From Climate Scepticism

By MARK HODGSON

It’s net zero

Today’s Guardian online includes an interview with Jonathan Brearley, the Chief Executive of Ofgem, a position he has held for just over three and a half years. Ofgem, by the way, is an acronym which stands for the Office of Gas and Electricity Markets. It sits in a pivotal position, given its role (in words I take from its website to “work to protect energy consumers, especially vulnerable people, by ensuring they are treated fairly and benefit from a cleaner, greener environment.” More specifically, Ofgem says:

We are responsible for:

working with government, industry and consumer groups to deliver a net-zero economy, at the lowest cost to consumers

stamping out sharp and bad practice, ensuring fair treatment for all consumers, especially the vulnerable

enabling competition and innovation, which drives down prices and results in new products and services for consumers.

And how exactly is all that going? According to the Guardian (and for once I agree with them), it probably could be going better (much better):

In the past two years, wholesale market prices reached record highs, pushing up the number of households living in fuel poverty to almost 7.5m and causing the collapse of almost 30 energy suppliers. The crisis triggered one of the biggest government bailouts since the financial crisis as ministers handed £78bn to households to help pay their bills…

…Today, millions more households are in fuel poverty, vulnerable bill payers have been forced on to prepayment meters, small businesses have fallen prey to predatory energy brokers, and Britain’s creaking electricity grids face decade-long queues of renewable energy projects waiting to connect to the power system.

Britain’s power grids, which are regulated by Ofgem, have warned renewable energy developers to expect a 10-to-15-year wait to connect their projects to the network.

So it’s not going terribly well. The big question, it seems to me, is what is the cause of this catalogue of failure? Sadly, the Guardian interview doesn’t even scratch the surface. The closest it gets to analysing what has gone wrong is talking about the problems Mr Brearley has had to face since taking up his post:

Since then, the industry has been roiled by the impact of the Covid pandemic and the energy market aftershock following Russia’s invasion of Ukraine.

I don’t deny that both of those hugely problematic events have played their part in causing problems for UK energy suppliers and consumers, but no reasonable analysis could attribute all of the issues identified by the Guardian to those two events alone. If the Guardian isn’t up for a detailed dig into the problems and what caused them, presumably Mr Brearley is, given that on any reasonable definition, it’s his job to do so. And indeed he is. His speech at the Institute for Government on 24^th January 2023 arguably painted an even bleaker picture than the Guardian:

I think we should acknowledge how difficult it is for many, many households and businesses, to pay for the energy they need.

Our data shows that, from April, households on a median disposable income will spend 10% of that on their energy bills, and those relying on the state pension will spend 29% – that is a truly extraordinary amount of our household budgets.

I speak to customers regularly, and even with the Energy Price Guarantee and Energy Bills Discount Scheme, I know that the scale of the challenge for many people out there remains enormous.

For example, a few months ago I spoke to a lady who has a chronic condition. That condition often leaves her in pain if it is cold, yet she often has to rely on a hot drink or a blanket because she cannot afford to heat even one room.

I have also spoken to people who prefer to be in hospital rather than at home, because it least in hospital they know they have access to the energy and the food that they need.

We also consult regularly with business member groups to hear about the challenges they face.

For example, recently we heard from a group of theatres whose long-stand utility contract ended last October. Their new forecast, before government support, was of a roughly 450% rise in their electricity bill and rise 725% for their gas bill. And when they tried to find alternative quotes, it was difficult to do so for a whole range of issues, including a very different perception of credit risk.

Now sadly, these stories are all too common across Britain today.

Welcome to Britain in 2023. Fortunately Mr Brearley understands his responsibilities very well:

So as the energy regulator, alongside government, and the industry, it is our responsibility to [be] doing everything we can to support consumers and businesses through this very difficult period.

And he has a plan! Unfortunately, he seems to be fully signed up to the net zero agenda, which I suppose isn’t surprising, given his CV:

…he was Director of the Office of Climate Change, a cross-government strategy unit focussed on climate change and energy issues, where he led the development of the Climate Change Act…

I don’t deny Mr Brearley’s qualifications for the job (e.g. he “ led Electricity Market Reform as the Director for Energy Markets and Networks at DECC”) but the fact that the Chief Executive of Ofgem seems to be a net zero enthusiast is as disappointing as it is inevitable. He probably wouldn’t have got the job otherwise.

