Military strategists often prepare to fight the last war rather than the next one. Energy policy makers risk the same error. Their task is made harder by notoriously unreliable forecasts of long term changes in prices, demand and consumption. Furthermore, the industry’s long investment cycle means the effects of today’s decisions are felt for decades.
The Prime Minister’s former advisers wrongly prioritised attempts to limit energy price rises. These are largely outside the control of government. Measures to hold down energy bills win populist plaudits but don’t advance the essential reforms which alone will enable Britain, and indeed the world, to achieve sustainable economic growth. Now Professor Dieter Helm has been asked to carry out an energy cost review and report back in the autumn.
Energy policy faces two challenges. The first is the risk of dangerous and irreversible climate change. This is widely accepted, except in the White House, but progress in switching from fossil fuels to low carbon energy sources remains woefully short of what is needed. Rapid global expansion of clean energy investment is urgently needed.
Achieving this depends on China and the EU, both of whom recognise the cost of delay. Britain, who led this debate in the past, must demonstrate its continued commitment by immediate publication of a robust Clean Growth Plan setting out how progress in cutting domestic emissions will be maintained.
The second challenge is air quality whose deterioration now seriously threatens human health in many cities. Even the unchallengeable Chinese government is running scared in the face of the anger of millions of middle class city dwellers about reduced life expectancy.
These concerns are spreading quickly because air quality is easier for the public to understand than climate change. Meeting them requires the elimination of petrol and diesel powered cars and trucks.
A far more rapid switch to electric vehicles than previously expected will now take place. This will render Britain’s recent commitment to ban petrol and diesel vehicles from 2040 academic. Few fossil fuel powered cars or trucks will survive in the developed world after 2035.
The forthcoming explosion in demand for electric vehicles will be accelerated by a rapid fall in their price, similar to that seen in solar panels. The consequence will be a much bigger rise in demand for electricity than currently forecast.
The Business and Energy Secretary, Greg Clark, who understands the issues, has asked Helm to recommend how to keep energy prices low. Hopefully this will expose the folly of costly consumer funded subsidies for offshore wind and frailties in the capacity market which is boosting investment in polluting diesel generators.
Helm should also urge ministers to stand up to opponents of fracking. An exploration programme could soon confirm the size of Britain’s shale gas reserves, which can potentially enhance energy security and cut prices.
Even more important is how to cut Britain’s carbon emissions cost effectively and how to estimate and meet the much higher demand for electricity once electrification of transport and heat occurs.
Wishful thinking about meeting this demand entirely from renewable sources must be dismissed. British drivers travel an average of 900 million miles on the roads every day. If they find that a freezing windless night in January 2030 has left some of their batteries uncharged they won’t forgive the government of the day.
Professor Helm rightly criticised the high cost of some low carbon technologies in the past. He should now stop money being squandered on expensive low carbon projects, however persuasive or politically well connected their backers are, and focus on technologies which offer value for money.
Decisions must be based on like for like comparisons which factor in the cost of grid connection for remote energy sources and back up capacity for intermittent generators. If solar and onshore wind reach grid parity then let them rip. If tidal lagoons need a 60 year contract at three times the wholesale electricity price rule them out.
A dose of common sense is needed for nuclear which is the only low carbon technology capable of providing reliable baseload power at scale. While Hinkley Point C will hopefully be brought to a successful conclusion the truth is that cheaper technologies are already available from Chinese, Russian and Korean vendors.
Few people are better qualified than Professor Helm to remind ministers of the trade off between politics and economics. Consumers and taxpayers can benefit hugely if a rational choice of nuclear technology is based solely on cost and reliability.
New Nuclear Watch Europe has suggested that nuclear projects which use technology developed outside Europe should be acceptable provided that the shareholding of non-EEA state controlled entities is less than 40 percent, operational control rests with EEA companies/organisations, and IT control systems are supplied by a trusted British vendor.
Finally, Professor Helm could point out that temporary, and fully repayable, government financial support during the construction period for nuclear plant, with all interest costs paid by the developers, leads directly to lower electricity prices. Surely it’s time to stop Treasury resistance to this idea penalising British consumers?