Energy Incoherence

This has been an interesting month for revealing the effects of the lack of a coherent UK energy policy.

Three fossil fuel power stations have closed; Cockenzie in Scotland (1GW Coal), Didcot A (2GW coal) and Fawley (1GW oil). These recent closures bring the total closures since December 2012 to 7.5GW accounting for about 10% of UK generating capacity.

Didcot A Power StationThese stations were built at a time when we didn’t recognise the damage that carbon dioxide does to our ecosystem, but we did recognise the importance of domestic industry. The UK had, and still has, extensive coal reserves and our power stations were built to exploit this and create growth in UK industrial capacity at a time of optimism.

The closures occurred not because the stations were failing, but due to European legislation on air pollution and a hike in UK carbon taxation. These stations could have continued in operation if pollution control had been installed, or until 2015 in any case under the European Large Combustion Plant Directive. However it appears that the majority of operators have chosen instead to run them flat out during the profitable winter period and shut them down on the eve of a new tax on fossil fuel. The ‘Carbon Floor Price’, to be introduced on 1st April, has a stated purpose of making fossil fuel generation uncompetitive. Congratulations Mr Osborne, you’ve succeeded!

In the same month, the UK’s largest remaining coal mine, Daw Mill Colliery was pushed over the edge of financial viability by an underground fire and closed. The price of coal on the international market has collapsed, pushed down by a glut of american coal caused by their rush to shale gas. Private electricity generators will of course buy coal at the lowest cost available, making the UK coal industry ultimately unviable.

A total of 1000 energy industry jobs have been lost in March.

It is estimated that despite the closure of the majority of coal power stations by 2015, our reliance on imported coal to generate electricity will rise by 70% as the UK coal industry collapses. Of course these power station closures will also increase our reliance on gas to generate electricity. We already import half of gas consumed in the UK and this is expected to rise to 70% by 2019.

We saw an example this month, coincidentally on the day that Didcot A closed, of our sensitivity to gas imports. The UK-Belgian gas pipeline suffered a fault in a dewatering pump and had to be shut down for half a day. During that period the price of gas jumped 50% to an all time high, as it became temporarily scarce. During one of the coldest weeks we’ve experienced for a while, our national reserve of gas was reduced to just 36 hours.

Surely a national energy policy should address energy security and jobs as well as carbon.

Government seems to be banking on new gas generation coming along to fill the gap until the new nuclear power stations come on line. However its policies are focused on renewable energy and its rhetoric is all about beating up energy companies to keep bills low. It has taken its eye off the ball with regard to energy security, jobs and UK industry.

We have a privatised, fragmented energy system whose individual players won’t make necessary investments in new capacity unless they are confident of a return. If Government will not give them that confidence through coherent policy then they won’t invest until market forces drive energy prices sufficiently high. Once electricity becomes a scarce commodity the price will increase, that is the way of the market. If the lights start going out then maybe Government will be happier to discuss the subsidies energy companies are asking for in the absence of policy, but of course, by then, subsidies will be unnecessary.