And so I suppose it is equally inevitable that the first lesson he says he has learned from the “crisis” is that we as a country are most disadvantaged by “reliance on international gas markets that, bluntly, have been manipulated by an aggressive state” with the result “that geopolitics is playing a stronger hand in this country’s energy decisions than we had planned for, or would like it to.” The solution?

…we should move as rapidly as possible away from a system highly dependent on international gas, but also move away from our current market, which means that gas affects almost all of our energy use.

Simply put, we need to transition towards more homegrown, secure, and renewable sources of energy supply, and design an electricity market that allows us to benefit from that transition.

The difficulty with that, as the more alert among you will have noticed, is that the concluding paragraph is oxymoronic. It is simply impossible to achieve all the things that are summed up in one short sentence – homegrown energy, which is also secure and more renewable, and allows us to benefit from that change. The thing is that that renewable energy, by its very nature is unpredictable and unreliable, and leads to shortfalls in energy supply, often when demand is at its greatest, i.e. in the middle of winter, when the sun barely makes it over the horizon and the country can be becalmed in bitterly cold conditions under an anticyclone. What do we do then?

Well, we can do what we do now, and rely on gas generators to ramp up at short notice to fill the void. But that involves running two energy systems in parallel, with the more reliable of the two (gas) being operated sub-optimally, and therefore very much more expensively. That might give us security (or it would if we were allowed to extract our own gas), but it wouldn’t offer any financial benefit at all – quite the contrary.

Or we could trust to good neighbours and assume that the ever-growing web of interconnectors will fill the void. The problem with such a policy, however, is that it depends on the anticyclone over the UK not also sitting over western Europe, so that there is actually some surplus electricity for us to draw down, It also depends on our neighbours being good neighbours and not seeking to rip us off financially when we’ve got ourselves into a bit of an energy shortfall. And finally, it is at risk of an “aggressive state” seeking to damage the interconnectors (as, indeed, they might seek to damage the power cables bringing the offshore wind power onshore). This is also an expensive option and, worse still, it is doesn’t meet the need for secure energy supplies.

And it keeps getting worse. Further on in his speech Mr Brearley lays out quite clearly (let nobody say they didn’t understand what the implications are) the extent of the engineering challenge (though he barely mentions the associated costs) involved in achieving this undesirable and dangerous energy policy. We’ve heard it all before, of course, but it bears repeating, since some people (who should know better) seem remarkably insouciant as to what’s involved.

To move away from our dependence on the international gas market and build the secure, decarbonised energy system that we need as rapidly as possible, and to meet the government’s target to achieve a net zero power system by 2035 and reach net zero by 2050, we will need to build new energy infrastructure at a pace not seen for decades.

When you look at our history, the period immediately after the Second World War most closely resembles the pace and scale at which we will need to build.

From 1950 to 1970, Great Britain’s electricity generation capacity expanded around 4 fold.

Since then, the system has been largely stable in terms of our networks, and regulation has been designed to maintain that system and drive efficiency in its maintenance and in the incremental build that has been needed.

But to meet the scale of future energy demand between now and 2050, we will again need to build out our infrastructure – onshore, offshore, and connections to other countries – at an extraordinary pace, not seen for over half a century.

Instead of pausing there, and asking whether this really is such a good idea he goes on to repeat the mantra of the Skidmore review to the effect that this, as well as being a huge challenge (too right it is) is also “an economic opportunity”. He goes on also to repeat the claim regularly made in this regard that it will cost us more if we delay. This is a claim I’ve heard many times, though nobody has ever explained it to my satisfaction – indeed, often (as here) the claim is simply made without explanation. I assume that the “logic” is that we need to do this because if we don’t the costs of climate change will be much greater. Of course, if that is what underpins the claim, then it is utterly fatuous, since even if the UK achieves net zero it will make no measurable difference to the climate unless the rest of the world follows us off the cliff.

And how is this acceleration to be achieved? Well, making it easier for planning consents to be obtained more quickly (presumably even in the teeth of local opposition) is certainly a key part of the plan:

The next generation of system planning will need to look at net zero targets for 2035 and 2050 more widely, and encompass investment across the electricity and gas grids, including the planning for hydrogen infrastructure…

…So we are reviewing the institutional framework to set a clear vision for local governance arrangements…

The link between the price of gas and electricity pricing is also made: “the gas price crisis revealed that in the short term, consumers may not be getting the full benefit of the existing renewable and low carbon plant.” [sic] Mr Brearley is under the impression that moving “all renewable plant on to the existing contracts for difference regime… would stop this happening and give consumers access to lower electricity prices.”

