I EXPERIENCED last week the inevitable end of my household’s chosen energy
supplier – their lack of both scale and ability to cope with unprecedented
market volatility marking them out as at risk.
Next will be assignment to a larger supplier, and a substantial increase in
our energy rate will follow.
And of course we are not alone – already more than two million UK
households are in this situation, with more at risk.
For households, the increases are unwelcome, especially so for the lowest
disposable income families for whom a 2018 Office for National Statistics
report showed that energy made up more than five per cent of disposable
income spend for this group, a rate that fell to less than two per cent for
the overall average of household incomes.
For our recovering manufacturing sector, particularly those with
energy-intensive processes, energy costs as a ratio of operational spend
can be as high as 40% for steel production, and here significant increases
in energy costs signal concern of temporary shutdown where production is
simply uneconomic as energy prices rise.
When sophisticated large users see it as more economic to sell their energy
back to the grid than manufacture their products, it’s a sure sign that
something has gone seriously awry in our energy supply systems.
Energy costs in the UK have long been a thorn in industry’s side compared
with other significant manufacturing nations, but why in a crisis that is
Europe-wide is the UK seemingly harder hit?
In debating this point with a colleague, we couldn’t decide whether to pin
the root cause to decades of poor UK energy strategy, or decades of no UK
energy strategy.
We settled on a view that a poor energy strategy is equivalent to or worse
than having none at all. The vision of a decarbonised energy system and
progress towards that is commendable, but the transition plan to get there
in a secure and affordable manner, less so.
A free-market approach that might be better described as laissez-faire saw
the gates open in 1990 with privatisation of the electricity supply
industry, and the “dash for gas” was underway with relatively cheap
gas-fuelled generating stations built in large numbers at a time when the
UK’s gas production generally matched its consumption.
Around the same time a moratorium on new nuclear generation meant that only
one of the four planned duplicate stations was actually built, and more
than 30 years later, as nuclear generating capacity continues to decline,
only one new nuclear station is under construction at Hinckley Point C.
Our other baseload generating coal-fired stations have understandably been
retired with only tiny and infrequent capacity remaining, but, while their
emissions are not missed, their reliable, cost-effective energy generation
certainly is.
It was 2006 which was the first year of a now-consistent trend of UK gas
production falling below our consumption rate, rising to around a 50% gap
in 2020.
Live grid data from last week showed the UK’s electrical generation from
gas sitting around 53% of its total, with just under 12% from nuclear
generation and a little over 9% imported from other countries.
On the same day France reported 77% generation from nuclear, and only 8%
from gas, and for Germany the first half of 2021 recorded only 17%
generation dependency from gas. In the same period, Germany generated 26%
of its electricity by burning cheap but hugely carbon-emitting “soft” and
“hard” coal, in line with its own energy policy, and so proving that having
an energy policy is no guarantee of having a good energy policy.
Our resulting over-reliance on gas has increasingly highlighted the risks
of security of supply and pricing.
Many might consider that this would have been an obvious risk for an island
nation at the end of the pipeline for gas supplies from geopolitically
unpredictable regions, yet the UK compounded this exposure in 2017 by
removing 70% of gas-storage capacity when the Rough storage facility was
closed because of a UK Government decision not to subsidise ongoing
maintenance and upgrades.
This decision means that the UK now has the storage capacity of the demand
of four to five winter days, or put another way, while Germany uses roughly
one-third of the gas we use for generation, adjusted for population it has
over 13 times the storage capacity.
The problem for the UK now is our lack of joined-up energy thinking means
we are stuck in a transition from our previous baseload generation and
assumption of cheap gas to a future based on renewable energies in a mix
that allows us to keep the lights on.
And so, we return to our current crisis, and a debate that is clearly
taking place within the UK Government on to what extent if any they should
step in to ease the impact of energy pricing on industry.
On this, I’d argue that the provision of secure and economic energy
supplies is one of the staple roles of Government.
They cannot afford not to intervene to stabilise and protect industry from
these potential impacts for the following reason. If economic downturns are
caused by events (most recently Covid) and recovery is dependent on the
less tangible return of confidence, then, despite the frighteningly large
sums of cash involved, the furlough scheme deserves credit for successfully
holding up confidence, enabling a faster rate of recovery in demand than we
could have probably hoped for. But confidence is a fragile thing, and to
risk it and the demand it brings makes me worried that we could have all
the debt of the furlough scheme, without the very benefit that it has
delivered.

Paul Sheerin is chief executive of Scottish Engineering

https://www.heraldscotland.com/business_hq/19651053.paul-sheerin-huge-challenges-uks-lack-energy-strategy/


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