Powering the UK energy debate

The poor subsidising the rich, the end of the UK coal industry, Government indecision, price freezes and electricity blackouts were all covered at a major North East energy summit last week. Peter McCusker reports

Britain's nuclear future lies with the French
The North East energy summit was held last week

Renewable energy subsidies will gross up to £46 billion by 2020,” declared Prof Ian Fells.

“It’s a totally staggering sum and effectively means the poor are supporting the rich.

“The subsidies allow upper middle class Guardian-readers with solar panels to sell electricity, while it’s all being paid for by the poor who cannot afford to fit their homes with solar equipment.

“They are a huge subsidy at the expense of the poor.”

Prof Fells, emeritus professor of energy conversion at Newcastle University, was one of the hundred-or-so delegates at The Power Debate: A UK generation game at The Sage, Gateshead, last week.

Organised by Newcastle law firm Watson Burton it featured a five-strong panel of regional and national energy industry experts.

One of these – Andrew Mill, chief executive at the Blyth-based National Renewable Energy Centre (Narec) – took issue with Prof Fells, who is a prominent supporter of nuclear power.

Mill said: “Let’s not forget nuclear subsidies are huge, but unlike renewable subsidies they are hidden, we cannot be sure how much nuclear power actually costs.

“However I am not against subsidies but as the Government and private customers have to pay for energy then they have to be transparent.’’

He then elaborated on how a subsidy regime should operate in the UK.

“When we do it, we have to do it well. What we have to do as a nation is to subsidise those technologies where we can gain an advantage. Where we can become world-leaders and create jobs, and then anchor these new technologies in the UK.”

Narec is one of the UK’s leading technology players in the developing offshore energy sector and Mill made a few salient points about the state of the UK energy market.

“Despite Ofgem highlighting the declining capacity margins in the UK electricity system, the Government has the ability to provide subsidies to gas-plant operators to bring their mothballed capacity back on line.

“Will the lights go out? I don’t think so.”

Despite this positive message Mill highlighted the risks in the current UK electricity market and signalled out the lack of certainty, brought about by Government prevarication evident in the ongoing discussions around the Energy Bill.

In the offshore wind industry, to which Narec is particularly entwined, Mill supported the Government’s desire to cut the cost by over a quarter to £100 per MWh.

But added: “We need to get standardised technologies to help reduce costs in the industry and at this stage this is just an aspiration.”

Mill highlighted how the shift to renewable energy meant the UK would be more reliant on intermittent forms of power generation – sun and wind – in the coming years.

This loss of base load power was a point of great concern for two of the panel.

Last year coal accounted for 40% of UK power generation but EU directives and the punitive Carbon Floor Price are likely to mean almost all of this capacity being shut down over the next five years.

Martin Needham, head of sales at commercial gas supplier CNG, said: “The Government has made the wrong decisions.

“No other country is facing the problems we are facing. In Poland where most of its electricity comes from coal, they just said ‘no’.

“We need to utilise coal. I’m aware of the environmental issues but we have to ask ourselves. ‘Are we prepared to pay more for our electricity over the next five years?’

“Wind is unreliable, offshore wind is the most expensive electricity source there is. We have to have a balanced mix which includes coal and gas.

“The situation is getting quite scary and the lights may go out.”

These points were taken up by James Poyner, a director of construction business Miller Argent.

He said: “The UK coal industry is fighting for its survival.

“There is no clarity from the Government on UK energy policy. Coal can act as a bridge to a low-carbon future. And coal-powered plants fitted with carbon capture and storage are a viable and low carbon long-term answer.

“But as things stand we are in an almighty mess. We are facing an energy crisis which has been looming for years and the Government has been inept. There has been a catastrophic breakdown in the electricity system.”

Poyner highlighted how 1,000 new coal plants are being built in more than 50 countries, with ten new ones being built in Europe’s renewable energy standard bearer – Germany.

“The Government seems hell-bent on closing our existing coal capacity before new alternatives are built, we are playing Russian roulette with the power system,” he added.

Colin Henry, business development manager for Siemens Smart Grid Division in the UK had a different slant on the UK market.

Supporting initiatives to increase the role of renewables in the system, he highlighted how ‘uncertainty can be good’, and that while sustainability can also mean volatility this can drive innovation.

He thinks the answers to many of the problems facing the UK lie in developing smart grid and local energy systems, complete with ‘smart buildings’ and demand reduction initiatives.

Henry also felt that opposition leader Ed Miliband’s proposal to freeze energy prices should be welcomed.

“Uncertainty is good. I like that feeling of throwing in a grenade. We need to have disruption. We need to break the established links and relationships.”

