In Beginning To See The Light? I took a brief look at the energy supply and investment inquiry launched by Economic Affairs Committee of the House of Lords. I wondered whether the fact of the inquiry taking place meant that some Parliamentarians might be beginning to contemplate that the UK’s energy policy is sufficiently flawed to consider that we should change direction. I concluded (correctly, as it turns out) that this was most unikely, given the way the Committee was approaching the issue – which was thus:

Our prosperity and growth depend in part on access to secure and affordable energy. Recent energy price rises show just how important this [is] for every home and business. As we make the transition to net zero, it is therefore critical that the Government’s energy strategy secures sufficient investment in our energy supply, so that it is reliable, affordable and in line with achieving net zero ambitions. This inquiry will examine these long term challenges and opportunities; the Government’s strategy; and the role that financial services and their regulators are playing in the transition.

Needless to say, when the Committee’s Report was published, it didn’t question the wisdom of net zero policies. Instead, it simply said (paragraph 19) that the Government should plan to explain how the transition will be funded, including the balance of public and private investment; establish appropriate market mechanisms and incentives to encourage investment in low carbon technologies; review the planning system in England to ensure that the system, which already reflects climate change objectives, is updated to reflect energy security objectives; and plan for the emerging international competition over renewable energy supply chains.

That Report was published almost four years ago (on 21^st July 2022). Since then we have had a change of UK government, with our new masters intent on rushing to net zero ever faster, with the result that they are doubling down on the UK’s high energy costs and competitiveness problems. The results have been so problematic that even the BBC has this week questioned the road to net zero.

On 15^th April Justin Rowlatt (no less) produced a piece titled “Why cheap power could matter more than clean power in the push for net zero”. It could (other than with regard to one aspect of it, of which more below) have been written by any of us here at Cliscep. The first point it made is that heat pumps are expensive. The example was cited of Gavin, an enthusiastic early adopter. He and his wife went all out to embrace the “green” home energy revolution – they put solar panels on the roof, bought a home battery and a heat pump, and their home is well-insulated. At first all went well, but then they noticed that their heating bills hadn’t gone down, they’d gone up – a lot.

Gavin …says he knows what the problem was. At best gas delivers nearly one unit of heat for each unit of energy put in; his heat pump can deliver up to three or four units of heat for every unit of power. But as heat pumps run on electricity, he is now paying around 27p per kilowatt-hour, compared with less than 6p for gas that powers a boiler – more than four times as much.

Gavin and his wife are not alone. As Mr. Rowlatt points out, their experience is not unusual. He cites a survey of 1,000 heat pump owners last summer, carried out by Censuswide for Ecotricity, which found two-thirds said their homes were more expensive to heat than before. What he doesn’t point out, but might have done, is that these more expensive ongoing bills are in addition to the cost and hassle of installing heat pumps and associated works. Simply replacing your old gas boiler with a new, more efficient, one is much cheaper than installing a heat pump, even with the taxpayer-funded contribution of £7,500. And your new boiler will be more efficient than your old one. When we installed a new gas boiler a little while back, we found we were using a lot less gas, and our bills went down, not up.

Although Mr Rowlatt could have been blunter than he was about the costs and problems associated with heat pumps, at least he did make the point that they are expensive and problematic, so I give him quite a lot of credit for that. After all, such reporting isn’t something the BBC is keen on. I wonder if it’s dawning on the BBC high-ups, as they plan to sack almost 10% of their staff due, inter alia, to declining take-up of TV licences, that the public is fed up of its ongoing climate change/net zero propaganda?

Mr Rowlatt’s second point is that some critics of government policy can’t understand its obsession with “decarbonising” the electricity grid, which makes up only around 10% of the UK’s (territorial) greenhouse gas emissions, compared to, say, heating and transport, which account for more than 40% of emissions – “…that obsession is pushing up the price of electricity and making it more expensive for people to switch to a heat pump or electric vehicle.” Is the government right, he asks, to claim that progress on decarbonising electricity production will ultimately yield lower bills and greater energy security, or is it chasing the wrong targets?

This leads into his next point, one made by Professor Sir Dieter Helm (who we here at Cliscep are fond of quoting, because of his common sense and realism where these topics are concerned. See here for instance). It is that while generating renewable electricity can be cheap, the costs of delivering it most certainly are not. As Sir Dieter points out, it’s the costs of the system as a whole that matters. I have pointed out in Voila! that the Levelised Cost of Electricity calculation (so beloved of Mr Miliband) fails to take whole-system costs into account, and so provides a deeply misleading supposed justification for claims that electricity generated by renewable sources (wind, solar) is cheap. It isn’t. David Turver has analysed this issue admirably in his piece titled “Levelised Cost of Energy Models are Junk”, which is well worth a read.

