Older UK readers will remember the green goddesses – fire engines held in
reserve for moments of national emergency. At the height of a crisis army
drivers would maintain an essential service. Well lo and behold some new
green goddesses are to be created as the Government launches its “emergency
electricity reserve”.
This is the point at which we need a great satirical writer to describe
what is happening. Jonathan Swift or Evelyn Waugh perhaps. Imagine an
innocent and ignorant bystander being made Secretary of State for Energy by
virtue of a sequence of accidents and misunderstandings. Unfortunately the
idea of the Rt Hon William Boot is too close to reality to be really funny.
The immediate problem which has preoccupied a huge amount of Whitehall time
for the last year is the risk that generating capacity falls short of what
is needed (in tabloid English: the lights go out) because no one is
investing. Why are they not investing ? Because the current policy embedded
in last years’s Energy Bill and the electricity market reform process
offers no incentive for anyone to invest in anything other than renewables
or new nuclear. For those supplies prices are guaranteed on generous long
term take or pay contracts.
But new nuclear is ten years away, and wind power is intermittent. At the
same time existing coal stations are being closed down because they produce
too much pollution. To keep the lights on something has to provide back up
power, and soon. But who will invest in capacity which might only be used
10 or 20 per cent of the time. ?
After much agonising and hundreds of notes an answer has emerged from
Whitehall.
The Government will invest. Under the energy legislation this is close to
impossible and so in a lovely sleight of hand worthy of Yes Minister the
investment will be labelled as a matter of national security. The details
are not yet all fully agreed but the current plan is for up to a dozen
stations which are currently mothballed to be re-commissioned. These will
be gas fired but some argue for including coal as well. They will be
controlled by National Grid to avoid any suggestion that the Government is
enriching the energy companies. The remit is to create a strategic
electricity reserve for use if we ever get close to a brown out.
That might sound sensible but the plan starts to break down as soon as you
get to the detail. Power stations cannot be switched on and off at will.
They can’t be left like Green goddess fire engines, waiting in a garage for
the call from COBRA at which point Corporal Blogs jumps into the cab.
Running power stations is a highly skilled trade and if there is to be a
reserve supply it will need to be managed which means hundreds of staff
permanently employed doing nothing other than waiting for the crisis to
occur. Then there is the gas supply issue. To have stations ready to go
onstream requires a guaranteed gas supply. That means the Government, or
National Grid, has to contract for gas to cover any foreseeable emergency.
That is possible of course, but expensive. Gas committed on take or pay
contracts ties up supply. The gas market is not very liquid – most gas is
supplied on long term contracts – and take or pay deals of this sort will
leave a lot of gas which is unwanted most of the time. That will be
destabilise the market. Unless, of course, the Government intends to hold
its own permanent gas stocks – something ruled out only last year.
The next problem is the signal the initiative sends to private investors.
If anything the creation of a reserve will not only deter new private
investment but also make some people wonder why they are in the business at
all. Privately owned utilities will also wonder whether a future Government
faced with rising prices will turn on the spare capacity as a way of
managing the market.
The bathos of the situation is that rather than scrapping the policy which
is causing the problem the Government is simply adding a further layer of
complexity and cost to a failing system. As things stand we have rising
costs, rising emissions (because of increased coal use) and a greater risk
of supply insecurity. No amount of green goddess power stations can rescue
the situation.
The answer is to start again. Each slice of the market should be opened to
competition – the base load, the low carbon component, and the back up
supply. In each case the companies concerned should be incentivised to save
costs – long term index linked contracts such as the 35 year deal
generously offered for new nuclear contain no such incentives. Energy
efficiency should be at the heart of the policy – not an afterthought. And
if we are serious about emissions reductions we should encourage the use of
gas instead of coal until renewables are genuinely competitive. But to make
a new start requires an admission that the current approach has failed –
and for any Government that is the hardest step of all.
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