The UK's Energy Policy Money Pit

by | Oct 25, 2015

Apologies for the long hiatus. Sadly, the rumoured millions that flow from evil oil capitalists to equally despicable bloggers does not exist (or has not reached this far), and I have had to focus on other things. More on that climate mythology coming here soon. Meanwhile, check out this post from Paul Matthews, on the new blog, brought to you by a team of excellent commentators.

Generating and distributing electricity was mastered in the UK many decades ago. Yet never before has it been so difficult. Whereas the political aspiration was, at one point, to electrify the entire country, and to provide ‘energy too cheap to meter’ to every home, today’s political ambition is to merely ‘keep the lights on’. A policy which, aside from diminishing horizons, even its proponents admit will raise prices. Somehow, not using energy turned into the ‘ethical’ thing to do — the less you use, the better person you are.

This is one of the things that has always puzzled me. Energy is a good thing. Few people would accept that scarcity and rising prices are a Good Thing — i.e. things that help or allow humans realise the full potential of humanity. We expect a level of development in most things: agriculture improves, giving us higher quality and cheaper food. Medicine improves — to the point that many diseases are now on the verge of complete cure. Electronics and communications have developed, for most of the last century on something like Moore’s law: a doubling of potential with respect to price every 18 months or so. The two most prominent things that have bucked the tendency in the UK, however, are energy and property.

The prices of electricity and homes have increased. This would imply scarcity on most economic perspectives. It may be true that more people mean that there are fewer homes. Yet there is plenty of land in the UK, ripe for development. But an almost feudal system of land management now exists, in which bankers and landlords can take from renters and people with mortgages ever larger slices of their salaries by the manufacture of scarcity. A similar transfer of wealth has taken place through the energy market, legitimised on the same ‘green’ basis.

There is no shortage of energy resources. With the development of horizontal drilling and other techniques, there are arguably more resources than there were available to us in the past. Nonetheless, energy policy has been hard to formulate. Governments since the 1990s — dash for gas notwithstanding — have been unable to permit any new development. They appear to have been as much colonised by the green movement as they have feared it. First, green organisations stood in the way of nuclear power. Then they prevented coal, and lobbied for renewables. There was no visible public mood for green energy policies. Yet, as well as closing down conventional generating capacity, the UK has committed to policies at EU, domestic and regional levels without any idea of how to realise these goals. This was the point made by Roger Pielke Jr. at the time the UK’s Climate Change Act (CCA2008) was implemented, and his analysis held.

The CCA2008 mandated the creation of the Committee on Climate Change (CCC) to set ‘carbon budgets’ into the future. Then led by Lord Adair Turner, the CCC was intended to be ‘independent’, and suggest pathways to Parliament, so that an 80% reduction of CO2 could be achieved by the year 2050.

The problem, of course, is that the CCC is not independent. It is stuffed full of people with political and financial interests in green energy policy. The bigger problem with the CCC is that, although technocratic solutions to seemingly technical problems seem to be the best, ‘expert’ panels preclude public and informed debate, with obvious consequences for transparent, democratic policy-making. Suggest to the CCC’s current Chair, Lord John Deben, that alternative understandings of climate policy exist, and he will accuse you of being funded by oil companies to propagate misleading information. Contempt for democratic debate is institutionalised by the creation of technological bureaucracies, which in turn has consequences for the quality of the choice of technique.

The CCC has today published its guidance on the next carbon budget period:

Under the Climate Change Act (2008), the Committee is required to advise the Government, by the end of 2015, on the level of the UK’s fifth carbon budget (the limit on the amount of greenhouse gases that can be emitted by the UK between 2028 and 2032).

This report sets out scenarios for the UK power sector in 2030 as an input to the Committee’s advice on the fifth carbon budget, given the importance of the power sector to meeting economy-wide emissions targets.

These scenarios are not intended to set out a prescriptive path. Instead, they provide a tool for the Committee to verify that its advice can be achieved with manageable impacts for the criteria in the Climate Change Act, including competitiveness, affordability and energy security.