He added: “At the moment too much power is generated by too few generators.”

Poyner countered: “The energy companies are not benevolent and we will not encourage investment by freezing prices.”

When it was thrown open to a vote from the floor only one member of the audience supported Henry’s position.

Prof Ian Fells questioned whether the Labour Party would be able to fulfil this promise.

He said: “I don’t think they can do it. Companies already have a lot of forward contracts in place.”

He quipped: “Although the lawyers will be pleased as it will create a lot of work for them.”

Watson Burton partner Richard Palmer, head of construction and insurance, chaired the debate. Post-event he told Journal Energy: “I was delighted that we had such a lively debate with wide ranging views on some issues and general consensus on others.

“The speakers and the audience both contributed to provide a diversity of views leading to a spirited, often passionate, debate.”

He summarised the morning’s ruminations as follows: “The panel and audience agreed there should not be an over-reliance on one particular type of fuel, but rather a portfolio of energy sources.

“The general consensus was that we could not simply switch off the fossil fuels – coal, oil and gas – but rather they would need to be utilised in order to bridge the gap between what we currently have in the way of resources, and what we hope to have, and are developing, in the form of renewables.

“On the suggested prize freeze, there were mixed views – some thought that a shake-up of the industry was a good thing, bearing in mind the dominance of the Big Six, whereas the vast majority felt that in an industry where investment was needed, energy companies would only do this if guaranteed a return, and so the suggestion of a price freeze was ‘naive’ and ‘a gimmick’.

“From a regional point of view, there needs to be a balancing of local and national needs from planning, economic and environmental perspectives.

“There is a need for the relevant regional bodies, including local authorities and the Local Enterprise Partnerships to engage in the energy debate.

“We should use the region’s brand and the region’s resources – including its leading role in the oil and gas sector – to take advantages of the opportunities that exist.”

Ian Burdon, Chairman, Energy Leadership Council North East:

The current furore over energy prices, with its simplistic ‘we are being ripped off’ overtone, hides a multiplicity of complex ingredients in a mix which has its roots buried in the political dogma of privatisation some 25 years ago.

Electricity prices in the 21st Century are now higher than ever before. One of the many reasons for this are the EU directives to close the low-cost coal-fired power stations – many which have not inconsiderable residual life.

Earlier this month, Ernst & Young reported that there was about 27,000 MW of consented power projects on the stocks in the UK which had planning permission. This is more than one third of the current capacity.

Not a spade has yet touched the ground on these projects. Political risk associated with Government intentions on Electricity Market Reform (EMR) and, more recently, threatened intervention by Government to freeze prices is to blame.

The costs of upgrading the National Grid add still further to the costs of electricity. It is worth remembering that the original plans for the 275 and 400kV Supergrids that were built from the 1950s through to the 1970s, were predicated on ‘coal by wire’.

That is, they were designed so that the power stations could be built on the coalfields and the electricity carried to the main load centres in the South East and the Midlands by overhead lines, avoiding the need for coal trains or colliers to transport coal to power stations near the major conurbations.

Most of the large coal stations have now gone and the fitness for present-day purposes of those original power networks might be questioned.

This is particularly so given the fact that large gas-fired stations have tended to be built near gas terminals – which generally speaking are not co-located with coal fields – and the further need to connect offshore wind farms at coastal locations often far-distant from the Grid.

New overhead lines and substations have to be built to serve these developments and someone – the electricity consumer – has to pay for them.

The last links in the chain which supplies us with electricity are the local distribution systems which take power from the regional grid supply points and transport it to the domestic, commercial and industrial consumers.

A major revolution is taking place in this element of the electricity infrastructure to effectively, convert a passive, one-way system into an active system that can cope with variability of supply and demand, such as small generators embedded in the network, in a much more intelligent and efficient way.

The era of the smart grid is soon to dawn! All this new technology is expensive and someone – the electricity consumer – has to pay for it.

Current concerns over electricity prices in the domestic sector often include criticism of the structure of the industry, particularly the apparent lack of competition between suppliers.

There are at least two reasons for this dis-functionality of the domestic market: the first is the difficulty many consumers experience in changing a supplier. Unless a consumer is savvy and log their electricity and gas consumptions regularly, and are computer literate, difficulty will be experienced in obtaining competitive quotations.

The second reason for the dis-functionality in the market is the close tie between the generation divisions of the Big Six utilities and their supply businesses which actually sell the product at the retail level.

Open competition at the generating level and the breaking of the link between wholesale production and retail selling would open up the market to more supply companies and eliminate much of this dis-functionality.

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