The Energy Leak

Something of a brouhaha is developing over the leaked briefing to David Cameron, claiming that UK energy bills will rise 30% (roughly £300) by 2020. The Telegraph, who reported the leak, say,

Mr Cameron is said to be “very worried” about the figures in the paper, written by Ben Moxham, his senior energy adviser who was recently brought in to beef up the Prime Minister’s policy unit.
The private note, seen by The Daily Telegraph, is titled “Impact of our energy and climate policies on consumer energy bills”. It was sent to Mr Cameron and offers a blunt assessment of how Coalition energy plans, in particular a series of green policies, will affect householders.

Well at least somebody is pointing it out.

Apologists for rising energy prices and fuel poverty — the people who would be otherwise calling for more expensive energy — have been quick to respond.

The Carbon Brief — which claims to offer advice on climate matters, but is in fact merely a blog for anonymised Greenpeace and FoE activists — have tried to pour water over the claim

DECC base their analysis of future energy bills on the assumption that energy efficiency measures (for example increased home insulation) will reduce household consumption of energy – so while prices go up energy bills may remain steady or even go down. While DECC predict that climate change and energy policies will cause gas prices to go up by 18% and electricity prices by 33% by 2020, they estimate (as of July 2010) that because of reductions in energy use

This is spin like no other I’ve ever seen: it’s not a price rise because we expect people to consume less, for the same price. Shame on the Carbon Brief. They continue, quoting from a DECC source,

“Sustained higher prices for fossil fuels reduce the cost of some energy and climate change policies, lowering the cost passed onto consumer bills. For example, at an oil price of around $150 per barrel in 2020 and gas price of around 120 pence per therm, climate change and energy policies would have the effect of reducing bills in 2020 by around 5% compared to a bill excluding these policies.”

In other words, fossil fuel price increases and volatility will increase energy bills, and measures which reduce consumption and shift production away from fossil fuel sources are a way of hedging against this.

In other words, in fact, the government have gambled on fossil fuel prices increasing, as they have in recent years. But what if fossil fuel prices fell? What if, for example, improvements in drilling technology produced an abundance of cheap gas, and oil — perhaps from shale deposits, and deep water exploration, and methane clathrates? If we can say that increasing costs of fossil fuels ‘reduces the cost’ of renewables, then we can say that decreasing costs of fossil fuels increases the cost of renewables. The rest of the world may well be paying a fraction of the price for conventional energy in 2020, while the UK is stuck with its commitments to subsidising ‘renewables’.

Damian Carrington in the Guardian gets his knickers in a twist to almost the extent the Carbon Briefs are.

Soaring gas and electricity bills are potent politics, but a leaked analysis for David Cameron does not support Canute-like railing against green policies.

Canute, of course, railed against the waves. The implication, then, seems to be that green policies are as inevitable as the tide. It is in unguarded moments such as these that we see what the green mindset is really made of.

Let’s take that head on. A source in Westminster tells me that Moxham was clearly referring to electricity alone when he suggested a 30% rise by 2020, meaning the rise would be about £135, but that the sentence was sloppily written. The source says Moxham’s analysis is “very sensible” and not vastly different to that at Chris Huhne’s department of energy and climate change. The official response from Decc is the same: “Reforms will not add £300 to bills.”

It’s so incredibly stupid, because, as an excuse, it forgets that many households — mine for instance — are not connected to the gas supply. What Carrington is involved in here is defending the environmental policy-makers, rather than investigating — like a proper journalist — the material problems that such blind commitments to energy policies are likely to cause. That would be one thing, if it were the opposition party’s policies he was defending. But as a defence of government policy, the ‘liberal’, ‘progressive’, and warm and fluffy Guardian journalist makes himself a tool of the state.

And there’s every reason to think the state have massively underestimated the problem. As discussed here recently, the Government and the DECC did not anticipate a doubling of the levels of ‘fuel poverty’ between 2004-9. 5.5 million — more than a fifth of all UK households — now have problems finding money to pay their bills. The government’s plans to insulate homes to protect them from rising energy prices is already a failure.

But there’s every reason to believe the new advice to Cameron.