This is timely. The big energy issues at the moment are: i) the looming ‘energy gap’, or ‘capacity crunch’ – a long-predicted shortfall; ii) the cancellation of subsidies for some forms of renewables, especially solar PV, and the removal of the presumption in favour of planning applications for onshore wind farms; iii) the costs (subsidies) for the new nuclear plant at Hinckley Point, and the deal with the Chinese government, and how unfari this is, given that other renewable sectors are being deprived; iv) the looming Paris UNFCCC farce meeting.

It would be fair to say that policy-makers need guidance like never before. But is the CCC up to snuff, so to speak, or is it too busy with its own snout in the trough?

Taking the last point first, the CCC was, back in 2008, intended to give the UK some kind of leverage as the first mover in setting ‘legally binding’ domestic targets. Hence, the CCA was a rushed job, the details — much less the implications — of which were necessarily beyond the understanding of the clear majority of MPs who voted for it nonetheless. The ink on the CCC’s guidance was not even dry when MPs voted on it. But vote for it they did — you could count the ‘nays’ on the fingers of one hand. The belief was that UK politicians could demonstrate ‘leadership’ at the global level, having implemented an aggressive domestic policy. A cross-party consensus existed on an issue that had never been tested at the ballot box, notwithstanding the Green Party, which struggled to rise above low single-digit percentages of the vote after four decades of campaigning. Green ideology had nonetheless established itself amongst the political class, whose cynicism of the public — and its material desires in particular — became increasingly obvious. Not just with respect to energy demand, the government became preoccupied with behaviour, with the minutia of daily, private life, rather than with competing values about the management of public matters. How much people drank and what they ate, where they smoked, and how well they got on with their neighbours became key political issues. Meanwhile, issues like the management of the economy was put out of political control, and into the hands of the Bank of England, just as ‘carbon budgets’ were to be decided by the CCC. What UK politicians were seeking to demonstrate to the world at the COP meeting in 2008 then, was not simply a policy idea, but a mode of government… ‘governance’, to be precise.

Pielke noted, back in 2009, that evidence of the UK’s overcommitment would soon be apparent — that it would fail, and that the ambitious targets would be missed, or would be achieved only by creating hardship for people. We should also see that failure as a failure of the form of governance that has been pursued. That failure is analogous to the UK’s housing crisis. House prices rose as the Labour (Labour!!!) government worried about social cohesion, British identity, ‘quality of life’, what we ate for supper, antisocial behaviour, binge drinking, Islamic fundamentalism, and of course, climate change. It cared about those things more than it cared about a huge transfer of wealth, often through the benefits system, from people who didn’t own houses, to people who owned more than one, and it made it harder for people to own one. “I will not allow house prices to get out of control and put at risk the sustainability of the recovery’ (1998), and “My vision is of a Britain where there is not stop go and boom bust but economic stability” (2000), announced the the Chancellor, Gordon ‘fifty days to save the planet’ Brown — who, following the biggest bust for decades, later became Prime Minister. We should see the energy policies implemented by governments in the same way we see their economic policies: not simply as technical measures intended to meet ‘challenges’ or problems from without, but as political ideas about how society should be organised.

This brings us to the UK’s new nuclear power project… Because the anticipated energy crunch was inevitable, the previous Secretaries of State for Energy and Climate Change having been such green energy zealots, and no sensible baseload capacity was on the horizon, new nuclear was bound to be expensive. Any energy company could see that the Labour and then coalition governments had openly declared their negotiation position for new nuclear: over a barrel, with no trousers. Thus, it was possible for any player to demand a high price, guaranteed. Politicians had turned to the green movement and green energy lobby for direction. Recall David Cameron, in his hug-a-husky days, climbing Greenpeace’s rooftop to admire their solar panels, and to listen to their advice on Feed-in Tarrifs. Dead American billionaires had spent as much as $30 million a year lobbying against coal and gas in Europe, leading to the celebrated cancellation of the replacement of Kingsnorth power station. Meanwhile, the renewable energy lobby, big on promises but short on delivering them, has barely produced enough capacity to replace two coal-fired power stations. The only hope left, after more than a decade of policy making under a condition of almost unanimous cross-party consensus, and the exclusion of all criticism from public and political debate, was to burn forests, imported from America. How green. The point of which is to say that the high price of the proposed Hinkley Point nuclear plant is entirely the result of predictable policy failure. Critics having been excluded from debate by angry DECC ministers on the basis of unfounded conspiracy theories, those who whinge about the high price of new nuclear energy projects have no leg to stand on. Though they will whinge… Here are some whingers on Channel 4 news…

