Clive Moffatt is an energy analyst, and founder and chairman of the UK Energy Security Group.
With the general election imminent, the time has come for all politicians to dispense with wishful thinking about Net Zero and be honest with voters that building an electricity system reliant primarily on wind and solar energy is neither feasible nor affordable.
Furthermore, by trying to force the pace of electricity decarbonisation there is a serious risk of plunging the economy and consumers into a long period of energy rationing, higher energy costs and taxation, without any significant economic or welfare benefits or reduction in global carbon emissions.
Below is a ten-point manifesto for a more balanced, realistic and strategic approach which would secure new investment to underpin long term energy security and affordability.
Moratorium on all new renewable wind and solar developments unless commissioned without a guaranteed price contract
This moratorium should remain in place pending a comprehensive and detailed estimate and subsequent Parliamentary debate of the relative economic and welfare costs and benefits of transforming the current energy mix and electricity network into one dependent on an intermittent supply of wind power in locations removed from major sources of demand.
A similar moratorium should also be imposed on any further public funding of ‘green’ technology developments (not already contracted) including schemes such as hydrogen production, large scale and modular nuclear generation, carbon capture and storage and battery storage facilities.
It should remain in place until we know precisely if and at what cost these technologies can contribute to the effective decarbonisation of the existing power network.
End coercive policies aimed at forcing the pace of electrification
Total electricity demand is forecast to rise by 50 per cent by 2035 predicated on the assumed growth in the electrification of heat and transport. To avoid significant system imbalances between demand and supply the projected increase in “green” electricity demand not linked to economic growth should be scaled back by removing all current forms of market coercion imposed on buyers and suppliers to force the pace of electrification of heat and transport.
This will allow consumers and suppliers to decide if, and when, they wish to purchase/supply an electric or hybrid car or heat pump.
Increase domestic gas production by removing existing disincentives
More North Sea gas will not impact on the global gas price but transporting LNG is very expensive and more domestic production will reduce the UK’s dependency on imports.
According to the industry’s trade body, Offshore Energies UK, seismic surveys suggest that up to 40% of the UK’s known oil and gas reserves remain to be developed.
Therefore any attempt to close North Sea production prematurely will further increase import dependency. This would have adverse implications for the UK trade balance and interest rates.
Policies such as the Energy Profits Levy must be ended, so as to encourage domestic production.
Stimulate private investment in natural gas supply
Boost medium- and longer-term natural gas supply security by encouraging new private investment in seasonal, British-based gas storage capacity (currently less than two per cent of aggregate gas demand), either by imposing an obligation on gas shippers and suppliers to hold a certain proportion of their gas demand in UK storage and/or providing a subsidy via a capacity auction to attract new private investment.
A more efficient gas market
Increase short- term energy supply and price security by creating a coherent and regular process of real time market balancing for gas as well as electricity supply and demand by taking advantage of the significant scope for voluntary demand reductions via a pre-winter auction/option payment process amongst major users and interconnection capacity where this is available and reliable. (see point 6 below)
A more reliable supply
Increase the availability of flexible and reliable power generation by imposing an obligation on a new Strategic Energy Authority (SEA) (see point 10 below) to ensure a reliable power supply margin of between 5-10 per cent of projected demand ahead of each Winter. This will underpin the urgent need to compensate for limited and unreliable interconnectors by encouraging more domestic flexible generation.
Currently the UK has 9GW (i.e. potentially ten per cent of annual electricity demand) of interconnection capacity. The National Grid and Ofgem are planning to double this capacity by 2035 so that the UK becomes significantly dependent on imports to compensate for intermittent renewable generation.
However, interconnectors are notoriously unreliable and expensive especially at times of peak demand with the UK competing for supplies with the rest of the EU.
For example, the cost of peak imports from Belgium last Winter exceeded £2000/MWh compared with day-ahead base load OTC price of £120/MWh. Furthermore, increasing dependency on imported power will have serious negative impact on the balance of payments, value of Sterling and interest rates.
A moratorium should therefore be placed on any new interconnector construction pending a detailed analysis of the feasibility and affordability of importing electricity relative to the costs and benefits on encouraging more investment in domestic unabated flexible gas power generation. (see point 7 below)
Reform the current Capacity Market auction mechanism
This will increase new private investment in unabated small-scale (OCGT) flexible gas generation (recently announced by the DESNZ) to meet peak demand and compensate for the network constraints on and/or wind intermittency.
In addition, a separate auction is required urgently to increase new private investment is larger (CCGT) unabated gas generation plant to compensate for the demise in coal and nuclear baseload generation.
Abolish the energy price cap and abandon the use of market intervention to control retail energy prices
Such a policy can either support the balance sheets of energy suppliers and/or seeking to deliver “welfare related” reductions in retail energy costs. It is impossible to control retail prices when you have no control over the market (e.g. global gas prices and/or domestic intermittent renewable generation).
Price controls distort the market and fuel poverty can be alleviated more cost-effectively using the welfare benefits system.
Force retail energy suppliers to ensure they have sufficient liquidity
The level must be set such that suppliers can cope with both normal and unexpected volatility in the wholesale energy market and the normal commercial risks associated with customer bad debts. Suppliers should also be forced to compete effectively in terms of price and service (e.g. incentives for voluntary volume usage and credit payments).
Create an independent Strategic Energy Authority (SEA)
We need to take the politics out of energy and eliminate the lack of cohesion and regulatory certainty in the energy market.
This new body would scale back unrealistic targets for decarbonisation of the system, adopt a more balanced approach to security, affordability and sustainability, manage the wholesale gas to power market in real time and put in place a predictable regulatory and investment incentive regime which would avoid General Election cycles and stretch beyond 2050.
The creation of an SEA would require a re-assessment of the policy role of DESNZ and eliminate the need for a separate Electricity System Operator (ESO), Ofgem and the Climate Change Committee. Energy market competition issues in the retail sector could be dealt with by the Competition and Markets Authority (CMA).