As he points out, Mr Brearley led the Electricity Market Reform, so he certainly know more about this sort of thing than I do. I trust, therefore, that he is aware that the Contracts for Difference regime isn’t going so well just now, and that in the fifth Allocation Round the government has just increased the budget, and that renewables energy companies have taken to postponing their take-up of existing “contracts” because they don’t regard them as viable:

Orsted has delayed for a second year its contract to supply consumers with cheap energy from the world’s biggest offshore wind farm and has warned that it could do so again, enabling it to cash in on higher market prices instead.

Hornsea Two, comprising 165 turbines about 55 miles off the coast of Yorkshire, has been fully operational since last summer, generating enough electricity to power 1.4 million homes.

Under a government contract awarded in 2017, Orsted was due to supply the power to energy bill-payers at a fixed inflation-linked price worth just under £84 per megawatt-hour today, with the contract for the first phase of the project due to begin in 2022. However, the Danish state-backed power group confirmed last week that it has now taken advantage of a loophole to delay that contract start date for a second year, until 2024, enabling it to sell the power for higher prices instead…

I find it worrying that the conclusion arrived at is this:

In conclusion, the gas crisis has strengthened the need for pace in changing our energy system to meet customer needs and to meet our low carbon goals….we will have a robust path to a better, more secure and low carbon energy system that meets this country’s needs.

The elephant in the room, of course, is net zero, and the obsession with “de-carbonising” the UK’s electricity generation. I have seen no plan for reducing reliance on gas back-up, and thus for reducing, rather than increasing, costs. I have seen no persuasive plan for guaranteeing that the country won’t face blackouts if it makes itself reliant on unreliable and unpredictable sources of electricity generation. I see no convincing plan as to how we will cope if the interconnectors between the UK and Europe are cut, or if the cables bringing electricity from Scottish islands and offshore wind farms to the mainland are cut. While the move away from gas may be justified because buying gas on the international market makes us vulnerable to bad actors, not much thought seems to have been given the extent of our vulnerability when relying on undersea cables and interconnectors.

In fairness to Mr Brearley, who can’t be held responsible for the mess that Ofgem has made over the years, and in fairness to Ofgem itself, it is faced with a regulatory framework imposed on it by Parliament which is full of contradictions and makes little sense. Ofgem is governed by the Gas and Electricity Markets Authority, which derives its powers and obligations from a plethora of statutes, such as the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002 and various Energy Acts. A useful summary can be found here though I cannot be certain that it is completely up to date.

What, for instance, is to be made, of section 4AA sub-section 1(a) of the Gas Act 1986 (as amended by the Energy Act 2010)? It obliges Ofgem both to protect the interests of existing and future customers by reducing gas-supply emissions of targeted greenhouse gases (as defined in the Climate Change Act 2008) and in the security of the supply of gas to them. Similar provisions apply (mutatis mutandis) with regard to the supply of electricity under section 3A of the Electricity Act 1989 (as also amended by the Energy Act 2010).

How about subsection 2 of the Gas Act 1986? Ofgem has to have regard to “the need to secure that, so far as it is economical to meet them, all reasonable demands in Great Britain for gas conveyed through pipes are met” and “the need to contribute to the achievement of sustainable development”. And all the while, subsection 5 requires them to carry out their functions in the manner which it considers best calculated “to secure a diverse and viable long-term energy supply”. Again, similar provisions apply under the Electricity Act (as amended), including that critical obligation “to secure a diverse and viable long-term energy supply”.

If there was no legal obligation to achieve net zero and no expedited plans to “decarbonise” the electricity generation system in accordance with carbon budgets, then Ofgem’s job, and that of the National Grid and wholesale energy suppliers and retailers would be massively simplified and cheapened. If I were in charge of Ofgem and/or the National Grid, that is a message I would be delivering repeatedly and urgently to Parliament. Unfortunately, as things stand, politicians and those charged with implementing their madcap plans seem to be holding hands while the elephant in the room remains invisible.