The reporter — CH4’s ‘science editor’, Tom Clarke — reports in the same way that Greenpeace does. He frames the debate about subsidies and choice of technique to suit the outcome he prefers. He speaks to the erstwhile Lib Dem SoS at DECC, Ed Davey, for his angry reaction, and to an green energy academic activist. Dr Robert Gross of Imperial College, London is not just an ‘energy analyst’, he is Director of the Centre for Energy Policy and Technology and Policy Director, Energy Futures Lab, Head of the UKERC‘s Technology and Policy assessment function. As has been described in many earlier posts here, the nexus of academy and government creates a vast ecosystem of such outfits, but blurs the line between research and policy-making at the expense of democratic transparency. Gordon Brown called it a ‘government of all the talents‘ (GOAT). But goats turn out to be lame ducks.

Academics are made advocates, and advocates are made academics. Of course Dr Robert Gross is disappointed that the government seems to be reflecting (at last) on its commitments to green energy, his day-to-day job has depended on that compact for a decade or more. Davey, meanwhile, should reflect on his own role in creating the mess that the government is seeking a way out of — his party promised a commitment to a 100% reduction of CO2 emissions by 2050, and the abolition of nuclear power and the petrol engine. Were the voting public impressed? No – that party lost 49 of 57 MPs at the last election, and now has just one MEP. Rather than complaining about the Conservative government, Davey should be reflecting on what cost him his seat and his party such a humiliating routing at the last election. Perhaps he, and the energy price rises he helped to create might have something to do with it. So why does Channel 4 and Tom Clarke offer no counter position? Why not ask the government for its explanation, or even some analysis from critics of climate policy? The question is rhetorical.

The complaint, dutifully, uncritically, credulously (journalist virtues in today’s world) reported by Clarke, is that its not fair that green energy subsidies should be cut, while the bill-payer will be lumbered with subsidies for nuclear power. Indeed, the project is ridiculously expensive. Rob Lyons in spiked argued, “Hinkley Point C: rip it up and start again“. Peter Atherton wrote in the Spectator “At £5 million per MW of capacity, Hinkley will be, by my reckoning, the most expensive conventional power station in the world.”

But anyone who argues for the support of renewable energy through subsidies has surely lost the right to complain about subsidies for nuclear. After all, nuclear energy has the virtues of being virtually zero-carbon (if that is a virtue), not subject to intermittency, and in spite of the long timescales can add significant amounts of capacity, in contrast to the piecemeal development of wind farms — a few MW here and there. To illustrate that last point, in a decade of support for onshore wind (2002-2013) the UK added just 7.7 GW of wind capacity, which at 25% capacity factor offers just 1.9GW of intermittent supply, and was subsidised to the tune of £3.4 billion over that period — and will continue to be subsidised. Hinkley point, by contrast, will add 3.2GW (2 x 1.6 GW reactors) of capacity, which, with a capacity factor of about 90%, will produce 2.8GW of reliable supply. Yes, the £92.50/MWh of electricity from Hinkley point is expensive — at twice the current price of electricity. But it is almost exactly the same price as onshore wind energy has been, given the price of electricity, and the average subsidy of £46.4/MWh for onshore wind.

That price point is not a coincidence. Politicians, in the endless to-and-fro about energy policy, supported by green campaigners have emphasised the need to create ‘investor confidence’. In their wisdom, they have said to every investor that subsidies are available to any technique, necessarily. If I have a £billion to invest, and I’m making a choice between wind and nuclear energy, why would I put that money in a project that would yield half the return that was being offered elsewhere? The market was distorted by policy, intentionally. Ultimately, the commodity being traded is electricity. It’s no good saying that electricity produced by nuclear is only worth half of electricity produced by wind. Green campaigners have, almost entirely unopposed, established the UK’s negotiating position on new nuclear.

But let’s take the green argument at face value. Is Hinkley Point worth the money, given green priorities, rather than our own?

