There has been much speculation this week’s Cabinet reshuffle will sharpen up the government’s policies for growth. Well, maybe or maybe not. We can only wait and see. But there is one area which needs a radical change of direction in policy. And that is energy policy or, more specifically, in electricity generation.
The government’s “green policies” are undoubtedly adding to everybody’s electricity bills, whether domestic bills (particularly disadvantaging the lower paid and pensioners) or business bills. Concerning business, it is the “energy intensive users” in manufacturing such as steel, cement and chemicals which are especially vulnerable to high energy costs, not with-standing some Treasury support. The government talks about “rebalancing” the economy from financial services to manufacturing and from domestic demand to exports (where manufactured goods are still very significant). But its energy policies hinder this perfectly sensible strategy. If you want manufacturing businesses to thrive, it is bizarre and contrary to pursue policies that undermine their competitiveness and threaten their viability.
A report recently submitted to the Department for Business (BIS) compared the impact of energy and climate change policies on electricity prices for energy intensive industries for a selection of major economies including the UK, China, Japan, Russia, the US, France and Germany. The main findings were quite shocking. “Green policies” had already added more to Britain’s electricity prices than in any other country putting our industries at a major cost disadvantage. Moreover, the cost disadvantage was projected to worsen by 2020. This really is a matter of shooting industry in the foot. One can only hope that the Department of Energy and Climate Change (DECC) reads, and heeds, reports commissioned by BIS.
Britain’s “green policies” are so uniquely disadvantageous because of the government’s commitment to a lethal combination of climate change and renewables targets which drives energy policy. By the Climate Change Act (2008) Greenhouse Gas (GHG) emissions (principally CO2) are to be cut by 34% by 2018-22 and by 80% by 2050, compared with the 1990 level. These draconian cuts are even tougher than the EU’s! Whether this masochistic zeal is worth the huge costs involved doubtless partly depends on your views on the reality of manmade global warming. But note that Britain’s CO2 emissions are about 1½% of the world total and even the EU27’s share is only 12%. Meanwhile China’s emissions, at nearly 24% of the global total, are rising quickly. Where we lead others, including China and India, appear to have no intention of following. Why indeed should they?
The EU’s Renewables Directive commits Britain to sourcing 15% of final energy consumption from renewables, from a very low base, by 2020. No other major EU country faces Britain’s huge challenge. And note that compliance with the Renewables Directive does not in itself tighten the CO2 targets; it merely dictates how they are partly to be met. In the battle against global warming the renewables target is totally irrelevant. Britain’s renewable technology of choice is wind-power for generating electricity, nuclear power does not count. And wind-power is costly, very costly.
DECC has commissioned highly-respected reports on electricity generating costs for the key technologies. Very broadly they show that highly efficient Combined-Cycle Gas Turbines (CCGTs) and nuclear power stations are the cheapest means of generating electricity, once allowance is made for extra costs associated with the CO2 emissions of coal-fired power stations. Onshore wind is almost in contention, but offshore wind is expensive and uncompetitive.
But the DECC commissioned figures flatter wind-power as they make no allowance for the “add-on” costs associated with the technology. Wind-power is unreliable and requires conventional back-up generating capacity when wind speeds are, for example, very low, very high or rapidly varying or zero. Ironically the wind is especially unforthcoming during prolonged cold spells which are associated with high pressure areas. In the very cold weather of 21 December 2010 the electricity generated by wind farms provided a miniscule 0.04% of electricity needs.
The use of back-up capacity, which tends to be relatively costly and inefficient for technical reasons, inevitably increases the overall costs of generating electricity by wind-power. In addition, there are other costs. For example, transmission costs from generators to consumers tend to rise as wind farms tend to be situated in the north of the country (in order to exploit higher wind speeds), but demand is weighted towards the south. Reputable sources suggest that all these “add-on” costs can be very substantial indeed and once allowance is made for them onshore and, especially, offshore wind become horrendously uncompetitive.
And here’s the final rub. Once allowance is made for the inefficient use of back-up generating capacity, wind-power turns out to be a poor means of reducing CO2 emissions when compared with Combined-Cycle Gas Turbines or indeed nuclear power. Wind farms seem to have precious little going for them. If Britain were not committed to crazy renewables targets, they would have nothing going for them at all. And they are wrecking parts of the countryside.
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