According to Chris Huhne at the end of 2020…

More than £110 billion of investment is needed in new power stations and grid upgrades over the next decade, that’s double the rate of the last ten years. Put simply, the current market is not fit to deliver this.

Assuming that the domestic user ends up paying for just half of the UK’s energy demand, £55 billion is paid by 26 million homes, which means they each have an extra bill of £2,115.38 to 2020, or £215.54 per year for the whole extra investment.

Furthermore, the 7% of electricity that was produced in the UK from renewable sources cost $1 billion in subsidies. The target for 2020 is to produce 30% from renewable sources, or 4.3 times the 2010 amount. We can assume, then, that £4.3 billion in subsidies will be needed in 2020, or £82.42 per home — an increase of 2010 levels of £63.19.

The total is £278.73. I’m sure there are some problems with the way of arriving as this figure. But I’m equally sure this isn’t the half of it. There are opportunity costs to consider, and the wider social consequences of making energy more expensive — the ‘externalities’, I guess we should call them — such as unemployment, hypothermia in the elderly and other diseases; and the further cost of creating or subsidising the measures to combat these social effects.

Wouldn’t it be better to spend that £110 billion — or £300 each for a few years — on real energy R&D: ways to produce more of it, more cheaply? The idea of abundance and the freedom it would create are anathema to the government’s mood, however. Yet nobody has ever voted for higher energy bills. And nobody has ever been asked. Shouldn’t that worry the Prime Minister and the Department for Energy and Climate Change more than anything else?

16 thoughts on “The Energy Leak”

  1. For £110billion you could probably build enough nuclear power stations in Britain to completely do away with the use of fossil fuels for electricity generation.

  2. BEN, The Carbon Brief have seen sense, and they are not anonymous anymore, the author previoulsty only known as ‘Robin’ now writes as Robin Webster, and the about us section, gives her background.(ex FoE)

    Maybe a correction is required.

    Still a bunch of activists funded by the media arm of the European Climate Foundation though ? (ie lobby for 90% reduction in CO2 in EU, by 2050)

  3. What build new nuclear power stations in Britain ?
    Dont you mean Normandy in northern France
    They can run Another giant power across the Channel
    So we can buy even more French electricity

    After all Global warming was promoted in the first place back in the 80s to get the public to finally accept nuclear power after the Chernobyl Distaster
    They conned the Enviromentalist with that one

  4. If the purpose of hyping AGW was to get more nuclear power, it backfired spectacularly, because the low gas prices and double-digit interest rates of the time caused electricity companies to stampede into gas-fired power stations (cheap to build but expensive to run) rather than nuclear power stations (expensive to build but cheap to run).

    I certainly don’t want to become dependent on French electricity — in my view reducing our trade deficit is more important than appeasing NIMBYs.

  5. Oughtn’t some attention also be paid to the much-discredited abiotic theory of oil production? It’s followed as a matter of course in Russia, and if there is even a small chance it might be a reality then our fuel problems are likely t be far less extreme, and the oil producers will have no excuse for hiking their prices (other than the lie of AGW of course).

  6. “Wouldn’t it be better to spend that £110 billion — or £300 each for a few years — on real energy R&D: ways to produce more of it, more cheaply?”

    Spot on Ben, as usual.

  7. If 30% rise is £300 then the total brit energy bill is £1000/yr or £83/month. Maybe it is the mild climate or maybe they don’t stay very warm in winter, but that is exceptionally low. If this causes fuel poverty (more than 10% of income on energy) then brits only make £10000/yr household income. The only way this barely makes sense is if it is a per capita rate, not a household rate. Somewhere something does not add up.

    1. Craig – Maybe it is the mild climate or maybe they don’t stay very warm in winter, but that is exceptionally low.

      Compared to where?

      If this causes fuel poverty (more than 10% of income on energy) then brits only make £10000/yr household income. The only way this barely makes sense is if it is a per capita rate, not a household rate.

      It’s 10% of household income. The figures are the DECC’s own. http://www.decc.gov.uk/en/content/cms/statistics/fuelpov_stats/fuelpov_stats.aspx

      there are a great number of low-waged and unemployed people and pensioners out there, Craig.