Mr Rowlatt mentions a few of Sir Dieter’s highly relevant points. The first is the level of capacity needed to meet the UK’s approximate 45GW of peak electricity demand. When this was met by coal-fired power stations, 60GW of capacity sufficed. But renewables are unreliable, and so they need back-up generation, as well as additional capacity and a more extensive network. Instead of 60GW of capacity, under a system dominated by renewables, the UK needs something like twice the 60GW we needed back in the good old days, when power stations were reliable and situated near the sources of demand, rather than hundreds of miles away. This latter point of course means that the grid is having to be massively expanded to carry electricity from offshore wind farms (they are the most obvious example, but not the only one) to where it is needed. Mr Rowlatt concedes what we have been saying for a very long time:

The exact figures are debated, but the direction is clear: partly because of renewables, the system is becoming larger, more complex and more expensive. Some of those costs are already showing up in bills. Expanding the grid – building new pylons and power lines – is pushing up network charges.

In addition, there are balancing costs, constraints payments and subsidies. And there are the other practical problems associated with the UK relying on renewables. The form that could be said to be work best for us, because it produces the most energy, is offshore wind, but it’s expensive. Solar is becoming much cheaper, but in cloudy old Britain, where the sun barely scrapes over the horizon in the depths of winter when demand is greatest, it’s not much use at all.

Finally, “…rising prices for materials such as steel and rare earths – along with higher interest rates – have pushed costs up further.” All of those points relating to costs are important, but interest rates could merit a separate essay. Without exceptionally low interest rates in place for years – something that arguably the world has never seen before (and may never see again) renewables might never have got off the ground, such are their large up-front capital costs. Thanks to President Trump, the era of ultra-low interest rates may well be over. If so, the funding of up-front capital costs for renewables becomes very problematic.

Territorial -v- consumption emissions are scrutinised next. Jit was on the case a year or more ago, but it’s good to see the BBC catching up. The problem, we are solemnly advised, is that although the UK’s territorial emissions have fallen by around 50% since 1990, “that does not necessarily mean the UK’s overall global footprint has fallen by that much”. Why? Because things we used to make are now made abroad in countries with a higher carbon footprint than ours, and imported from them.

China, for example, still relies on coal for more than half of its energy, meaning emissions simply have shifted abroad rather than been reduced altogether.

This is a point made by leading climate scientists including Prof Kevin Anderson of Manchester University, who argues the 50% figure “excludes international aviation and shipping and our imports and exports”.

It’s a pity that the BBC doesn’t report that this is a point that has been made for a long time by those of us here at Cliscep, but never mind. At least they’re catching up. Better late than never, and all that.

This section concludes with the thought that in reality, taking into account the offshoring of our emissions (and, one might add, our jobs and wealth too) the UK’s actual emissions have probably been reduced by only 20% rather than 50%. The government’s lame response is to state that it follows UN guidelines on emissions reporting. That’s about as useful as pretending that we’re leading the way, or that reducing our emissions can actually influence the global climate when the rest of the world is increasing emissions every year by the same amount as the whole of the UK’s territorial emissions. It might sound good, but it doesn’t add up to a row of beans, and it makes a nonsense of our net zero obesession.

The claim then follows that our electricity prices are high, not just because of the high set-up (and other, unmentioned at this point) costs of renewables, but because gas tends to set the price. We really could do with some detailed fact-checking of these claims. It might be worth noting that electricity prices in the UK have continued to rise even as the price of gas fell back after the price hike stemming from the war in Ukraine. Also, that the price of gas is rendered artificially high due to the loading onto it of artificial “carbon costs” by the UK government. Isn’t it worth a comment, Mr Rowlatt, to the effect that it’s extraordinarily stupid to make the price of gas artificially high, in order to try to reduce its use and to persuade energy users to swap from gas to electric, only thereby to make the price of electricity higher at the same time?

What are the consequences?

The UK’s comparatively higher energy costs have coincided with a wave of closures among energy-intensive industries. Sharon Todd, chief executive of the Society of Chemical Industry, described the impact of energy costs as a “national act of self-harm”, warning that UK industry is “standing on the edge of a cliff” and calling for an urgent independent review of the country’s approach to net zero.

The other significant consequence is that the Parliamentary “consensus” around net zero is now broken (and a good thing too for the sake of democracy). Reform UK is openly hostile, the Conservatives (who, after all, introduced the legal net zero obligation when Theresa May was Prime Minister) are extremely sceptical, and even the Greens, Lib Dems and Plaid Cymru are questioning the government’s approach to implementation.

We’re told (based, supposedly, on polling data) that the UK public still broadly support net zero. But we’re also told that high costs concern the public more:

Statistics shows the cost of living is cited by around nine in 10 adults as an important issue, with energy bills among the most frequently mentioned pressures on household finances.

And so we go round in a circle. Effective economy-wide decarbonisation means expediting the take-up of EVs, heat pumps, etc. High costs of such things are off-putting. The price of electricity needs to come down for the sake of net zero as well as for the sake of voters’ well-being, but net zero, and the rush to renewables is making electricity more, not less, expensive. It’s a dilemma. At least, it’s a dilemma if you’re committed to net zero. Not so much if you think the sensible option is to abandon it, since it’s a pointless act of self-harm. Or, as Robin Guenier put it here at Cliscep: “Unachievable. Disastrous. Pointless”.