This question brings us back to the CCC and their new report. As is the wont of green movers and shakers, the lines are drawn robustly:

Low carbon technologies are, and in the 2020s will continue to be, a more expensive way to generate electricity than burning gas and allowing the emissions to enter the atmosphere for free. However, in a carbon-constrained world this is not an option. A carbon price that reflects the full cost of emissions would increase the cost of gas-fired generation to a level at or above the cost of some low-carbon options. The Government’s carbon values are designed to be consistent with action required under the Climate Change Act (Box 3). They reach £78/tonne in 2030 and would be enough to push the costs of gas-fired generation up above the level of mature low-carbon options in the 2020s (Figure 2).

I believe that the question of whether or not we want a ‘carbon-constrained’ world, and when we do or don’t want it has not been debated. Much less debated is the putative ‘cost’ of ‘allowing the emissions to enter the atmosphere’. The CCC claim that it isn’t free — that there are externalities. But not only might these externalities turn out to be positive, rather than negative, even the negative externalities might be worth bearing, relative to the benefits of cheap, abundant energy.

Nebulous claims about the putative externalities of CO2 emissions allow the CCC to claim that renewable energy will be less expensive when these externalities are included in the price of energy. These assumptions are shown in the following graphic.


As we can see, gas with no carbon price attached is the cheapest way of producing electricity. (There is no mention of unabated coal). When the carbon price or carbon Capture and storage (CCS) is introduced, the cost of gas is doubled. This seems to make onshore wind competitive. Thus, the argument is made for continued support for renewable energy.

If more low-carbon capacity is to be deployed in the 2020s, as in our scenarios, the total support will initially need to increase beyond £8 billion per year.

The CCC want, in fact, up to £9.4bn in subsidy per year for low carbon energy. That is a huge amount of money — equivalent to about £147 per person in the UK, each year. And even then, the CCC imagines that £12bn a year is possible. Here is how that cash gets distributed, according to the CCC.


The bulk of this graphic is the amount already committed to renewable energy operators. How wisely was this money, and the future cash that the CCC wants to get its hand on, spent?

Let’s assume that the pot of cash for subsidies increases linearly from £4bn in 2014 to £12bn in 2028 — i.e. increases by around £600m a year. By 2028, the UK will have spent £112 billion on subsidies.

That’s enough to buy — not subsidise — six Hinkley Point plants at their current price. The result would be 19.2GW of zero carbon capacity (17.28GW net, or 151 TWh/year) bought and paid for, if the money was simply saved rather than used to pump up green energy company profits. If this were the policy, the first nuclear plant could be bought in 2018. The second would be bought in 2021. The third, fourth, fifth and sixth would be bought in 2023, 2025, 2027 and 2028 respectively. Alternatively, progress could be made towards more than one development at a time.

The CCC estimate that demand for electricity will be 380TWH in 2030. And we have just found a way to buy almost half of that capacity — at a very high price — using money that was going to be wasted on subsidies — i.e. to add zero value to the UK’s energy infrastructure. If the difference was to be saved, and the plant bought outright when sufficient funds had been saved, the bill-payer could effectively own the nuclear fleet, within a generation.

Moreover, as is explained above, the anticipated price of nuclear energy is inflated, and the negotiating position of the government weakened because of the subsidies offered to renewable operators. If subsidies were to be scrapped entirely, and a more sensible regulatory framework put in place, nuclear energy at half the price or less is not implausible. For the same money, more than 300TWh of capacity could be added, making the UK’s power supply almost entirely zero carbon. Twelve, shiny new nuclear power plants could be supplying the UK with cheap, affordable, zero carbon nuclear energy. No more messing about with silly wind farms. No more fiddling about with a ‘smart grid’ trying to ‘manage demand’. No more subsidies to rich landowners. And no regrets about having cut off the vast army of solar PV spivs.

I don’t propose the public ownership of utilities, or a 100% nuclear power supply as the way forward. The point is merely to demonstrate that there is no need for renewables, at all, in the ‘energy mix’ — that nuclear can cover as much of the ‘low carbon’ generation as is deemed necessarily, without sleaze. The CCC’s proposition is not an answer to a technical problem, but is a political argument for a particular relationship between consumers and producers that most classical economists would understand as ‘rent-seeking’. If energy supply is to be de-carbonised, and the bill payer is to pay subsidies to support the green energy sector ‘for the common good’, he might as well own the capacity he is paying extra for through subsidies, and go with the best technique. It would mean a decade and a half of high prices. But the payoff would be much lower bills after that. Arguments about choice of technique certainly appear, like New Labour’s claims about the management of the economy, merely technical, but beneath the technical presentation is political substance.

