FOR those not familiar, the Conversation is, according to its website, ‘an independent source of news analysis and informed comment written by academic experts, working with professional journalists who help share their knowledge with the world’.
I have no idea if this is true in other areas of research, but I do know that when it comes to climate science, the Conversation becomes simply a mouthpiece for the climate establishment, printing often woefully inaccurate studies and refusing to publish alternative opinions.
Their latest article, ‘Would more North Sea drilling lower UK energy bills? Our analysis says no’, is par for the course. But of more concern, it is written by three ‘experts’ from Oxford University:
· Cassandra Etter-Wenzel, PhD candidate in energy policy
· Anupama Sen, head of policy engagement, Smith School of Enterprise and the Environment, and fellow in environmental change
· Nadia Schroeder, head of strategy and new initiatives, Smith School of Enterprise and the Environment
The article is so full of errors, naivety and wishful thinking that it is damaging to Oxford’s reputation.
Let’s start with their opening statement: ‘As the Middle East conflict intensifies and oil and gas prices swing wildly, the UK has seen renewed calls to drill more in the North Sea. The argument is straightforward: if Britain produces more of its own oil and gas, household energy bills should fall.
‘But our analysis suggests the effect would be minimal. Even if the UK maximised North Sea extraction and returned revenues directly to households, the reduction in energy bills would be at most a modest £82 per year – far smaller than the savings expected from accelerating the shift to renewable energy.’
Bear in mind the study was written before the Iran crisis. Nobody that I am aware of ever argued that energy bills would fall significantly if we maximised the North Sea. In their ivory towers it may not seem a lot, but I can assure them that most people would welcome a cheque for £82 from the Government.
But the real argument for new drilling is that it increases our energy security, cuts reliance on liquefied natural gas imports, which are invariably more expensive, generates billions in tax revenue and sustains thousands of well-paid jobs. Oh, and yes, it reduces emissions by reducing the use of LNG.
But then the three authors drift off into some dreamworld La La Land, stating: ‘In Britain, the wholesale electricity price is usually set by the most expensive generator needed to meet demand. That generator is often a gas-fired power station. As a result, electricity prices tend to rise and fall with gas prices – even when much of the electricity is produced by cheaper sources such as wind or solar.
‘A different policy direction – one that reduces the role of gas in electricity production – produces much larger savings . . . If the price of electricity was set by cheaper renewable energy rather than by gas, our analysis suggests households could save £105 to £331 per year through lower wholesale energy costs.’
Note how they jump from an accurate statement – ‘the wholesale electricity price is usually set by the most expensive generator needed to meet demand. That generator is often a gas-fired power station’to a fake claim – ‘even when much of the electricity is produced by cheaper sources such as wind or solar’.
This paragraph shows they have no clue about how the energy market operates, something you might have thought was essential for a PhD candidate in energy policy or the head of policy at the Smith School of Enterprise. They have probably fallen for the ‘wind is free’ fable, no doubt something they read in the Guardian.
I am sure most readers of this column are now well versed in the myriad of renewable subsidies which are added to our bills. But for the benefit of our three Oxford scholars, here is how it works.
Most renewable energy is subsidised via the Renewables Obligation (RO) scheme. This covers most wind and solar farms and biomass plants built or under construction before 2016, when a new subsidy mechanism was introduced; they cover about a quarter of total electricity supply.
All of the schemes covered by RO receive a subsidy payment on top of the price they receive from selling electricity at market prices. Last year this subsidy averaged about £97/MWh, adding about £7billion to bills. For reference, the wholesale market price of electricity last year was under £80/MWh – in total therefore, we had to pay £177/MWh for renewable electricity.
Because all of these wind farms know they will get their nice, fat subsidy, they will always undercut the price of gas power. This is not because they are ‘cheaper’ – it is because they won’t get their subsidy at all if they do not sell their electricity. Even if they sell for a penny per unit, the subsidy itself covers their cost.
Newer renewable generators, those coming on stream since 2016, are subsidised by Contracts for Difference (CfDs), which pay them a guaranteed, index-linked strike price. Whatever the market price is, it is irrelevant for these generators, who get their guarantee anyway. If the market price is lower, they are paid a top up subsidy; if higher, they must pay the difference back to the Government.
CfDs cover about 15 per cent of our electricity supply. Last year, market prices were substantially lower than the guarantee, meaning a subsidy of £2.6billion was handed over. Indeed, other than during the Ukraine energy crisis of 2022, every year has seen subsidies paid out. Since 2017, these have totalled £12billion.
As with RO, this subsidy is added to energy bills. And, as with RO, the CfD generators will always undercut the price of gas when bidding, because they know the guaranteed price is what they will get, regardless of what they bid.
The reason our electricity is so costly has nothing to do with the price of gas, which prior to the present crisis, has not been high in historical terms when general inflation is stripped out. It is costly because of the billions we have to pay in renewable subsidies, not to mention the billions more needed to balance the grid, pay for standby capacity and upgrade the transmission network, none of which would be required if we did not have intermittent renewables.
The article, of course, uses its faulty logic to demand more renewables!
Apparently Jeremy Corbyn’s Magic Money Tree must be alive and well in La La Land, because they suggest one way to cut energy bills is simply to transfer subsidy costs on to general taxation. There, problem solved!
The whole article is full of childish naivety. Just to pick out one comment: ‘Producing more gas in the North Sea would not create the UK’s “own special supply”, nor could its price be set specifically for UK citizens. That’s because any new production would be sold on international markets at international prices.’
Maybe somebody should tell them there is no such thing as ‘an international price’ for gas. If there was, US prices would not be much lower than ours.
Maybe next time, these ‘experts’ might spend a bit of time talking to real energy specialists and less time reading the Guardian, before writing their next study.
