We are heading high speed into an energy train wreck with a perfect storm of bad luck, bad policy and plain bad decision making.
Let’s list the key ingredients for this recipe of disaster.
- Rush to switch to low carbon generation.
- Slashing gas storage facilities.
- Outlawing fracking.
- No new nuclear power plants operational.
- Additional fees and charges added to electricity prices.
- Implementing a price cap for retailers.
- Shoddy regulation.
Rush to implement Green Power
The UK has been a leader in deploying on and offshore wind turbines. On a good or windy day these produce around 20% of the UK electricity needs. Solar also generates a good share of the power generated when the sun shines. What we have not done so well is to ensure that we have a solid base level of generation to supply electricity when there is no sun and no wind. We have closed most of the coal plants and several the aging nuclear plants are moving offline as they close for repair of reach end of life. These have no replacements planned to open in the short and medium term.
At the time of writing, mid-morning 21 Sept, we have:
As this shows we are reliant of Gas for 50% of our electricity generation. Plus, most of the heating in homes and offices is gas. We are reliant on gas big time. This is turn begs the question where does gas come from and what have we done to ensure a safe and reliable supply. It is here that we have failed. As our North Sea production reduces over the last few years, we have been increasingly reliant on imported gas that accounts for close to half our needs. We have a pipeline from Norway and from the Continent. With the demise of the North Sea production as the fields empty we are increasingly reliant on the pipe that winds its way across Europe pumping Russian gas into Germany, France and other on route. Or in other words we are reliant on Putin to keep the light on and at his mercy on the cost of the gas. Right now, production is low in Russia, so the cost has increased.
The unit cost of Gas in the UK is 4 times the price of US Gas. – Why, simple the US embraced Fracking to produce bountifully supplies of cheap gas. In 2019, the Government once all keen on low priced UK gas did a U turn after succumbing to environmentalists’ pressure groups. Without UK Fracking we are more reliant on gas imports.
Most countries regards Gas as strategic and store plenty of the stuff to cover supply disruptions. In our wisdom we decides to rely on the open market to solve supply issues and reduced our gas reserves from around 40% of annual consumption to less than 2%. Centrica closed the vast Rough storage facility in 2017 prompting concerns about gas pricing. See report from the Guardian and Reuters.
Who is in charge?
We have a regulator OfGem who implement UK policy. The policy has a number of far-reaching objectives. Open the market to competition at the retail level and separate generation, distribution and retail market. OfGem started to do this well and we now have an abundance of retailers you can select as your power company. Then we, actually Terresa May, fell for a socialist pitch from Ed Miliband to cap power prices. How many times does Government need to told that interfering in the markets always fails? In this we limited the max price that retailers can charge consumers for power while forcing the very same energy retailers to purchase energy on the open market. Any fool can see that this has big risks.
Price of bread
The cap is a little like saying to Bakers that you can charge no more than £2 for a loaf a bread. That maybe fine when the price of flour is low. When there’s a flower shortage and the price quadruples selling a load for £2 is loss making. That’s what we have now, energy retailers forced to sell gas at one price when it costs them twice that on the open market to purchase it. Expect plenty of company failures.
OfGem review the price cap every six months. OfGem sets the cap level for summer and winter based on the underlying costs to supply energy
Energy bills are already due to rise by an average of £139 a year in October, but the price cap restricts further price hikes over winter
The current price cap is £1,138 a year for standard tariffs, but will rise to £1,277 in October.
OfGem are not in tune with the market and have a poor forecasting team.
In the light of competition OfGem gave permit to far too many outfits to join the Power company bandwagon and make a business on buying and selling gas and electricity. All the new players compete on lower prices, slashing margins and hoping to make it up on volume. Never a sound strategy. Again, OfGem shoulder most of the blame here for not insisting on a sound strategy and good business sense.
OfGem are also responsible for the high electricity process we pay after forcing consumers to switch to so called Smart Meters.
Smart Meters waste
Billions of pounds are being spent on installing ‘smart’ energy reading meters in homes that will leave householders out of pocket.
Energy firms are hoping to fit all 26million homes with these new monitors in an £11billion project launched five years. OfGem also poured more money in TV adverts featuring ‘Gaz’ and ‘Leccy’ relentlessly promote the virtues of the smart meter. But they are not as consumer-friendly as Gaz and Leccy are letting on.
True cost of Smart Meters
Every household, whether they want a smart meter or not, is being forced to fork out £420 to help fund the £11billion smart meter project. The cash is being pickpocketed from our energy bills – rising up to 10 per cent this year to an average £1,150.
Gordon Hughes is professor of economics at the University of Edinburgh and a former senior adviser on energy and environmental policy at the World Bank.
He says: ‘The introduction of the smart meter is a dog’s breakfast. At best it is misconceived and an astonishingly expensive project. For those claiming it will bring major savings, I say they need to grow up.
‘Studies confirm that after just a couple of weeks the novelty of a smart meter wears off and people go back to their old energy usage habits.
‘A smart meter might end up shaving one per cent off a utility bill – a tenner a year.’
Business Secretary Kwasi Kwarteng no clue
On the radio this morning Mr Kwarteng tried to insist that the UK has plenty of Gas and that the Price Cap was the right thing to do and that it was not going away. saying:
“There is absolutely no question of the lights going out or people being unable to heat their homes.”
He is dead wrong on this we import most of our Gas and the cost of this is 4 times what it was this time last year. No retailer can survive is they are not allowed to pass costs on to consumers.
“You can legislate to protect the consumer – but that can bankrupt the supplier,”
said one senior industry source.
Ramifications of high Gas Prices
While Boris is in New York pressing world leaders to cut CO2 output here is the UK we find ourselves lacking in CO2. Most CO2 is a by-product of making fertilisers. However, Norway’s Yara and rival CF Industries Holdings have curbed production due to the surge in natural gas prices. CO2 is essential in the food and drink industry. The gas is used to stun animals before slaughter, in the vacuum packing of food products to extend their shelf life, and to put the fizz into beer, cider and soft drinks.
It is also required for some medical procedures and used in the nuclear and semi-conductor industries.
In an energy pickle
We are in a pickle and most of the fault lies with the current and previous governments for most grasping the far reaching implications in energy policy especially the rush for green without the necessary base protection and the extremely stupid Energy price cap.
Needs – Solar and Battery
We need more residential generation in the form of rooftop solar. The cost of panels continues to slide. This should be a big push to instal more solar and in turn cut or generation needs. We also need more power storage in the form of batteries and other technologies to store power when the sun shines and the wind blows. These would help to level up demand and cushion the shocks of short term price fluctuations. We also need more Grid to Car and Car to Grid interconnect. With an increasing number of Electric Cars on the road we need to be able to tap those batteries for power flow in a two way method.