Hope is a precious quality in economics. We must invoke it sparingly. But we are now in need of very large quantities. I refer to the Scottish Government’s obsession with renewable energy, on a scale that could well present us with the energy equivalent of the Edinburgh trams.
Earlier this week Scotland’s massive gamble on renewables took a fresh twist with plans to build the world’s largest offshore wind farm in the Outer Moray Firth. This, we were told, is to comprise “up to” 300 turbines and will deliver “up to” 1,400 jobs during construction and “up to” 280 jobs through operation and maintenance.
When complete, it will, apparently, be capable of generating enough power for a more than a million homes by 2020. As to costs, it will take £50 million to undertake initial preparatory work, with the project overall price-tagged at £4.5 billion. Big figures, astonishing sums – and a stride forward towards that self imposed target of generating the equivalent of 100 per cent of the country’s electricity demand from renewables by 2020. A mighty wind is blowing for renewables. But is it really?
From America comes troubling news for the renewables lobby. Reports are legion of bankruptcies, green jobs that failed to materialise and a notable cooling of the rhetoric on global warming as the country now finds itself on the brink of a breathtaking boom – in fossil fuels.
From Europe come warnings of failed renewables projects, disappointing results and voter disillusion. And from nearer home comes troubling evidence of how the push in renewables is destroying jobs and confronting millions of households with huge rises in energy bills. But cost is the great unmentionable in the renewables rush. And that, of course, was the line that never was in that Moray Firth press release.
How ironic that just ahead of another inter-governmental global warming summit in Durban that the temperature has cooled so quickly in America. For there has been a transformation in prospects for fossil fuels and growing disillusion with the results of massive federal government spending on renewables projects.
America’s energy prospects have been lifted by huge exploitable recoveries of shale gas with none of the “earthquake alarms” raised by the green lobby; improvements in drilling technology that have opened up previously inaccessible “tight oil”; expanses of “tar sands” in neighbouring Alberta and continuing exploration upgrades from oil drilling off the coast of Brazil. For an economy caught in a deep permafrost of debt, energy sources costing considerably less than wind power could hardly have come at a better time.
Coincident with this has been growing embarrassment over renewable project failures generously funded by Washington. Controversy rages over the bankruptcy last month of Solyndra, a solar panel maker to which Washington had extended $535m in guarantees. Three weeks earlier, Beacon Power Corporation, a Massachusetts energy storage systems company which had received $43m in government guarantees filed for bankruptcy owing $47m. Dozens of grants and hand-outs to create green jobs have failed to meet expectations.
Meanwhile New York State, a keen advocate of green energy, has pulled out of an offshore wind farm project due its high cost and General Electric is reconsidering offshore wind energy development plans in Europe.
Still reverberating around the energy policy network is a study by Professor Gabriel Calzada of Juan Carlos University in Madrid which concluded that the Spanish/EU style green jobs agenda promoted until recently in the US in fact destroys jobs. For every green job created by the Spanish government, Calzada found that 2.2 jobs were destroyed elsewhere in the economy because resources were directed politically and not rationally. Each “green” job came at a cost of $774,000 to Spanish taxpayers. Asked recently US journalist Ed Lasky of American Thinker about the origins of Spain’s green energy programme, he said that it was the desire of Spanish political elites to be “world leaders” that drove the programme. A touch of the Edifice Complex, perhaps?
What gave all this momentum was a vicious circle by which banks, to protect their original loans, kept promoting green energy programmes, drawing in more government money. Electricity prices have doubled since 2004 and a blighted economy is now teetering on the edge of recession. In Holland, the EU renewable energy target has been abandoned, saving the country billions of euros in subsidies.
Here in the UK searching questions are being asked about the cost of the commitment to renewables. According to a study by KPMG leaked earlier this month, government plans to cut pollution by a third by 2020 will cost £108bn to implement. Shifting this towards nuclear and gas-fired power stations could reduce this by £34bn, equivalent to £550 for every person in the country. It put the cost of an offshore wind farm powering 800,000 homes at £2.4bn. An equivalent gas powered station would cost £400m – one sixth of the amount.
And the Institution of Civil Engineers in Scotland warned this week of an approaching energy gap: 80 per cent of Scotland’s existing power plants are due to stop generating electricity by the end of the decade. The push into green energy will not keep Scotland’s lights on.
What is keeping the renewables show on the road are massive subsidies that hide the true cost of wind power. The Renewables Obligation Certificate is paid for through household bills. Owners of wind turbines are given an additional £49 for every “megawatt hour” they produce – and twice that for offshore turbines. This burden has an economic cost. Rio Tinto Alcan is closing its aluminium smelter in Lynemouth, Northumberland because, it said, “the smelter is no longer sustainable… its energy costs are increasing significantly due largely to emerging legislation”.
I do not doubt the geo-political case for renewables, nor that there should be renewables in our energy mix. But energy produced at a horrendous cost that drains the budgets of households and depresses spending elsewhere is neither a rational energy gain nor a “stimulus boost”. It is edifice economics, founded on sleight of hand taxation and powered by a gale of hope. We are going to need more than this to have a hope of keeping the lights on.