  8. For whats its worth i wont have EDF electricity on principle
    Im with Npower but im not a cricket fan

    Do you remember those really dreadfull sanctimonious
    preachy TV adverts last year about how green their power is “with recycled film clips”
    What a bunch of wet w—-ks
    Now we get all that sentiental tosh about powering the most enivioromentally friendly Olympics

    Pass me the sick bucket

    I bet they dont say that when they send the bailiffs round in the middle of winter as they cut some poor sod off

    For any overpaid advertizing creative types on here
    try this as an idea for a focus group
    Being preached to and lectured at
    dosent make people concerned or thoughtfull
    and it dosent help sell your product
    Ordinary people trust me just find it irratating and condesending
    The great British public are more concerned about keeping their jobs and the recession than Climate Change real or not

  9. A small point but please please please get the King Canute analogy right.

    Canute ordered the tide not to come in, in order to demonstrate to his acolytes and sycophants that the power of Kings had no control over nature. The meaning of the analogy is perhaps more apt than the misusers understand. That he was trying to control nature is an amazingly common misunderstanding. And completely wrong.

  10. Electricite de France (EDF) which has a near monopoly on the potential nuclear sites in the UK is pressing Chris Huhne to guarantee a floor price of £30 per ton of CO2 emitted thereby guaranteeing a sweet return on its nuclear investment and high electricity prices for ever.

    George Carty doesn’t want us to be dependent on French electricity.Sadly George whether the power stations are built in Normandy or Suffolk we will be dependent on the French and the main beneficiaries will be the EDF shareholders. At least if they are built in Normandy the British will avoid long term commitment to the floor price and they will probably be built quicker and cheaper.

    Personally I think in the short term the sensible source for most of our power is gas. With some encouragement for conventional North Sea gas producers and with shale gas development coming on almost everywhere, gas will remain cheap and plentiful for years. Gas-fired power stations are cheap and quick to build.
    They are both dependable and flexible and unlike nuclear are capable of providing peak as well as base load. We will have to buildmost of them anyway if only to back up the insane windmill programme Huhne is determined to foist on us.

    The EU wants to compel us to close our existing coal fired capacity by 2015. We should (as the Germans now almost certainly will)have a clear plan to tell it to go hang.

    In the longer run we should be looking to new technology. Why for example aren’t we putting money into thorium? On the face of it looks far better than uranium as a way to get power from the atom.

  11. Isn’t North Sea gas running out though, meaning that continued dominance of gas-fired power stations will put us at Gazprom’s mercy? There was a reason why Gazprom lavishly rewarded Germany’s Gerhard Schroeder for his 2000 nuclear phaseout law. Agree on the coal-fired power stations — my support for nuclear power is more for “preserve energy security” than for “fight climate change” reasons.

    It’s wrong to claim that nuclear can’t provide peak power (if so, how can it be used to power submarines?). The issue is because nuclear has high CAPEX and low OPEX (while fossil fuels — especially gas — are the opposite) which means that it is not cost-effective to load-follow with nuclear if you also have substantial fossil-fuel generation. France does load-follow with its nukes because it has very little non-nuclear generation, while Sweden probably uses its ample hydro capacity for load-following.

    As for thorium, I agree — provided we go for LFTR, and not that stupid Heath Robinson contraption using a particle accelerator. My ideal end-state for our electricity generation would be something like 70% LFTR, 20% plutonium breeders and 10% non-nuclear (mostly hydro and/or geothermal, depending on the country).

  12. Of course you are right the North Sea gas is running out, but the government has accelerated this by its tax raid on the North Sea gas producers and its failure to provide them with dependable transparent fiscal incentives. Shale gas is pretty widespread if we encourage people to look for it and even if we don’t others will and will keep gas prices depressed.

    You are also right about nuclear. I should have said “don’t” rather than “can’t” It is mainly for the high OPEX reasons you explain, but it is also a lot easier to ramp hydro or gas up or down at short notice.

    I am not in principle at all opposed to nuclear. I just object to seeing our electricity users being ripped off, particularly by the French. In any event the things take so long to build that they will do little to help in the short to medium term.

  13. In China and South Korea they are able to build nuclear power stations within 4 years. The extremely long time which past Western nuclear projects have taken was not for technical reasons, but due to crippling regulations, brought about by the unholy alliance between the Greens and the gas interests.

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