The definition of a conspiracy theory is when evidence against a theory is interpreted as evidence for it. The lack of proof that President Bush planned 9/11 just shows how powerful the US government is. The absence of any meeting minutes of the worldwide Jewish conspiracy just shows how secretive they are. Oil and gas shortages are proof that we need less access to oil and gas, not more. With the war in Iran causing a major price spike, and the UAE announcing that its gas production is now zero, this is the time to make domestic supply less viable to hit our national carbon targets.
With Ed Miliband, the Energy Secretary, once again insisting that weaning Britain off fossil fuels and onto 100 per cent renewable energy sources is the best way to protect the UK from a gas shock happening right now, one does start to wonder. Does he really believe his own spin, and that it really is our ongoing use of gas that drives up energy costs? Or does he just think net zero is more important than stable, secure and affordable power? Or is he just downright dishonest?
Where Miliband is right is that Britain is highly gas-exposed. Having removed all coal power from the grid while also failing to invest in long-term nuclear baseload power, the UK still needs some level of gas power on the grid to keep our lights on 97 per cent of the time. Sometimes gas generation is powering half our electricity demand. Some 85 per cent of households rely on it for home heating. It is needed as a source of firm, dispatchable power to compensate for the problem of intermittency suffered by wind and solar generators — a problem we have not yet built the infrastructure to solve. Even the Prime Minister has affirmed that Britain will need access to gas for decades to come.
The answer to Britain’s gas exposure and reliance on imports is to have more access to gas, not less
Labour’s determination to choke off our domestic supply of gas and gas power through punitive policies from mega-taxes on the North Sea to irrational carbon taxes on gas generators is doing nothing to reduce gas dependency. Instead of using locally sourced gas — which is cheaper as well as less carbon-intensive — we import around half of what we need through liquid natural gas (LNG), often from the United States. Miliband constantly harps about the wholesale markets driving costs, but there is no global price. Gas prices in the US are on average four times lower than in Europe due an abundant domestic supply from onshore fracking. Claims that the North Sea is depleted are overstated — both industry leaders and the CEO of RenewableUK have called on the Government to lift excessive taxes and exploration bans on the North Sea to ensure a secure local supply of oil and gas.
So the answer to Britain’s gas exposure and reliance on imports is to have more access to gas, not less. This will bring down not only heating bills but also the wholesale cost of electricity, which the price of gas determines via the grid’s auction system. Windfall taxes on North Sea producers should be removed, and taxes and carbon pricing that push up the cost of gas-generated electricity by 15 per cent should be scrapped.
But is it even true that gas prices are the main cause of our sky-high energy costs? Wholesale prices only account for around a quarter of a typical electricity bill. The rest is made up of supplier costs and margins (which are necessary), network charges, taxes that are passed on to consumers, charges that fund the cost of renewables intermittency through balancing and curtailment costs — where wind and solar farms are actually paid to take excess power off the grid. As analysis in a recent report by Onward has shown, the various assortment of policy levies added by the state to subsidise renewables and and pay for the network and balancing problems inherent to wind and solar add some 30 per cent for the average family, or £285 a year.
The notorious system of “Contracts for Difference”, where renewables companies are paid a fixed strike price per megawatt hour of energy regardless of the wholesale cost of energy, make bills higher as they are financed via a specific levy we all pay. They also actively prevent prices from falling even when the wholesale cost of gas is coming down. High prices are a function of policy as much as of scarcity. And this is before you consider the fact that gas generators are forced to operate highly inefficiently by cranking output up and down according to what they are able to sell, since gas gets the last look-in in the grid’s 30-minute auction process, after everyone else has had their bite.
Renewable energy sources are now an essential part of Britain’s energy mix. On a windy day they might be providing half the country’s electricity supply. But on a day when the weather is different, that will be true of gas. Piling disincentives onto gas supply and generation in an economy where gas is still absolutely vital is suicidal. And needless to say, the more that excruciating energy prices cause Britain to deindustrialise, the less growth and investment there is, and the fewer industries are left to fund the massive expansion of the grid a renewable-only energy mix would require. Persecuting gas is doing nothing for Britain’s global carbon footprint, since we continue to import fossil fuels and buy products from industries we have merely offshored — in any case, we now account for just 0.8 per cent of global emissions.
The whole energy system needs a rethink, from what the future energy mix looks like to whether unilateral net zero should really be a strategic target for the UK to how we procure and price energy. But for now, the Government should focus on what it can do — unwinding the policy costs it puts straight onto your bill, and enable massively more drilling in the North Sea. The Iran crisis proves our ongoing need for gas and the risks of being import exposed. There is a domestic, secure alternative.
