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UK power prepares for a cold wind of change
The government’s new green initiatives are unlikely to come online fast enough to plug our growing energy gap
Heather Stewart and Richard Wachman The Observer, Sunday 10 January 2010Steam rises from a power station behind the Royd Moor Wind Farm in Penistone near Sheffield. Photograph: PHIL NOBLE/REUTERS
It was supposed to be a great leap forward in Britain’s green energy revolution. Three of Labour’s biggest beasts – the prime minister, Lord Mandelson and Ed Miliband – lined up in London on Friday to launch a new wave of offshore wind turbines the government hopes will create up to 70,000 “green collar” jobs over the next decade. But as snow brought Britain to a halt, the green dream had little hope of dominating the headlines.
Thursday had already brought an unwelcome reminder of the more mundane reality of Britain’s energy policy today: almost 100 factories were ordered to shut off their gas supplies, to prevent the prolonged cold snap leaving households in the dark, in what energy experts said was the clearest evidence yet of a looming power crisis.
The dire winter weather may have been impossible to predict, but the fact that it forced the National Grid to trigger so-called “interruptible contracts” for scores of large firms, underlines just how short supplies already are.
“The whole situation is very, very difficult and we have got to stop pretending we have got anything other than chaos,” says Andrew Bainbridge of the Major Energy Users’ Council. He says some major retailers have reported dips in electricity supplies as the temperatures have plunged, adding to the problems of coping with the cold.
Even if the £100bn wind-power revolution hailed by Brown and his colleagues is a stunning success, it will do nothing to alleviate a formidable short-term squeeze, resulting from the fact that many older electricity plants – both nuclear and coal-fired – are due to be scrapped over the next few years, leaving Britain increasingly dependent on gas power, at the same time as its own reserves in the North Sea are being rapidly run down, so that the gas-fired plants will have to be heavily reliant on imported supplies.
“We’ve got all the nukes and most of the coal going off the system in the next 10 years,” says Professor Dieter Helm, an expert in the economics of energy at Oxford University. He says without the worst recession in 50 years, which has reduced economic output this year by more than 5%, “our CO2 emissions would look much worse, and our energy security problems would be pressing”. He describes last week’s rationing as “a little wake-up call”.
None of the problems facing the government this winter are new: energy consumers, including many of Britain’s biggest businesses, have been warning for years that there is little supply to spare. Even with the interconnector pipeline now bringing gas directly from the continent, a lack of storage capacity means there is no guarantee that Britain’s needs will be served, and prices can swing dramatically.
There is little indication of how the government hopes to fill the gap between the clunky old plants being mothballed, and the shiny new future of renewables in a decade’s time. Labour has announced a new generation of nuclear plants, but few analysts expect them to come on stream in time.
The latest electricity generation data, released on Friday, showed that as the temperatures dropped, 45% of output was being produced from coal, 37% from gas, 15% from nuclear power — and just 0.2% from wind.
Energy consumers say governments have for decades delayed the costly decisions needed to guarantee a smooth switchover from the old generation of plants to a new, greener era. “Everybody’s blaming the Labour government, but the problem started with the Tories: no government has really grasped the nettle of an energy mix to make sure that we have got secure supplies,” says Bainbridge.
Meanwhile, many analysts fear rationing, like that which took place last week, will become an increasingly common occurrence. Firms voluntarily sign up to interruptible contracts, which give them cheaper bills; but when a blackout is triggered, as it was last week, companies can suddenly be forced to look for supplies elsewhere at short notice, and often at painfully high cost. Steve Radley, head of policy at manufacturers’ group the EEF, says: “It’s going to be about the signal that this sends to potential investors in this country, and multinationals that are already here and thinking about whether to make that next investment.”
And, despite Brown and his colleagues’ enthusiasm for offshore wind, and the jubilation of the firms, including Centrica and Siemens, that formed the winning consortiums, there are profound doubts among some in the industry about whether it can solve even Britain’s longer-term energy challenges.
A report prepared by consultants BVG Associates for the Crown Estate, which granted the new round of wind farm licences, highlighted a series of potential problems, from lack of affordable finance to a shortage of skills and to technical problems with servicing installations sited many miles offshore.
There are also questions about how much the British economy will benefit. Some regions, including Brown’s constituency in Fife, are hoping to see hundreds of jobs created building and servicing the new turbine platforms, using skills developed for the offshore gas industry.
But the EEF estimates that 90% of the €2bn being spent on the vast London Array – the largest example of a wind project already under way – has leaked overseas. There is no turbine manufacturing capacity in the UK, after the closure of the Vestas factory on the Isle of Wight — though the government is known to be trying to persuade manufacturers, including Germany’s Siemens, to locate a new turbine plant here.
Perhaps the biggest doubt about the dash for wind, however, is that it only provides an intermittent power supply, which is hard to store – so some back-up alternative is needed for times when the wind is low. Jeremy Nicholson, director of the Energy Intensive Users’ Group, says: “Wind is a particularly useless form of power generation if you don’t have a way of storing the energy. It just seems the politicians have been taken in by the wind lobby, and they’ve taken leave of their senses.”
Radley says: “If you’re going for more renewable energy, a lot of it is intermittent, and you need back-up with gas. For the foreseeable future we are going to become more dependent on gas, so it’s absolutely vital that we get this right.”
Almost all analysts are agreed that solving the short-term energy crunch, as well as achieving the target of 30% of power produced from renewable sources by 2020, will be expensive. The energy market regulator Ofgem published a review of Britain’s future energy requirements last year, which suggested an eye-watering £200bn of investment would be necessary to secure the UK’s energy supplies by 2020 and meet its carbon targets. This means that customers could face potential price rises of anywhere between 14% and 60%.
Ofgem chief executive Alistair Buchanan said: “Chief among the challenges this country faces are growing exposure to a volatile global gas market and power stations nearing the end of their life. Early action can avoid hasty and even more expensive measures later.”
But Helm suggests it may be a forlorn hope to expect the government to take radical action upfront to secure supplies. He draws a parallel with financial regulation. For many years, he says, governments simply stood back and expected the market to provide — but collective problems such as making sure the lights don’t go out will never be solved by individual firms, which have an incentive to keep prices high. “Security of supply is a public good: it’s a system property; it will not be provided by the market left to its own devices,” he says.
He warns that it could take the energy equivalent of a credit crunch to force politicians to wake up. “Energy policy never changes in advance of a crisis, it only ever changes after a crisis.”