Energy: a self-created crisis

Energy: a self-created crisis

By Richard North – August 27, 2022

What worries me most about the hike in the energy price cap to £3,549 in October, as announced yesterday, is that the only way many people will be able to meet their inflated energy bills is to pay them from their savings.

Should they be forced to take this route, the National Institute of Economic and Social Research (NIESR) warns that around six million British households will have their savings wiped out completely, with some 2.2 million households running out of money by April 2024.

Clearly, meeting routine expenses from savings is unsustainable and yet if, as the Joseph Rowntree Foundation estimates, some pensioners face spending 40 percent of their disposable income on energy bills, then they will have little option but to dip into their savings accounts if their tormentors are to be quelled.

As it stands, that is the way the support system works. Despite the honeyed words from the energy suppliers about being “here to help”, for those who have had the foresight (or good fortune) to accumulate an amount of wealth, in the form of even quite modest savings, there is no help available.

It is not until savings are exhausted, and the bill payer is destitute, do many of the financial support schemes kick in. Thus, we are supposed to allow rapacious energy suppliers to drain our bank accounts and only when we have nothing left to give and have become helpless supplicants, will they grudgingly return a fraction of our own money.

This would not be so bad if there was actually some justification for these savage price hikes. But even as the likes of Johnson and his fellow travellers insist that they’re all the fault of Vladimir Putin, the case they are making falls apart.

Oddly enough, in January 2009, I was writing of the then current “gas crisis” over the Russians “turning off the taps” to Ukraine, once again holding Europe to ransom, with the possible knock-on effect of acute supply shortages in the UK.

In fact, I wrote at the time, the chance of the UK experiencing gas shortages by the end of the winter is relatively high, but this had little if anything to do with the Russian action. We were taking only four percent of our gas imports from Europe, which had very little impact on our supply situation.

The immediate cause of any problem, I wrote, was the continued decline in gas production from the UK continental shelf, but the underlying problem was that UK natural gas consumption had been increasing, primarily because of its use for electricity generation. For the months January through September 2008, consumption had increased by 3.9 percent compared to the same period of 2007.

To expand upon this issue, we had then, rather fortuitously, a letter from Tony Lodge – a well-known energy commentator at the time, which in my view identified the nub of the problem. Writing in the Telegraph those 13 years ago, he observed that since 1997, under Blair’s New Labour, the government had approved over 30 gigawatts of electricity generation from gas-fired power stations.

At that time, gas was generating over 43 percent of our electricity. No other conventional power plants, such as clean coal or nuclear, had been approved in this period to boost energy diversity and get prices down.

At present, Lodge wrote, 90 percent of current and proposed power station construction in Britain was gas-fired. By 2020, he predicted, 60 percent or more of our electricity would come from gas, 80 percent of which would be imported by pipeline or LNG ship.

With that, he warned that gas prices were tied to oil prices and, although low at the time, he reminded us that they would rise again and would remain volatile. All our energy eggs are in one basket, he cautioned.

At that time, the German energy giant, E.ON was in the process of replacing the Kingsnorth coal-fired generation plant with a new, high efficiency supercritical 1.6 GW plant but, after vandalism by Green activists, the project was abandoned. No new coal plants have been built since.

At the time, Lodge was rightly urging that that the new plant should go ahead, reflecting earlier warnings about our vulnerable energy situation. In July 2003, for instance, the Institution of Civil Engineers (ICE) was warning that 80 percent of the gas needed to fuel power stations would come from what it called “politically unstable” countries thousands of miles away.

ICE had produced a report saying that if the supply was interrupted the lights would start to go out within hours, forecasting that the UK’s coal-powered generating plants would close shortly after 2016 and only one nuclear power station would remain operational beyond 2020, while renewable energy sources such as solar, wind and wave could only provide a fraction of the total requirement.

Therefore, the report said, Britain will be forced to import fuel by 2020, initially from Norway, but as demand across Europe exhausted supplies, Britain would be forced to source gas supplies from West Africa, the Middle East and former Soviet republics.

None of the predictions came exactly to pass, and two decades later wind and solar electricity production had increased from 3 to 24 percent, gas had remained largely stable, dropping from 38 to 36 percent, while coal use had plummeted from 32 to less than 2 percent. Yesterday evening though, gas was producing 60 percent of demand, while wind was delivering a mere 2.6 percent.

The destruction of coal generation, therefore, is the story of the last two decades, with gas having to pick up the slack for renewal intermittency, as nuclear declined and the promised new power plants did not materialise.

Bringing us right up-to-date, we have Juliet Samuel in the Telegraph writing under the heading: “How governments and the cult of net zero wrecked the energy market”. Putin may be the proximate cause of this crisis, she writes, but the reason we were vulnerable was an intentional policy to crush fossil fuel investment.

The words that stand out are “intentional policy”, which Samuel augments by writing “the demolition ball of a self-created gas crisis is swinging through Europe”. And yesterday, I cited Dieter Helm writing of British energy markets policy which had “deliberately contributed” to the price shock.

By any objective standard, the severity of the energy price crisis is a function of the failure of government energy policies over the last three decades and, in particular, the governments’ obsession with “net zero”, even if The Times is determined to duck the main issues.

With the Mail picking up the six million figure in its front page headline, we effectively have a situation where the well-being of millions of people is being sacrificed on the altar of political incompetence.

Unsurprisingly, the Don’t Pay campaign is picking up recruits with its tally now reaching 121,000. And, while they concede that their pay strike has risks, they argue that “the greatest risk is if we let things carry on the way they are”.

It is hard to disagree with this view. Speaking personally, having found myself having to pay Council Tax and water bills out of savings, I am fundamentally ill-disposed to wiping out my already slender cash reserves simply to bail out bankrupt government policy.

Tackling this crisis will, of course, be a major challenge for the new prime minister, whoever it might be, with no chance of any relief from the loathsome Johnson. Neither of the leadership candidates, however, are showing any real appreciation of the scale of the crisis, nor offering any credible measures.

Jonathan Brearley, chief executive of Ofgem, says the new prime minister will need to act “urgently and decisively” to tackle the crisis but by the time the new tenant of No.10. gets to take their first, faltering babby-steps, we’ll all be in the thick of it with the rapacious energy suppliers demanding payment.

With “can’t pay” already the reality, “won’t pay” begins to look an extremely attractive proposition.

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