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Britain's energy crisis: when will the lights go out?

The effects of two decades of short-sighted spinelessness in energy policy may soon be all too apparent

20 April 2013

9:00 AM

20 April 2013

9:00 AM

The day Margaret Thatcher died was also the day Britain nearly ran out of gas. In late March, it was reported that stored reserves were down to just two days’ supply. As the cold spell continued, the BBC even reported the names of ships bringing liquefied natural gas from Qatar, each cargo representing six hours’ worth of urgently awaited heat and power for the nation: the Mehaines had just docked at the Isle of Grain, the Zarga had been sighted approaching Milford Haven.

The worst-case scenario was that the last gasometer would be flat by 8 April, and since a third of UK electricity generation relies on gas, that would, or might, have meant temporary blackouts for businesses in some areas in order to maintain supply to homes, schools and hospitals. This drama didn’t actually come to pass, attention was distracted by the death of the Iron Lady, and the arrival of more spring-like temperatures means heating has at last been turned down, easing gas demand overall.

But if it had happened, Thatcher’s detractors would have claimed it was all her fault for launching, in the troubled final phase of her Downing Street tenure, an electricity privatisation scheme that has gradually descended towards market failure, offering little strategic attraction to investors and a potentially catastrophic absence of long-term security of supply for consumers. Her supporters would answer that a dozen secretaries of state since 1990 have had the opportunity to refine what she began — and that, as with so much of her legacy (‘Britain now has perhaps the most efficient electricity supply industry in the world,’ she wrote confidently in 1995) the benefits have been warped and diluted by the vacillations of inadequate successors.

And even though the lights didn’t go out this time, the near-miss — plus a rash of stories about delays in the building of new power stations — offers a warning of what’s very likely to happen later in this decade, especially if the recent pattern of cold winters continues. A convergence of risks long foreseen by experts means that one of these days, ‘Who got us into this mess?’ will be overtaken as a national debate topic by ‘Why are we shivering in the dark?’

To follow this argument, non-experts need some orders of magnitude in mind. Here, then, is UK electricity in a nutshell, as encapsulated by Ofgem director-general Alistair Buchanan in a speech in February: ‘Total capacity 80 Gigawatts, assumed availability around 67, maximum demand on a winter’s day somewhere in a range from 56 or 57 to 60. As to where we get our electricity from, it’s 40 per cent coal, 30 to 35 per cent gas, just under 20 per cent nuclear, and the rest from renewables, which are very much the growing picture.’

If that sounds reassuring, here’s some more key numbers: within three years, the ‘reserve margin of generation’ — reliable spare capacity in the system — is set to fall from 14 per cent to just over 4 per cent, which Buchanan describes as ‘uncomfortably tight’. Just how uncomfortable is illustrated by another Ofgem modelling the chances of the lights really going out: the risk of customer disconnections due to a critical shortfall of energy this winter was estimated at ‘one in 3,300 years’, but by 2015/16 it will be ‘one in 12 years’. A pretty dramatic narrowing of odds, you might think, and even that depends on positive assumptions about generating capacity that could easily prove wrong.

For a G8 nation that has been electrified for a century to be in danger of large-scale ‘outages’ through failure to nurture technologies and market structures capable of meeting national needs is a political disgrace, shared by a cavalcade of post-Thatcher energy and business ministers of all three main parties. Compare the French, securely 80 per cent nuclear-powered thanks to an investment programme sustained since the 1970s. Or the Germans, protected against market blips and Russian pipeline interruptions by ten weeks’ gas storage capacity, whereas (lulled into complacency by the abundance of North Sea gas in earlier days) we can hold just a fortnight’s worth.

It would be hard to think of a more potent disincentive to Asian or American manufacturers, pondering where to build factories on this side of the globe. Any projection of a return to healthy growth in the second half of this decade is now conditional on the reliability of mains power, which we surely should be able to take for granted. How on earth has this come about?

Most crucially for the next few years, insufficient new capacity is coming on stream to replace closures of oil- and coal-fired stations forced by the EU’s Large Combustion Plants Directive of 2001, which required old plants that were unable to meet strict new emission standards to close by 2015, or after a maximum of 20,000 hours of further operation. Five stations have gone this winter, from Cockenzie in East Lothian to Fawley on Southampton Water, representing 7GW of capacity — so around 10 per cent of ‘assumed availability’.

Another 5GW worth, enough to power one large city, is scheduled to shut down by 2015. But some may go earlier than previously planned, having hit the 20,000-hour limit, because remaining coal-fired stations have been operating at full stretch to take advantage of the global cheapness of coal, for which American demand has fallen because of a rapid switch to shale gas.