The emphasis on renewable energy is as backwards the CCC’s thinking on energy is. That the CCC could conceive of wasting so much cash supporting the renewable energy sector’s excess and on rescuing green policies from their inevitable, and predicted failure is hard to understand from a face-value reading of the empirical facts. Parliament could have — and should have — made the decisions about de-carbonising the UK’s power supply, and the best way of doing it. But by delegating responsibility (and thereby abrogating its own) for it, it has merely created an unaccountable tier of governance that may serve itself, with impunity, whilst seemingly striving to achieve a higher purpose.

The CCC, and the renewable energy companies they service are as necessary to meet ordinary people’s needs as cheap credit for mortgages on houses with vastly inflated prices were. They burden people with rising prices and businesses, jobs and wages are put at a competitive disadvantage, just as policies that affected house prices have left millions paying through the nose for rents, and stacked huge liabilities on people on average incomes. Rising energy and house prices serve the interests of brokers and speculators who profit more from asset-inflation than from innovation, not the public. Ditto, those same interests are served by institutions that manufacture scarcity, where there is proven abundance, albeit an abundance that the vapid individuals who profit from scarcity see no way to profit from, other than by denying access to it. Cod modelling of the merits and demerits of one technique vs others is a distraction from the fact of the political nature of the CCC’s enclosure of the market in the same way that the enclosure of the huge abundance of land in the UK ensures high prices for the dubious benefit of ‘protecting the environment’ — the Green Belt.

If there is not yet a name for all of this, it should be ‘green feudalism’. ‘Feudalism’ because a class of technocrats, who seem to be above democratic oversight has been constructed, which is able to serve itself and its cronies at the public’s expense, justified on the basis of its putative virtues in the way that the nobility was imagined to be, well, ‘noble’ — possessing virtue — prior to the Enlightenment. The justification for that regime is invariably ‘green’ — even the Chair of the Bank of England has laid out his climate credentials. We all seem to have to pay tribute to this class, lest we incur Gaia’s wrath. This class of climate Lords is served in turn by a vast climate clergy, who promise us that the green noblemen are indeed virtuous, and not tainted by the devil’s own oils… But their own demands for our austerity aren’t matched by humble requests for green taxes, but demands for £billions and £billions, and rising every year.


  1. Cheis F

    There’s absolutely nothing noble about using less electricity. It’s about as noble as saying I’ll stop taking my morning jog because I’ll eat less food that way.
    Electricity should be priced the same way as most other commodities, the more you use the cheaper it becomes. Back in the early seventies Quebec had that system until the electrical temperance movement took hold.

    Good article Ben, as usual.

  2. mike fowle

    Great to have you back, Ben. Lot of information and comment to digest as always but I know it will be well worth the effort.

  3. mike fowle

    oops, silly me. So pleased to see something didn’t read it properly and just realised it’s a guest post. Well written though.

    Hi Mike, you were right first time — I wrote the post. The message at the top is an apology and an advert for Paul and co’s new blog. Ben.

  4. climanrecon

    I think that the UK electricity generation finance system needs improving, otherwise it won’t just be the green crap that stops proper power stations being built. Some central body (National Grid + govt) could/should decide that another few gas-fired stations are needed, then the capital cost + 10 years operating costs could be paid for over 10 years via electricity bills, so no need for everyone to pay massive risk premiums.

    Why would a company spend £1 billion on a new power station, then staff it, with no guarantee of getting that money back?

  5. Phillip Bratby

    Welcome back Ben, with an excellent article.

    You really need to proof read it as there are quite a few errors (I don’t think you meant Tom Heap, for example). But the errors don’t detract from your excellent analysis.