Mr Rowlatt refers to the Tony Blair Institute, Sir Dieter Helm and the Conservative Party, all saying that we should slow things down. Sir Dieter says we need to face up to a hard truth: tackling climate change costs money. The official response remains nonsensical:

The Office of Budget Responsibility has said “the costs of failing to get climate change under control would be much larger than those of bringing emissions down to zero.”

Yet again, Mr Rowlatt responds to that with the blindingly obvious riposte which we have repeated time and again her at Cliscep:

But achieving that requires global emissions cuts.

He could have gone on to say (but didn’t) that by and large the rest of the world isn’t making those cuts. Thus the claim made by the OBR is fatuous.

In many ways, it’s an excellent analysis by Justin Rowlatt (I would say that, since he’s finally picking up on much that we sceptics have been saying for years). The problem lies right at the end. Despite laying out at some length the problems with the agenda, the conclusion arrived at isn’t that the rush to net zero should be slowed, paused, or halted. No it has to carry on, because:

…the urgency of cutting emissions is not in doubt. The World Meteorological Organization warns the Earth is now further out of balance than at any time in recorded history, with the planet absorbing far more heat than it can release. As the UN Secretary General António Guterres has put it, “every key climate indicator is flashing red”.

So what if net zero is expensive? It’s a tough challenge, but the public will just have to be persuaded that it’s worth it (even though self-evidently it isn’t).

There’s more. Waiting for reality to dawn on establishment institutions and figures is a bit like waiting for buses. You wait for ages for a sight of progress, then two come along at once.

Also this week, Germany’s Economy and Energy Minister, Katherina Reiche, wrote an article for the Frankfurter Allgemeine with the heading “Enough with the self-deception in energy policy”. I recommend reading it in full, because in many ways it’s astonishing. Happily, Google Translate will render it into pretty good English if, like me, your German isn’t up to reading it in the original.

John Ridgway has already pointed out the damage caused by Germany’s Energiewende, here. Now its own Economy and Energy Minister says:

For years, we’ve comforted ourselves with ambitious goals. 80 percent renewable electricity by 2030, climate neutrality by 2045 – nice figures to soothe our guilty conscience. But while we clung to these targets, electricity prices exploded. German households pay up to 37 cents per kilowatt-hour – a good nine cents above the EU average. Our industry is bleeding out. Deindustrialization is accelerating.

And she makes the very same points as those which appeared in the BBC article, namely that while renewable energy is in theory cheap, when you take into account whole-system costs, it’s anything but cheap:

Yes, wind and solar power don’t send bills. But the overall system certainly does: EEG costs, capacity reserves, grid reserves, redispatch costs, grid subsidies, subsidies for reducing energy prices – all of this adds up to system costs of over 36 billion euros per year. That’s 430 euros for every German citizen.

We pay almost three billion euros just to curtail wind turbines and solar panels because the grids can’t absorb the electricity. No other industry receives guaranteed financing for over 20 years and even collects compensation when its product isn’t needed.

This cannot continue. The renewable energy sector has come of age and must now assume responsibility – systemically and financially. By 2035, system costs will rise to €90 billion per year. The problem is structural: We have shut down 20 gigawatts of secure, low-CO₂ nuclear power. Added to this are massive, politically driven grid investments and a market design that ignores reality.

One fact has been kept secret for too long: An energy transition that ignores system costs will ruin the country it claims to save.

This is heady stuff. It could easily have been written for Cliscep. Until that point at least. However, as we read on, there’s a shift. The mantra is preserved:

To be perfectly clear: I support the energy transition. Renewables will be the backbone of our electricity supply. They already largely are.

Nevertheless, it appears that a penny (or cent) has dropped with the German government, while we’re still waiting for that to happen in the UK:

But I’m also a realist. Climate protection without affordability is politically unsustainable. And climate protection without security of supply is strategically blind….Even though we would prefer otherwise, we still need gas. For process and space heating, as well as a raw material. And for that portion of the electricity supply that cannot be covered by renewables. That’s why we are concluding long-term supply contracts with the USA, Canada, Angola, and Mexico. Europe is vulnerable because we rely too heavily on the spot market for liquefied natural gas. We are changing that.

The concluding paragraphs are almost agonising. She believes in the mantra, but she understands the costs:

Germany is not faced with a choice between energy transition and industrial strength. But it must decide between serious policy and self-deception.

My job is to reduce energy costs. That’s impossible if I consistently favor one group at the expense of others.

In ten years, we will look back. Either on a country that has lost its industry – or on a country that combines climate protection and prosperity. The decision is made now.

She seems to want to point both ways at once, and I submit that she can’t. As the pain of high energy prices and deindustrialisation continues, she will have to choose. But at least she sees the problem, however much she wishes the problem didn’t exist. I’m far from convinced that the UK government’s Secretary of State for Energy Security and Net Zero even sees, let alone understands, the problem. So far as I can see, he believes the problem he is causing is the solution. I wonder how long it will be – if ever – before the pain of the voters and those slung out of work by high energy prices will force the UK government to face up to the painful reality that now, finally, seems to be dawning on some politicians in Germany?