Rolling Blackouts Loom Due To Britain’s Green Energy Chaos
David Cameron has made lavish promises about what the government’s £200bn low-carbon overhaul of the energy industry can deliver — jobs for workers, big returns for companies. The problem is that few believe his government can deliver on its promises.
Policy uncertainty has paralysed the energy industry (John Giles)
EDDIE MARTIN summed up with a flourish. “I am not going to be a puppet dancing to the government’s tune,” the Cumbria county councillor told a packed public meeting on Wednesday. “I’m exhausted and it’s time to call a halt.”
Placard-toting protesters, huddled under a public address system set up outside, nodded in agreement.
They had gathered to oppose a £12bn plan to build an underground nuclear waste dump at Ennerdale and Eskdale within the Lake District national park. Cumbria is already home to Europe’s biggest nuclear waste dump, at Sellafield, but the protesters won the day. The council voted 7 to 3 against adding another one.
The rejection neatly encapsulates Britain’s huge energy challenge — and the government’s fumbling attempts to meet it.
David Cameron has made lavish promises about what the government’s £200bn low-carbon overhaul of the energy industry can deliver — jobs for workers, big returns for companies. The problem is that few believe his government can deliver on its promises. Fears are growing of a supply crunch that could lead to rolling blackouts as soon as four years from now as old power plants are retired.
By the end of this winter coal-fired plants capable of powering 6m homes will be mothballed to comply with European pollution regulations, according to Utilyx, the energy consultant. Yet only one gas plant is being built to fill the gap.
Uncertainty over policy has paralysed the industry. No fewer than 27 consultations are being carried out by the regulator and the energy department on different aspects of the industry. These include reviews of key aspects of the central “electricity market reform” legislation, which will introduce subsidies for new nuclear, wind and gas power.
Mark Powell, head of power and utilities at AT Kearney, the consultancy, said: “Nobody is building anything. There are no new nukes, and very little movement on wind [development]. No one has the confidence to make the investments because the policy environment is so unclear.”
The stasis has become so severe that some power companies have begun to look at how they could “un-mothball” old fossil-fuel stations if replacements do not get built in time.
Centrica will bring the issue to a head this month. At its annual results the British Gas owner is expected to reveal it is pulling out of the project to build Britain’s first new nuclear power plant in two decades.
Its partner EDF, the power giant controlled by the French state, is locked in talks with the government over the subsidy it claims it needs before it breaks ground on the plant at Hinkley Point in Somerset.
Industry sources estimate that the government will guarantee a power price at least twice the current rate. Given that annual household bills have doubled in the past five years to more than £1,300, the subsidy, which will be fed through to taxpayers, is sure to cause outrage.
That is unlikely to sway Centrica, however. The company has the option to take a 20% share of the new plant. Since it inked the agreement in 2009 the estimated cost has soared from £9bn to £14bn, and the projected completion date has slid by at least four years.
Citi, the investment bank, said: “Centrica would need to spend [about] £3bn over the next 10 years yet realise little, if anything, by way of returns in the current decade.”
Two other factors have transformed the picture since the government began talking up its plans to “green” Britain.
The first is the recession. Four of the big six energy utilities are foreign-owned giants that have been hit hard by troubles in their home markets. Eon and RWE of Germany, EDF, and Iberdrola, the Spanish owner of Scottish Power, are lumbered with nearly £120bn of debt between them.
All have launched global asset sales to shore up their balance sheets. Piling on more debt to build expensive new plants in Britain is not a high priority. Powell said: “Are the current power companies really the best ones to fund the [next generation of power plants]?”
He suggests a new model may emerge that sees the utilities take a back seat. Deep-pocketed investors, such as the Chinese state or pension funds, could fund the construction of new plants. Utilities could then outsource the customer service function — something the industry has long struggled with — to savvy operators such as Tesco or Virgin, which have a better track record at handling large customer rolls.
This would leave the big six as the owners of large industrial operations without the headache of complaining customers or the need to fork out tens of billions for new plants.
The other game-changer is shale gas.