Photo: Rachel Melton via Flickr (CC BY-NC-ND).
Lights out? Amber Rudd's disastrous absence of an energy strategy
18th November 2015
Amber Rudd's speech today exposes her total failure to assemble a coherent energy strategy, writes Oliver Tickell. It reveals the increasingly certain failure to meet EU renewable energy targets, proposes a new tax on wind and solar generation, and leaves the country facing the real prospect of lights going out in the next decade. The one hard policy? To maximise oil and gas recovery.
In the same way generators should pay the cost of pollution, we also want intermittent generators to be responsible for the pressures they add to the system when the wind does not blow or the sun does not shine.
Today was Amber Rudd's big day - the day of her speech to the Institution of Civil Engineers setting out the UK's energy policy for the coming decade or two.
So how did she do? In short, a load of rubbish. What she presented here was no 'energy policy'. It was a rag bag of missed opportunities, worn out ideas, wishful thinking, disconnected themes and downright bad news - like the prospect of a new tax on wind and solar - that only increase the chances of the 'lights going out'.
Even her headline announcement of 'an end to coal' was - while a clever way to confuse environmentalists - not all it seems. Coal power stations still have ten years to run under her proposals. And they would almost all have to close down within that time anyway in order to comply with EU pollution regulations.
The other headline news was a big reliance on new gas fired power stations to take the place of coal for baseload generation. Yes, gas represents a short term improvement in terms of carbon dioxide emissions. But in the medium and long term, investing in gas now is just locking us into fossil fuels for another generation when we should be seeking to decarbonise completely.
Moreover how is she going to secure that investment in gas? Why would power companies want to put billions of pounds into it? Here's her answer: "We need to get the right signals in the electricity market to achieve that. We are already consulting on how to improve the Capacity Market. And after this year's auction we will take stock and ensure it delivers the gas we need."
That sounds to me like "Sorry I haven't a clue."
Then there's the question - where is all that gas going to come from? Rudd has the answer: "We currently import around half of our gas needs, but by 2030 that could be as high as 75%. That's why we're encouraging investment in our shale gas exploration so we can add new sources of home-grown supply to our real diversity of imports."
You got it, fracking. But there's a few problems with that. First, rural communities around the country are rising up against fracking in their areas. Second, the experience of the USA demonstrates serious health problems around fracking wells apparently caused by air and water contamination.
Third, and most fundamentally, we have little to no idea of the size of the UK's shale gas reserves. There may be a lot of gas deep underground, or there may not. And even if there is a lot of gas there, it does not mean that it's easy to get at or commercially viable to do so.
So what Rudd is doing is actually something extraordinary: to set out a policy of building maybe a dozen large new gas fired power stations, while having no idea where the fuel to power them is coming from. In fact, we may have to import the lot. Which will not do a lot for our energy security.
Speaking of which, here's what she had to say on the topic: "energy security has to be the first priority - it is fundamental to the health of our economy and the lives of our people. It underpins everything we need to do."
Indigenous renewables are key to energy security
If she actually cared a damn for energy security, there's one very simple thing she could do. To turn to proven indigenous energy resources - yes, things like wind, sun, tide, wave and geothermal. Unlike shale gas, these resources are both well characterised and abundant. So how do they fit in?
Let's start with onshore wind - currently our cheapest renewable energy technology by quite a long chalk - and solar - which could, with a modest level of continued support for the industry, be cost competitive with fossil fuels by 2020. Here's what she had to say, in a minor masterpiece of dissimulation:
"Most importantly, new, clean technologies will only be sustainable at the scale we need if they are cheap enough. When costs come down, as they have in onshore wind and solar, so should support. For instance, we have enough onshore wind in the pipeline to meet our 2020 expectations.
That is why we set out in our manifesto that we would end any new public subsidy for onshore wind farms. The costs of solar have come down too. Over 8GW of solar is already deployed and even with the costs controls we have proposed we expect to have around 12GW in place by 2020. These technologies will be cost-competitive through the 2020s."
So hang on - what's the logic here? Cost have come down, true, and so support should also come down - fair enough. But what she has actually done is to pull out the rug. Domestic scale solar has had its support virtually eliminated. And support for onshore wind has actually been eliminated.
