Electricity and gas users deserve bettter than rising bills and governmental cock-ups
This weekend, David Cameron is a man at bay, beset by critics who claim that the dramatic resignation of his chief whip strengthens the impression of a gulf between the privileged background and elitist sentiments of the prime minister’s entourage and the vast majority of ordinary Britons. The farcical scenes that surrounded his chancellor’s train journey to London in a first-class compartment seemed to add a dash of colour to this picture.
But it was the events of last Wednesday, when Mr Cameron appeared to be making energy policy up on the hoof – telling the House of Commons that he would make power suppliers offer the cheapest rates to all consumers – that might prove to be most damaging to his claim to that most vital prime ministerial asset: competence.
It would be tempting to think this gaffe was just a manifestation of the growing political pressure on him to tackle the major power companies on profiteering while redeveloping policy for a lower carbon future – in double-quick time. But the urgency is really the culmination, not of months or even years, but decades of inaction in a country that has taken energy supply for granted due to the geological fortune of North Sea oil and gas.
Margaret Thatcher was talking about the threat of climate change in 1988 although she did nothing much about it while rushing for hydrocarbons largely as a tool to shut down mines and neutralise powerful trade unions. Meanwhile, the seabed fortune was squandered by a succession of governments. Where is the trillion-pound sovereign wealth fund that could be invested in green technologies or even just provide cash for future generations?
Worse than this, no one prepared for the inevitable rundown in North Sea oil and gas, leaving the UK increasingly dependent on high-cost imports. This decline in local supplies has come at a time when the coalition increasingly sees gas as the energy source of the future because it can heat homes and be burned in power stations.
Coal, nuclear and gas have traditionally been the fuels of choice for the wholesale power companies but tough new environmental regulations and old age are leading to a fast phase-out of the first two. Meanwhile, efforts to usher in a new era of lower-carbon electricity generation from renewables such as wind and solar plus new nuclear plants have been characterised by ministerial dithering, mixing prejudice with practical concerns.
The development of onshore wind has been set back by planning objections while offshore farms have been dogged by rows over the high level of subsidies. Progress has been made with new projects and an enormous amount of work is going on to reduce costs of wind-generated power but even so the renewable sector was always going to produce – at most – just 30% of all electricity by 2020. Nuclear, which once provided nearly a quarter of our electricity and now is down to little more than 10%, remains stuck in a financial rut of its own.
Many of the foreign power companies that originally championed new UK atomic plants, such as RWE and E.ON of Germany, have decided to leave the market, while EDF, the main cheerleader, has found its enthusiasm dented by a new and less sympathetic government on its home patch, France. EDF is now badgering for the highest possible financial incentives before agreeing to go ahead with its first planned station at Hinkley Point.
It may yet get what it wants, but the chances of the once-vaunted nuclear renaissance in Britain seems pretty much dead for an international industry undermined by the aftermath of the Fukushima disaster and huge cost overruns at other new nuclear projects.
We will learn on Tuesday about the prospects for UK atomic new-build when the Energy and Climate Change Committee meets. Similarly, we will hear on 5 November the government’s wider vision of how it will keep the lights burning through the final version of the energy bill and, in particular, its details on electrical market reform. This document is meant to show how Britain can provide itself with power, encourage even more lower-carbon generation and keep energy bills down at a time when fuel poverty is growing.
How this will be achieved is a mystery as we have seen contradictory messages from a Conservative-dominated and renewable-sceptical Treasury versus a Lib Dem-influenced and low-carbon-facing Department of Energy and Climate Change. For good measure, the commercial community is also divided. A minority of manufacturing leaders believe Britain must embrace a new low-carbon future while a short-termist majority fear only that low-carbon initiatives could drive up costs.
And while this struggle to come up with a meaningful and final energy bill goes on, power companies have continued to infuriate consumers and politicians with a succession of domestic price increases. The energy suppliers say they are covering rises in international gas costs and need cash to invest in lower-carbon options. However, like the bank industry before them, their credibility is shot. This is the sector that has been fined for mis-selling products, introduced hugely complicated tariff structures and has shown an ability to raise retail prices quickly in poor times for the market while demonstrating a remarkable laxity in lowering them when markets improve. Their spokesperson as chief executive of Energy UK is Angela Knight, until recently the chief executive of the British Bankers’ Association.
Not that long experience in the energy sector counts for much. Alistair Buchanan, the boss of regulator Ofgem, has been given the runaround by the power companies and has failed to curb their excesses until too late. On Friday, he unveiled plans to force suppliers to tell householders about their cheapest deals but this was a good deal softer than Cameron’s initiative at parliamentary questions, which we are assured has been “misunderstood”.
The real misunderstandings have come from governments (not just this one) failing to grasp the need for an energy policy that looks ahead 30 years and does not leave it all to a market driven by short-term considerations. We need energy ministers who stay in post for more than a dozen months. We need to build low-carbon technology champions. We need an Olympian vision, not a Cameron cock-up.
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