Cost, reliability and carbon are the three crucial factors that any analysis of a new energy policy must consider. The government fails on one
Cost, reliability and carbon: those are the three crucial factors that must be considered in any analysis of a new energy policy, like the proposals on electricity market reform put forward today by the government.
Cost naturally hits the headlines, with a �500 a year hike in household bills featuring prominently. The Department for Energy and Climate Change's (Decc) own estimate is a �160 a year rise in electricity bills by 2030, from an average of �500 today. A 32% rise over 20 years is little more than inflation.
Decc also estimates that no change on policy would lead to slightly higher rises in bills. The higher headline figure touted by some appears to include gas bills ? not part of today's proposals, and use what an Ofgem spokesman calls "an extreme scenario". But "bills to rise by slightly less than otherwise" is not much of headline.
There are real concerns about the affordability of energy for the poorest in the UK, especially since Decc announced today (good day to bury bad news?) that the �345m Warm Front scheme has now run out of money and won't take new applications till April. That's a political scandal, but not a reason to oppose the electricity market reform proposals.
Lastly on cost, the �110bn of investment is a vast sum of money. But a good chunk of that is replacing the 25% of today's capacity that will have to be retired in the next decade - ie, we'd be spending it anyway. The balance is for the additional cost of low-carbon plants, though they will get cheaper as more are built, and new grid connections. And the �110bn isn't burned inside new power stations, it goes to the operators and suppliers, ie jobs, which are in short supply at the moment.
On reliability, there's two sides: intermittency of supply and security of supply. Low-carbon electricity from wind and solar is more intermittent than fossil fuels but more secure. Russia can't refuse to allow the wind to blow over the UK. With investment in the grid, plus new nuclear power stations, the lights are not going to go out.
The third factor is carbon. The new proposals set the UK on the right track to meet its legally binding targets on greenhouse gas emissions, and will help to UK play a responsible international role in combating global warming.
If you are wondering why on earth the UK should cough up a bit extra for a low-carbon energy supply while the rest of the world happily smokes away, the answer is that the rest of the world is simply not doing that. Consider these recent stories from newspapers which can hardly be described as treehuggers:
China has surged ahead of the rest of the world in renewable energy, creating a "new world order" in the low-carbon sector.
The rapid growth of Chinese investment has prompted venture capital and private equity companies in Europe to call for more regulation and greater government assistance, warning that without such help, the European economy will fall behind. The country's spending on wind energy in the second quarter of 2010 amounted to about $10bn, or about half of the global total of $20.5bn.
India is on track to add 1.1 gigawatt of grid-connected solar-power generation capacity by 2013, as part of its target to reach 20 gigawatt of solar power by 2022. The country has set an ambitious target for solar energy generation to help cut down carbon emissions, trim peak-hour power shortages and bring electricity to millions of rural households
Lastly on carbon, these electricity market reforms are good but the government is failing badly in other areas, and we'll need every tool in the box to meet the UK's carbon targets. While Chris Huhne has grasped the need to enable investment in the UK's neglected energy infrastructure, he has failed to win the argument on the need for a fully functioning green investment bank (GIB) which can help provide that investment. Thanks to Treasury trolls, the GIB now seems doomed to be a feeble fund.
The government's other major green policy ? enabling loans for home energy-efficiency improvements that pay for themselves ? remains reliant on trusting the big energy companies to eat their own lunches, and cut their customers' demand for energy.
Another more technical but important problem is the U-turn that the government has performed since taking office on "emissions performance standards", ie the maximum carbon emissions that power stations will be allowed to emit. In opposition they promised to cap pollution a the level of a modern gas plant - about 300-400g of CO2 per kilowatt hour. In government, they are consulting on a level of between 450-600g CO2/kWh.
So, overall, two cheers for the new proposals.
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