Those EU energy targets
Bear in mind that this is against a backdrop of the UK being on track to miss its legally-binding EU renewable energy target - to source 15% of all energy from renewable sources by 2020 - by a thumping 25%, as revealed by The Ecologist.
The obvious way to make up the gap and meet the renewable energy target is by bringing on more of these increasingly competitive and successful technologies than originally planned, at ever diminishing cost. Instead, she does the precise opposite - and does her best to kill them off altogether.
But hark - instead we get another policy innovation specially crafted to hit renewables: "In the same way generators should pay the cost of pollution, we also want intermittent generators to be responsible for the pressures they add to the system when the wind does not blow or the sun does not shine. Only when different technologies face their full costs can we achieve a more competitive market."
Is there another 'renewable energy tax' on the way? A whole new mechanism to penalise renewable power generators - perhaps to applied retrospectively, like the unannounced removal of the Climate Change Levy exemption which undercut the returns on existing renewable energy assets?
Then there's the things that Rudd failed to mention. Here's one of them: the Swansea Bay Tidal Lagoon, announced under the previous coalition government. It would generate up to 320MW of power on a completely predictable basis for 14 hours daily. Supporters now fear the project has been ditched.
What Rudd did not say
Now she did mention heat, but said nothing about the most critical aspect of it - that the Chancellor has told her to axe the Renewable Heat Incentive (RHI), or rather not renew it when the current suttlement expires in 2015/2016. It looks like Osborne got his way. Here's what she told us:
"Heat accounts for around 45% of our energy consumption and a third of all carbon emissions. Progress to date has been slower here than in other parts of our economy. There are technologies which have great potential, such as district heating, biogas, hydrogen and heat pumps.
"But it is not yet clear which will work at scale. So different approaches need to be tested. We need a long-term plan that will work and keeps down costs for consumers. We will set out our approach next year, as part of our strategy to meet our carbon budgets."
Note - not a word about the RHI. Presumably that's a goner, even though as she pointed out in her leaked letter to Osborne, the RHI alone could deliver a valuable 15 - 32TWh towards the renewable energy target, a third to a half of the expected 50TWh shortfall.
And actually we know perfectly well what works at scale. District heating is working and delivering heat energy efficiently, at scale, all over Scandinavia and the former Soviet Union. Biogas has a huge, unfulfilled potential which is well known and understood. We also know that heap pumps deliver significant increases in efficiency electrically heated buildings (though as good as gas).
But instead of deployment, all we are getting is "a long term plan" and a hint that some research may take place to find out what works, when we already know the answer anyway.
Rudd's other lost battles
Also, scarce a word about transport fuels. This time, it looks like Rudd lost her battle with the Department of Transport. She had been trying to bully it into doubling the proportion of biofuel in petrol and diesel to 10% help meet the EU renewable energy target. This was firmly rebuffed by Transport Minister Andrew Jones on the rock solid grounds that it would both raise fuel prices and actually increase carbon emissions by stimulating deforestation for palm oil. Now we know: he won. A good thing too.
As for energy efficiency, another defeat for Rudd. She said: "More than 1.2 million households are seeing lower bills due to energy efficiency improvements over the last 5 years. We are committed to ensuring a million more get the same benefits by the end of this Parliament."
Which is all very well, but what is she going to do to make it happen? Remember the government has already taken decisive action in ending the Green Deal financing package and abandoning the 'zero carbon homes' requirement for new build that was due to come in this year.
Here's the answer: "the tax and policy framework designed to encourage this is complex and we are now looking at streamlining it." Translation: "I asked the Chancellor to fund some energy efficiency, and he told me to go away and come back in a year or two and see if he's got any spare money lying about."
The one area to which Rudd really does look committed is nuclear. And her speech gives away the source of some of her ideology on this topic:
"Climate change is a big problem, it needs big technologies. As the former Chief Scientist at DECC, David Mackay, said: 'If everyone does a little, we'll achieve only a little. We must do a lot. What's required are big changes.'" In other words, nuclear power - a 'big technology' if there ever was one.
