As the energy price crunch looms, with bills set to rise by around £700 per household, both Labour and Conservative are proposing solutions that bank on a temporary price spike. Such solutions fail to address some of the major sources of the crisis. Britain urgently needs an energy security strategy that tackles the fundamental problems with our supply before the situation deteriorates further.
When it comes to the current crisis, British policymakers seem content to simply point to the combination of international factors dovetailing together to push up prices globally. These include lower oil output from members of the Organisation of Petroleum Exporting Countries (OPEC), lower gas exports from Russia, the looming prospect of conflict in Ukraine as Russia amasses troops and weaponry on its border, and the release of pent-up demand from the covid pandemic.
As a result, their solutions are short term and presume the issue will pass. The Chancellor’s announcement of a £200 loan for all households and a £150 Council Tax rebate for Band A to D households, are one-time measures that will go some way to smoothing out the increase in energy costs now faced by consumers, but they don’t tackle the deeper policy errors helping to drive such high prices.
Labour’s proposal to cut VAT on energy, combined with calls from energy firms and others to scrap the green energy levy, would be a much more sensible course of action than collecting money in tax only to give or loan it back, but nevertheless would not address the root causes either.
Such plans fail to recognise the wider domestic policy mistakes that have helped create a perfect storm for British consumers, including a cost-of-living crisis driven by fiscal and monetary policy during the pandemic, and the entirely predictable nature of the energy crunch. While international prices were always going to rise and have an impact here in Britain, with a better, smarter energy security policy the effect on our people and economy could have been blunted.
Unfortunately for Boris Johnson and other net-zero proponents, the green agenda – especially if rushed, as current targets mean it will be – is in direct opposition to the aims of energy security. Moves already made towards renewable energy cost consumers around £11 billion a year, and the Office for Budget Responsibility has said achieving net-zero will cost households an average of £50,000 each.
Nuclear is clean in terms of carbon emissions and is a reliable domestic source of energy, but it is expensive and takes a long time to get off the ground. The next big nuclear power plant, Hinkley Point C, is due to come online in 2026, 10 years after approval and with a final build cost of over £20 billion. Still, the government is right to push ahead with a new financing model which will spread consumer costs for nuclear while encouraging a broader range of private investors to get on board.
Germany has gone in the opposite direction, abandoning nuclear at precisely the moment a good mix of energy sources is required. Britain should instead follow France, whose long-standing policy on energy security has seen it become the world’s largest net exporter of electricity – over 70% of which is generated from nuclear power.
Renewables and nuclear undoubtedly have an important role to play in the UK’s energy mix, but to maintain reliable supply at a price we can afford, we are going to need fossil fuels for the foreseeable future.
A key component of this fossil-fuel supported energy mix has to be natural gas, the primary fuel for the UK’s domestic heating systems. Pressures in the international gas market are driving increasing costs now, but just because gas prices are high at present it doesn’t mean we should rush to install even more expensive heat pump and electric heating systems – especially when there are better solutions.
The UK has hitherto unexplored and unextracted gas reserves. However, unlike the United States, whose liberal use of fracking reduced its energy prices and helped bring its greenhouse gas emissions to a 25 year low, in November 2019, the British government placed a moratorium on fracking. For some years now, analysts have been pointing to fracking as a possible solution to the UK’s energy problems – fracking would increase domestic supply, assist with costs, and would help to shield us from escalations by Russia like those that are hitting European energy markets today.
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Gas is also an area where our international relationships really matter. Last year, it was reported that our Gulf-ally Qatar had helped bolster the UK’s natural gas supply by diverting four tankers in just two weeks to our shores. These tankers were not previously destined for the UK, but because of the close relationship between our countries, Qatar was willing to step up. Similar requests from other European countries were reportedly denied.
Qatar has the world’s third largest natural gas reserves – behind Russia and Iran – and so it is no wonder that the UK is now in talks with the country’s leaders to agree an informal “supplier of last resort” deal which would secure the UK’s supply of gas regardless of movements in the rest of the international market.
We should be seeking to strike similar far-sighted agreements with other key, energy-exporting allies to secure supply. As such, the government’s recent refusal to grant planning permission for a high-voltage undersea power cable linking Britain and France that alone would have provided around 5% of our total annual consumption, seems completely incoherent.
While diplomatic energy should be put into persuading OPEC countries to bring oil production back up and prices down, North Sea oil and gas also offers some medium-term assistance with the current pinch. The trade association for the industry OGUK argues that we have enough oil and gas reserves to assist the UK through the next 30 years of energy consumption. But that will only work if the UK embraces rather than shuns the reality that we need fossil fuels to make – and keep – domestic and industrial energy costs affordable, and thus grants permissions to allow reserves to be extracted.
Another piece in the puzzle is storage. On oil, European countries including the UK each hold around 90 days of net-imports in a strategic reserve, but through winter the UK holds only four or five days of the gas we need to keep Britain warm. Meanwhile, the Netherlands holds six times that and Germany’s stockpile is 16 times the size of ours. It is no coincidence that gas prices are generally lower in both of those countries than in the UK, as their governments are able to release gas from storage to smooth out problems in supply.
It is critically important than ideology is taken out of energy policy and that politicians focus on the security and affordability of supply. That means a mix of power generation types – including renewables, nuclear, and fossil fuels – and it means securing a reliable supply through domestic production and deals with our allies.
The consequences of pursuing net-zero while neglecting the economic realities of energy and household budgets are already hurting people’s wallets, and things will only get worse if we continue on this path.
Emily Barley is a freelance writer and communications consultant, and leader of the Rotherham Council Conservative Group.