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Stewart Dalby: The UK’s chaotic energy policy could mean power failures soon

 Stewart Dalby:  The UK’s chaotic energy policy could mean power failures soon
The dark clouds are looming over the dysfunctional power industry.

Britain’s prime minister and his chancellor George Osborne have been preening themselves that, after an assiduous wooing process, China has agreed to invest £6bn into the UK’s first new nuclear civil power station for a generation.

EDF Energy, the French giant, will build the plant at Hinkley Point in Somerset in south-west England. At cost of £18bn it will be the most expensive energy project ever undertaken in the UK, and output will paid for by a subsidy from tax payers bills when it is up and running.

But an argument advanced for nuclear plants is that they will be a key element in building a low carbon future for the country.

The problem is that nuclear is only one part of the energy mix. Hinkley Point will take 10 years to build and produce power. Because of the chaotic way successive governments have dealt with other parts of the energy mix (coal, gas and renewables) there could be a power supply crisis long before ten years are up -- like this winter, in February say.

Earlier this year the National Grid, which carries most of the electricity around to homes and factories in the UK, said the reserves ‘cushion’-- the amount of capacity of supply there is over peak demand -- is down to 4%. Last year it was 7% and in 2011 it was 17%.

So concerned has the National Grid become about a crunch this winter it has offered to pay manufacturers to shut down at  times of peak demand. This could push the capacity margin up to over 5%.

But even so it would only need a few days of extremely bad weather combined with the shut-down of an aging nuclear plant or coal power station and the margin would drop to 2.5%, and there could be black-outs.

The reasons that energy policy is in such a mess can be traced back to the Gordon Brown era. In 2008, his Labour government passed the Climate Change Act, which committed Britain to cutting greenhouse emissions by 80% (from 1990 levels) by 2050.

This paved the way for subsequent governments to introduce a confusing mixture of penalties for heavy polluters, such as coal fired power stations, to get them to close down and incentives or subsidies for renewables, like wind and solar as well as nuclear projects.

At the same time, the hope has been there would be more gas-fired power stations to help fill any energy gap.

Unfortunately, things have not gone to plan. Coal fired power stations were given until 2025 to phase themselves out. But due to the collapse in coal prices because of cheap imports from Russia, the US and Colombia, coal fired plants are working around the clock to make money while they can and are shutting down years earlier than expected.

The renewables sector has grown rapidly, particularly wind and solar. Ten years ago only 5% of electricity was generated by renewables. By the end of 2014 it was 19.2% and could now be 23%.

But renewables have not grown enough to fill a supply gap just yet. Moreover, Amber Rudd, the energy secretary, in an attempt to stem the price increases in consumers’ bills that she says have been taking place, looks to have stopped the growth in the renewables sector in tracks in that in the past six months she has stopped subsidies to onshore wind farms, some solar plants and wood chip power stations.

All would be explained to us when Rudd announced her much anticipated “reset speech” when she would tell us how the government will keep energy bills low and keep the lights on while also reducing pollution.

Details of her plans were released this week. She took another tilt at renewables saying renewable generators will be held “responsible for the pressures they add to the system when the wind does not blow or the sun does not shine”.

Subsidies to offshore wind farms will continue, but only if they cut costs.  Offshore wind is the most expensive of all renewables and cost cutting would be difficult so this move looks like another brake on renewables.

Rudd confirmed that there would be no change in its plans to close coal fired power stations by 2025, but said that the government would only proceed if it was “confident” that replacement gas plants would be built in time.

Here is the rub. Gas currently accounts for 30.2% of electricity generation. The government has been supporting the gas sector through its short term operating reserve (STOR) and the capacity market scheme.

But these are essentially back up schemes for when renewables have down time. As the Daily Telegraph has said: “New gas fired plants are uneconomic to build without either subsidy, or sky high prices when they do generate.”

Investors have scared away from the idea new gas plants by the policy uncertainties. Only one new gas-fired power station is currently under construction at Carrington in Greater Manchester.

Rudd is robbing Peter to pay Paul exchanging one expensive subsidy regime for another in favour of gas and nuclear. It is difficult to see how she will keep customers bills down in these circumstances.

And we still don’t know how she is going to keep the lights on this winter.

As for climate targets, Rudd says she will not be changing the 2008 act. The Financial Times says: “Experts are divided on whether the 2050 target can be met.” 

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