Now in fact, that idea is utterly irrational. She already knows from the success of small scale solar in the UK and other countries like Germany that a few kilowatts of rooftop solar capacity on millions of homes and offices soon adds up to megawatts, gigawatts and tens of terawatt hours of clean, green electricity.
But here's what she had to say: "Gas is central to our energy secure future. So is nuclear. Opponents of nuclear misread the science. It is safe and reliable. The challenge, as with other low carbon technologies, is to deliver nuclear power which is low cost as well. Green energy must be cheap energy."
Easy now: nuclear power - when Hinkley C starts to deliver in 2025 or beyond will be far more expensive than either wind or solar, costing £92.50 per megawatt hour in 2012 pounds - more than double the current wholesale price - at a time when both wind and solar will be cheaper than fossil fuels.
"We are dealing with a legacy of under-investment and with Hinkley Point C planning to start generating in the mid 2020s that is already changing. It is imperative we do not make the mistakes of the past and just build one nuclear power station. There are plans for a new fleet of nuclear power stations, including at Wylfa and Moorside. This could provide up to 30% of the low carbon electricity which we're likely to need through the 2030s and create 30,000 new jobs. This will provide low carbon electricity at the scale we need."
What she is not telling us is that the reactor design for Hinkley, the EPR, is an outright failure that has never been completed anywhere in the world, while the AWBR design planned for Moorside and Wylfa is a known poor performer in Japan.
What's also interesting is that she failed to mention either the 'Hualong' design Chinese reactor planned for Bradwell, or the twin EPR reactor planned for Sizewell, both of which would be majority owned by the China China General Nuclear Power Corporation. Does she know something we don't?
Also worth noting: all this nuclear power would bring just 30,000 UK jobs in the 2030s. Her destruction of the UK solar sector is set to cost, by the estimates of the Solar Trade Assocation, 27,000 jobs.
And another thing. The speech is heavily laced with statements of reliance on markets to deliver the goods, as in "Government should enable, not dictate. The market should lead our choices. Because that is the way to keep costs as low as possible." In which case, why is the government making all its superhuman efforts, at massive public expense, to get nuclear power going in the first place? Why not leave it to the market - and let it die?
And - if renewables have to pay the system cost of their intermittency, why no mention of making nuclear power pay for its own enormous sytem cost of unscheduled outage? Let's say Hinkley C is actually built, and suddenly drops out (as nuclear power stations do), that's a sudden 3.2GW lost off the grid - that has to be seamlessly covered by reserve capacity or demand cuts. And that costs serious money to provide for.
Silver linings? Offshore wind?
One possible silver lining in all this is offshore wind, on which Rudd remains bullish. "On current plans we expect to see 10GW of offshore wind installed by 2020. This is supporting a growing installation, development and blade manufacturing industry. Around 14,000 people are employed in the sector.
This ground breaking expertise has helped the costs of contracts for offshore wind come down by at least 20% in the last two years. But it is still too expensive. So our approach will be different - we will not support offshore wind at any cost.
Further support will be strictly conditional on the cost reductions we have seen already accelerating. The technology needs to move quickly to cost-competitiveness. If that happens we could support up to 10GW of new offshore wind projects in the 2020s ...
Today I can announce that - if, and only if, the Government's conditions on cost reduction are met - we will make funding available for three auctions in this Parliament. We intend to hold the first of these auctions by the end of 2016."
The main problem there is that the government's whimsical policy capers with renewables in general have caused a general loss of confidence, as has the specific refusal, on dubious planning grounds, of a large offshore wind farm near the Isle of Wight.
And offshore wind investors may well have noted her comments, quoted above, on making renewable power generators pay for the system costs of intermittency. Is that something that might suddenly be imposed on them without warning? Past form indicates that yes, it could be.
The mere possibility of such a move, combined with the generally negative policy environment for renewables, can only raise the cost of capital for new projects - and will make it harder for developers to bring costs down as she says she wishes.
Where's global warming in all this?
In her speech Rudd affirmed her commitment to meeting the 2050 decarbonisation target set down in the Climate Change Act. She also waxed eloquent on the upcoming COP21:
"Paris is a city that is currently in mourning. But in a less than two weeks' time, we will see the leaders of the world gather there in solidarity to seek to achieve the first truly global deal on climate change ... The commitments countries have made so far are significant and a deal is tantalisingly close ... Paris must deliver a clear signal that the future is low carbon that unleashes the levels of private investment and local action needed."
