Wednesday, February 03, 2010

Gone native

Based on a press release issued by the energy regulator Ofgem, multiple news reports today warn of impending power shortages. In the vanguard is the BBC, which also tells us that the regulator has also warned that a significant number of consumers may not be able to afford the higher energy prices they would have to face.

Details also emerge in agency copy and outlets such as Bloomberg but nowhere does it seem to me that the full context of the press release is properly explained – the nature of which is devastating.

To put it in context, Ofgem - the Office of the Gas and Electricity Markets - tells us that "protecting consumers is our first priority," then listing "other priorities and influences", which include "contributing to the drive to curb climate change and other work aimed at sustainable development."

What this press release actually tells us though is that Ofgem has gone native, ditching it first priority – the very reason for which it was set up - replacing it with climate change. The effect of that will not only ensure that we do run out of electricity but we will also have to pay through the nose for the limited supply that remains available.

This, of course, it not stated overtly, but what we are dealing with is a long-term initiative called Project Discovery. This takes as its starting point UK "carbon targets" - reductions of 80 per cent by 2050 and then notes that there is "an urgent need to plug the generation gap as coal and oil plant comes off the system to meet 2015 European emissions limits."

As an aside here, it misstates the reason for the coal and oil plant coming off the system – this has nothing to do with emission limits, but is entirely due to the EU's Large Combustion Plant Directive, which imposes limits on sulphur dioxide which pre-date the current obsession with global warming.

Anyhow, the essential element of the Ofgem plan is that it takes as a given the government objective of replacing the lost capacity with renewables – mostly with offshore wind power - picking up the 33GW figure that is needed to maintain energy supplies. It then observes that the current financial environment is not conducive to incentivising investors to cough up with the £200 billion needed.

What is entirely missing from the analysis is the simple but inescapable fact that, even with the best will in the world, it is not technically feasible to deliver 33GW of wind power within any foreseeable time frame, irrespective of whether the finance is available.

This we explored way back in June 2008, with two posts, one pointing some of the technical problems and the other citing Paul Golby, chief executive of E.ON UK, who was calling for an "honest debate" on energy provision.

Nothing much has changed since then, other than to bring to light additional technical difficulties – not least undersea cabling problems and growing concerns about the durability and reliability of turbines in highly aggressive offshore environments. In short, what was true then is true now – the offshore plan proposed by the government is not technically feasible.

Having ignored this completely, Ofgem thus focuses on financial incentives which it deems necessary to "unlock" the necessary investment, coming up with a package of measures which it sets out in the diagram illustrated above. First amongst these is imposing a minimum carbon price (level unspecified) to "encourage investment in low carbon technologies."

Bearing in mind that Ofgem is warning about unsustainable price rises, with consumers no longer being able to afford electricity, this is a stunning proposal. Translated, what it is suggesting is a mechanism to increase the costs of conventional power generation to the point where the vastly more expensive renewable energy becomes "competitive" and thereby promotes investment in it.

Totally missing is any indication of who will pay for the increased carbon price, and/or the vastly increased cost of power generation. Somehow, Ofgem seems to believe that this is a no-cost option.

Its next brainchild it calls "Enhanced Obligations and Renewables Tenders", a plan to increase the subsidies (although it does not call them that) to renewable energy providers, and giving them a guaranteed return, "over say a 20 year period," again to "encourage investment in renewable energy". Precisely who pays those subsidies, Ofgem does not say.

Should that be insufficient, Ofgem then argues for "co-ordinating all future investment through a single entity," – essentially re-nationalising power provision, with a state authority (called a "central energy buyer") determining the amount and type of new generation needed and entering into long-term energy contracts for power. Thus, electricity generators will be told what to build, and then the price structure is rigged to cover their (inflated) costs.

To legitimise this, Ofgem chief executive Alistair Buchanan is saying that without what he euphemistically calls "reform" there could be a "degree of crisis" in 2013 or 2014 and warns the situation could then become "quite uncomfortable". Failure to act would risk shortages after 2015 and mean customers would end up footing the bill for costly short-term solutions.

What he is actually saying is that, to stave off short-term problems and price increases, (brought about primarily, although not exclusively, by the EU's Large Combustion Plant Directive – which he does not address), we must adopt a price and control system which will ensure vastly increased prices and fail to deliver the necessary capacity.

In fact, what is already happening is that the generators are investing in increased gas-fuelled capacity, notionally needed as back-up to the wind system but which will actually become our base-load provider. That will precipitate precisely the problems which Ofgem claims to be seeking to avoid, with local gas shortages during peak demand, requiring emergency purchases of gas on the spot market, at highly inflated prices.

The really worrying thing here, then, is that Ofgem is living in a fantasy world, which has not even the slightest acquaintance with reality, bolstered by the idiot Ed Miliband, who says the Government is "confident" of meeting energy supply needs, with a low-carbon transition plan delivering secure supplies until 2020.

And waiting in the wings is David Cameron, whose plans for a "low-carbon transition plan" are indistinguishable from Miliband's fantasy, thereby ensuring that a change of administration – if we get one at the next election – will ensure that our electricity system continues to deteriorate. These fools, between them, will do for us all.