    I first became a “climate change denier” back in 2007 after watching ‘The Great Global Warming Swindle’ and, for the first time, having sufficient time to examine the evidence from the perspective of a physicist. When the ‘independent’ (joke) CCC was set up I read what it had to say, and the major thing I noticed was that in its workplan, under the bullet point “Scientific estimates of likely future temperature effects”, it stated that it would be examining the evidence base, uncertainties and understanding of climate science. I communicated with the CCC about this and its use of the term ‘scientific consensus’. Of course the CCC never did what it said it was going to do and I never received any satisfactory explanation from it as to why it ignored its own workplan to examine the evidence base. There is no doubt that the CCC is not independent and it should have been one of the first bodies to have been on the ‘bonfire of the Quangos’ (another electoral promise which never happened) resulting from a repeal of the Climate Change Act 2008.

    • Ben Pile

      Thanks Phillip – Tom Heap is the guy on BBC R4, so I must have been mixing up green broadcasters called Tom. Fixed.

      Did you ever write up your experience with the CCC anywhere?

  6. geronimo

    I’m sorry to disappoint you Ben, but my new paper shows there has been no “hiatus” of this blog. I researched the various places you’d turned up, Twitter, Bishophill etc. and by interpolating the data was able to show that you had in fact blogged here on at least 36 occasions since June 2015 using the techniques of my co-authors Cowtan, Way. Karl and Peterson. There has been no hiatus I’m afraid.

  7. Phillip Bratby

    Ben: Easy to mix up Tom Heap and Tom Clarke, who are both from the same green mold (green mould?).

    No, I never did write up my experience with the CCC. It is all now lost in the mists of time. I tried to pursue things with my MP in 2008, but got nowhere (as expected) and all communications from DECC, Defra were the usual PR job, brooking no dissent.

  8. It doesn't add up...

    The housing story is not without interest, because it has several parallels with climate nonsense. The public believe that there is a housing “shortage”, when in reality we have the lowest ratio of population to dwellings in history – even during the migration surge of recent years the pace of housebuilding has marginally outrun the rate of population increase.

    It’s notable that there has been a large increase in BTL tenure in recent years at the expense of owner occupation (rather like renewables grabbing market share). The reality is that we have a property bubble that is driven by financial influences, not shortage, in just the way we have high energy prices because of silly policy. In fact, before the bubble was inflated the UK used to fund its mortgages out of domestic savings (just as it produced its own oil and gas – and a surplus to pay for the coal we imported). As energy production declined, so revenues from high added value sources reduced the real income of the UK – but the banking sector was encouraged to borrow abroad to increase mortgage lending and put the borrowed money into the economy via the spending of those using their houses as ATMs.

    Some £800bn was borrowed abroad (via selling “asset backed securities”) before the financial crash, when some of the loans were called in or not renewed as a result of bankruptcies in the banking industry – the funding was provided instead by a succession of schemes from the Bank of England, including the Special Liquidity Scheme and QE. The hiatus in the trend is notable post crash.

    A significant proportion of the rise was effectively pyramid buying by BTL landlords, outbidding first time buyers on over 200,000 homes a year: perhaps rather like the influence of CO2 on climate, the public suppose that first time buyers purchase new homes, when the reality is the market is dominated by second hand homes, and supply to first time buyers is dominated by homes that come available down housing chains from executor sales. Landlords bought 56% of newbuilds in 2014, with social purchasers (mainly Housing Associations) accounting for a further quarter – leaving just 20% to be shared between retirement flats, footballer mansions and everything in between.

    Perhaps I’m stretching the allegory too far, but the effects are just as disastrous as our stupid energy policy of closing down anything that’s cheap and reliable in favour of the expensive and unreliable.

  9. George Carty

    The scarcity of building land in the UK is a result of the Town and Country Planning Act 1947 (and its successors) which nationalized the right to develop land without nationalizing the land itself.

    Given the timing of the original Act, it is quite likely that it was motivated by food security concerns (which would have been prominent in the minds of the policymakers due to recent memories of the Battle of the Atlantic). I also suspect that when environmentalists advocate smaller, denser built-up areas they are being disingenuous about how they expect this policy to benefit the environment: they claim that the policy will work by making people less dependent on their cars, but they actually expect it to work by pricing people out of having families (and thus limiting population growth).

    Only it doesn’t work out as expected, because Britain is still for some reason very attractive to third-world immigrants (who are less fazed by high house prices as they are accustomed to overcrowding). If Britain is overpopulated enough that we need to ration building land in spite of the resulting skyrocketing house prices, why do we allow so much immigration?


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