So far, so good. But note the change in emphasis that follows: the UK should not worry too much about reducing emissions, because we are too small to make a difference:
"Collective action works when you share the burden fairly, but also when each makes a distinctive contribution. We know that in isolation, cuts to Britain's own greenhouse gas emissions, just 1.2% of the global total, would do little to limit climate change. So we have to ask ourselves the important question: What is the UK's role in that global decarbonisation? Where can we make a difference?"
So what does that actually mean? It looks like it means that the role of the UK is not to actually reduce its emissions - that's for everyone else - but rather make its own 'distinctive contribution'. And what would that be, exactly?
Apparently, it's by maximising UK oil and gas production, and not just from fracking: "The North Sea still offers significant value for the UK - up to 20 billion barrels of oil equivalent could still be extracted and the industry supports 375,000 jobs. But we need to provide clarity to investors in UK oil production. Today I am launching a consultation on a Strategy to Maximise the Economic Recovery of the North Sea."
And unlike other plans, this one has teeth - legal powers to force the greatest possible production of oil and gas: "The legally-binding strategy aims to get more value from areas like the North Sea through better collaboration between companies and improved cost-efficiency. It also ensures that the companies operating in the UK Continental Shelf are those most capable of recovering the maximum amount of oil and gas ...
"The Energy Bill sets out new sanctions and enforcement powers which the Oil and Gas Authority may use, including if there are any breaches of the Maximising Economic Recovery UK Strategy."
Where is the strategy?
But with the notable exception of the oil and gas recovery, one thing that is revealed in this speech is the near-complete absence of policy instruments to make things actually happen. Instead we are promised consultations and reviews, while all the key questions are kicked into the long grass.
This is in part because Osborne is not letting Rudd have the money to actually do anything - with the notable exception of nuclear, because the spending side of new nuclear power won't begin until this entire government is over and done with in 2025 or later.
But it also reveals a deeper problem - the lack of any real strategy. Compare it, for example, to Germany's Energiewende, its program to decarbonise its economy with renewable energy. That is a real, serious, engineered, long term plan with funding, specific objectives and both short and long term delivery mechanisms. Rudd's speech is nothing of the sort.
Where are the ideas for a 'smart grid' (as opposed to not very 'smart meters' and time of day charges) in which demand responds dynamically to supply instead of the other way round ? What about prioritising the reasearch and development of key energy storage technologies for grid balancing at home, and lucrative export abroad?
Instead the main topic under 'research and development' is the same old failed nuclear dream: "We must also build on our rich nuclear heritage and become a centre for global nuclear innovation ... exploring new opportunities like Small Modular Reactors, which hold the promise of low cost, low carbon energy."
She discards all the most promising and cost effective solutions like onshore wind and solar, precisely because they are working too well. Meanwhile she emphasises gas and nuclear even though we don't know where the gas will come from, there's no effective mechanism in place to encourage generators to build new gas power stations, and we have no idea if, and how well, nuclear power will ever actually deliver.
And never mind the warm words on climate - maximisation of oil and gas recovery takes the highest priority of all.
As for keeping the lights in, here's a scenario that looks all too likely to come about by the mid-2020s:
- Wind and solar deployment slows down to a snail's pace.
- Coal power stations are shut down without enough replacement gas-fired capacity in place.
- Shale gas ends up a busted flush - too expensive, not enough of it.
- Hinkley C is subject to the same kind of delays and cost overruns seen at other EPR sites in France, China and Finland, and the whole project collapses in a flurry of lawsuits.
- The AWBR projects at Wylfa and Moorside don't come on stream until the mid 2030s and when they do, perform as badly as the Japanese AWBRs with <50% capacity factors.
Never mind merely missing EU renewable energy targets. That's when the lights really will be going out, even as our bills rocket through the roof. But why worry? As George Osborne and his sidekick Amber Rudd may be thinking, "Not our problem. We'll be long gone by then!"
The speech: 'A new direction for UK energy policy' was delivered today, 18th November 2015.
Oliver Tickell edits The Ecologist.
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