Meanwhile, old-fashioned gas still offers the most cost-effective and least controversial carbon-based technology, and new gas-fired plants are being built at Willington in Derbyshire, Abernedd in South Wales and elsewhere — but only sufficient to replace about half of the coal- and oil-fired closures. And a report by consultants AT Kearney says there’s a huge backlog of other power projects, including wind and biomass as well as gas, that have received planning approval but are not being built yet because companies and investors can’t finance them in the aftermath of the banking crisis, or are ‘unhappy with the current policy environment’.

That last phrase refers to the maze of incentives and penalties enshrined in the Energy Bill currently being steered through parliament by Ed Davey, the Lib Dem successor to Chris Huhne at the Department of Energy and Climate Change. Propaganda says the bill is designed ‘to attract the £110 billion investment which is needed to replace current generating capacity and upgrade the grid by 2020, and to cope with a rising demand for electricity’, but it may well be doing precisely the opposite. What it’s certainly doing is loading the dice in favour of ‘renewables’, which at feasible rates of installation of new capacity can provide only a modest — and in the case of wind, intermittent and very expensive — piece of the medium-term solution.

And since three quarters of all UK generating capacity is now owned by foreigners, and one fifth of it by foreign governments through public-sector utilities venturing abroad, there is no sense in any of this of a patriotic industrial thrust to keep Britain powered up. On the contrary, it’s largely a calculation of incentives to be reaped within acceptable risk levels for European and Nordic companies with a wide choice of other investment destinations. More than half of our rapidly growing offshore wind sector, for example, belongs ultimately to foreign governments — so that, as an analysis by Ian Rutledge of the Seris consultancy explained last year, the subsidies it attracts from UK taxpayers are ‘making a substantial contribution towards the development of green energy’ elsewhere, but not here.

Then there’s the all-important nuclear question — or rather, the answer that even some eco-diehards recognise as an essential component of the UK’s energy mix. The environmentalist George Monbiot declared that the safety performance of the Fukushima plant in Japan (the meltdown of the tsunami-hit reactor caused no known radiation-related deaths) ‘has converted me to the cause of nuclear power’. But Britain’s entire nuclear portfolio (with the exception of its most modern unit, Sizewell B in Suffolk) is approaching the end of its working life and scheduled for decommissioning over the next decade, taking out at least another 8GW of capacity.

It’s possible that operating companies will argue for a temporary reprieve for some reactors. But plans for the first of a wave of new and more efficient ones, at Hinkley Point in Somerset, remain stymied by a row over the base price of electricity output that would make the investment worthwhile for EDF of France, the only player left at the table. Lord (John) Hutton, the former Labour secretary of state for business and regulatory reform turned chairman of the Nuclear Industry Association, weighed in this week ahead of ‘crunch talks’ between EDF and DECC to warn that ‘there is no Plan B for our energy security’.

Five years ago, when he was the minister in charge, Hutton himself told me he had his ‘foot on the pedal’ to promote new nuclear construction by ‘2011 or 2012’ at the latest; that prospect has already slipped by several years, and deadlock with EDF could postpone it sine die. Meanwhile, Britain’s once world-leading nuclear engineering skills have been dispersed, and even when we’ve agreed terms we’ll be at the back of a queue of countries waiting for new plants to be built. Likewise, international investors prepared to back nuclear power can do so in many places with less fickle and demanding regulatory regimes.

There are many variables in this complex debate, and many possible approaches to a solution. One that’s worth reading is A Pragmatic Energy Policy for the UK by the Professor Ian Fells (available on his website), privately commissioned by a concerned industrialist in 2008, and accurate in its predictions so far — but completely ignored by all three political parties. Meanwhile, the actual results of two decades of short-sighted spinelessness in energy policy will become increasingly unsatisfactory: more rather than less reliance on carbon fuel, in the form of gas at the mercy of global prices and supply lines; dickering indecision over shale gas exploitation, while the rest of the world gets on with it; bizarre biomass projects like the partial conversion of coal-fired Drax in Yorkshire to burn giant shipments of American wood pellets; forests of foreign-owned estuary turbines waiting for a breath of wind; wildlife roaming free at Hinckley and Sizewell where new nuclear reactors ought to be.

The one outcome we can be sure of is that our electricity bills will soar — as Alistair Buchanan of Ofgem has warned — and that ‘fuel poverty’ will afflict our poorly pensioned ageing population as never before. If nothing is done to bring on reliable, large-scale new generating capacity as swiftly as possible, we’ll also be learning to live with power cuts on a Third World scale.

It’s tempting to recite the entire roll-call of ministers responsible for this shambles from Hezza to Huhne, but one name that stands out is Ed Miliband, who abandoned Hutton’s attempt to drive the nuclear agenda and instead devoted himself to grandstanding on climate change. It will serve him right if the lights go out the day he enters Downing Street.

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