands are endless, but the threat is always the same; Britain will be plunged into darkness if it surrenders to the ‘venality’ of demands for a more accountable (and sustainable) energy market. But what if we called the bluff of Neanderthal energy?

Britain is always told is that any Inquiry into the power of Old Energy will kill off energy investment. Some £200 billion of infrastructure investment will immediately park itself on the beaches of Torremolinos until the outcome of the Inquiry is known, and the economy will suffer. This is either hype or Horlicks.

When energy companies trail this £200bn figure around they conveniently forget that a privatised energy sector was supposed to have made provision for such investment as part of the ‘competitive freedoms’ that were to flow from privatisation.

As ideological doubters pointed out at the time, privatisation was always going to lead to short-term profiteering at the expense of long term investment. The big ‘investments’ would go into acquiring each other. It would turn into a race to become the biggest beasts lurking behind the facade of a ‘competitive’ energy market. But now even the Beasts are beginning to panic.

Capping corporate welfare.

If you were to unbundle the infrastructure investment costs, the figures are not that scary;  £200 billion over the next 20 years is only £10bn per year. Even at (say) 10%, the interest repayment costs would only run to £1bn per year. Spread across the UK’s 25 million energy customers, it would add £40 per year to energy bills. Hardly an unaffordable price for keeping the lights on.

Moreover, as each year progresses previous investment costs (from 10-15 years ago) roll off the books; so there is no accumulation of annual payback costs.

The problem is that this is not the problem.

Across the international landscape, energy utilities are having to offer higher and higher dividends to a financial sector increasingly unwilling to invest in them.

Half of Europe’s energy companies will go bust within the coming decade. Power stations are becoming like Commodore 64s. Smart technology is outstripping them and they respond poorly to society’s more complex needs of energy for heat, transport and power. No one is buying any more. The game has moved on. Only Britain fails to grasp this.

For years now, Britain’s energy companies have been mothballing gas power stations and parking all their ‘permissions’ to build new ones. The explanation was that the huge growth of renewable energy, and a glut of cheap (US) coal, has been pushing down European power prices. UK utilities parked up these assets until the government brought in the (stupidly conceived) Capacity Mechanism.

As soon as there were big subsidies to be had, energy companies would once again come to the Nation’s rescue. Phew! But they only do so when the taxpayer, rather than the market, coughs up the cash to pay for whatever power stations we need.

But before Britain goes dashing for its cheque book, we ought (at least) to debate the other options we have.

The economics of ‘less’.

Those who give even a moment’s thought to the latest international reports on climate change know that the ‘business as usual’ model of economics is stuffed … and we will be too. Surviving tomorrow requires a different mindset.

In energy terms, it means delivering more but consuming less. In doing so, Germany’s approach to energy efficiency investment should be a model to us all.

I am no longer convinced that conventional ‘growth’ economics is sustainable, but the Germans have been growing their GDP at the same time as lowering energy consumption (and greenhouse gas emissions).

The latest figures suggest that Germany has been reducing its energy consumption by 400MW per month. This is the equivalent of needing 5 fewer power stations a year.

So, before we leap into a panic ‘buy’ of new power stations, or succumb to the folly of Fracking, Britain needs to develop a new economics of consuming ‘less’. Countries going down this path are already discovering it is the cheapest and most efficient way of delivering tomorrow’s jobs, skills, decent wages and deficit reduction.

My grandad wasn’t an economist, but he always told us that the only ‘money-go-round’ worth being on was one that fed its citizens before its corporations; not a bad place to start.

Socialising the short-term

A serious programme that reduced energy consumption would take at least the rest of the decade to deliver. In the meantime, what do we do with the lights?

Any government with half a brain would begin by refusing to get into the blackmail game.

First, the government could make it a statutory duty on all big energy companies to hold a 10% capacity margin above ‘peak demand’ requirements. Britain has forgotten that the prospect of prison or fines is just as effective as ‘subsidies’ in delivering market change.

The government could also set up a national Agency to take over all mothballed power stations (and ‘permissions’) that were deemed necessary for energy security. Capacity

Payments could then be used to acquire such stranded assets (at car boot prices) so they were no longer a burden on energy company books. It would just mean using public money to acquire public assets rather than to prop up a private welfare state.

One consequence is that Britain would then reclaim the notion of the ‘strategic reserve’. Why try to create a competitive market for the most marginal and unpredictable aspect of the energy market; the financial mark-up becomes colossal. This is where the state should deliver the safety net.

Investment in new interconnectors falls into the same category. They cannot be built around ‘a secure rate of return on investment’, requiring a high level of use. These are just safety net provisions that keep the lights on. And the compelling case for social ownership is that it puts the provision into a ‘public, for safety’ rather than ‘private, for profit’ basket.

Building a new ‘B&B’ culture.

Creating of a new ‘B&B’ culture is not the call for a new generation of seaside landladies. It is about understanding that tomorrow’s energy systems will need different ‘balancing and backup’ mechanisms.

As more and more renewable energy becomes available, ‘balancing’ technologies – ones that can store and save energy – will become more important than new power stations. Lots are already in the pipeline.

Getting into discussions with engineers about this can be a dangerous exercise. The good news is that almost everyone has their own preferred solution. In truth, there are more likely to be a thousand answers than a single one; and the balance will change according to whether you are looking for electricity, heating/cooling or cooking. But answers there are.

In his book ‘Hot Air’, former government Chief Scientist, David Mackay made the case for dual pool tidal lagoon energy storage systems with a 40GWh capacity (with 8GW being almost instantly available). Those keen on such an option know that Britain has no shortage of coastlines, battered by the sea.

Other interests veer towards inter-seasonal storage, in which case you are probably talking about turning renewable energy surpluses into gas, hydrogen (or hot water) storage systems.

At the other end of the scale, a huge amount of work in Germany and the USA is focussing on household and community scale storage. The possibilities are truly exciting, but none of the beneficiaries are likely to be the Big 6 utilities.

Moreover, if localities are given new powers to sell their own energy back to themselves, at rates well below retail Grid prices, they will also lead the way into innovative methods of storing surpluses and balancing demand. It was what municipal energy companies did in Britain right up until 1947. And with tomorrow’s smart technologies they will do so again; turning towns, cities and regions into virtual power plants rather than constructing actual ones.

Then, inside our (better insulated) homes, the lights will stay on. The bills can come down. Only the wolves will be left outside the door.

And they’ll huff … and they’ll puff,

… but then who gives a stuff?

Alan Simpson