ED Miliband has presented his plan to deal with the world’s energy crisis. Is he going to start drilling in the North Sea again? Is he going to finally cut energy bills by £300, as he promised? Is he going to make sure we have ample gas storage in future?
Nope!
According to a government press release, they are going to go ‘further and faster’ in becoming energy secure. I’m not sure what he is going ‘further and faster’ than. Maybe a one-legged tortoise?
The press release says:
The Energy Secretary will today (Sunday 15 March) outline a package of measures to go ‘further and faster’ in the pursuit of national energy security as a response to events in the Middle East.
The Energy Secretary is today setting out an accelerated package of energy interventions to boost the UK’s energy security:
• announcing that ‘plug-in solar’, low cost solar panels that families can buy at supermarkets and put on their balconies or outdoor space, will be made available in the UK for the first time
• announcing that we intend to bring forward the Government’s next annual renewables auction to July, inviting renewables companies to invest in UK energy. The most recent round was the biggest ever and alongside the previous auction, we have confirmed enough clean power to power the equivalent of 23million homes
• following the implementation of the Fingleton Review into speeding up the building of nuclear power stations, confirmation that the Government will apply the lessons of the review to other infrastructure such as renewables.
Yes, Ed, that will really solve the crisis!
Plug-in solar panels start at around £700 and produce negligible amounts of electricity, worth no more than tens of pounds a year. Does he think people have hundreds of pounds in their back pockets, ready to waste on his Net Zero nonsense?
Bringing forward the next Contracts for Difference round by a few months will not resolve the crisis either. It will be years before these wind farms are built, by which time the crisis will be over and oil and gas prices are back to normal.
If Miliband seriously wanted to reduce energy bills, he could do it at the drop of the proverbial hat by abolishing the UK Emissions Trading Scheme (UK ETS), aka Carbon Tax.
The ETS is a mandatory cap-and-trade system for greenhouse gas emissions from power generation and energy-intensive industries. Gas power plants have to pay a tax for every tonne of carbon dioxide they emit. The price for the allowances varies as it is market based, but typically it adds around £28/MWh to the cost of gas generation.
Because the wholesale market price for electricity is generally determined by the price of gas power, that £28 gets added to nearly all electricity produced, not just gas power. (The exception is generation covered by Contracts for Difference subsidies, which makes up just over a tenth of electricity as a guaranteed strike price is paid instead.)
As a result of higher wholesale prices, the carbon tax effectively adds £8billion a year to energy bills. Cancelling the tax would cut bills by 10 per cent overnight. Crucially, the Government’s tax revenue from the Carbon Tax is only £3billion – the other £5billion accrues to renewable and other non-gas generators as windfall profit.
A typical example shows how this works out.
Take a wind farm, for instance. The wholesale price last year ranged around £80/MWh, but without the Carbon Tax it would have been £52/MWh. An onshore wind farm is paid £80/MWh for its electricity, but in addition receives a subsidy of about £70/MWh via the Renewables Obligation Scheme. In total therefore it is paid £150/MWh, three times what its electricity is really worth. Not only does the wind farm get a fat subsidy, it also makes a windfall profit of an extra £28/MWh.
The higher the carbon tax, the bigger the windfall.
The ETS could quickly be abolished by secondary legislation laid before Parliament. But there is nothing to stop the Government from immediately flooding the market with cheap carbon allowances, which would drive the market price down to just pence. All that is needed is the political will.
Of course, Miliband won’t do this, because the ETS is a critical part of the Net Zero enforcement mechanism, designed to make fossil fuels uncompetitive against renewables.
Two Eds are worse than one!
THEN there’s Ed Davey, who even members of his own party think is a clown.
He is promising that the Lib Dems will cut electricity bills by £870 on average:
‘Families and pensioners are being clobbered with energy bills that are still more than £50 a month higher than they were five years ago. And businesses are suffering too.
‘Generating electricity from solar or wind is now much cheaper than gas. But people aren’t seeing the benefit of cheap renewable power, because electricity prices are still tied to the price of gas.
‘Years of terrible energy policies under the Conservatives pushed up everyone’s bills, and this Labour Government has failed to prioritise cutting them.
‘The Lib Dem plan would break the link between gas prices and energy costs, so people can enjoy the benefits of cheap, clean power. This would halve bills and save families £870 a year on average.’
There’s one slight problem. According to Ofgem, the average household uses 2700 kWh a year, which works out at £666, much lower than their claimed saving.
But Davey himself is personally responsible for one of the worst and costliest decisions made concerning energy policy.
As Energy Secretary, he signed up to a batch of Investment Contracts as part of the Final Investment Decision Enabling for Renewables (FIDeR) process. These contracts for wind farms and biomass generators were part of the bridging arrangements introduced in the Energy Act 2013, also pushed through Parliament by Davey and designed to support certain renewables projects before the full competitive CfD auction regime began in 2014/2015.
At the time of signing, the guaranteed index-linked strike prices for offshore wind that Davey agreed to were triple the market price at the time. They have since continued to increase with inflation. Some, like Dudgeon and Walney, are now paid £214.50/MWh. The average market price last year was £77/MWh.
To date, Davey’s subsidies have cost bill-payers an astonishing £11.2billion. This figure will probably triple by the time the contracts expire after 15 years. The cost last year alone was £2.1billion.
Bear in mind that energy policy during the Coalition was solely under the control of the Lib Dems – neither David Cameron nor his party had any real say as this allocation of responsibilities was built into the coalition agreement from the start.
It is therefore a bit rich for Davey to complain about energy bills when it was his decision to saddle bill-payers with the cost of his obsession with climate change.
