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Billionaire’s Son Bemoans Fossil Fuels

December 18, 2012

By Paul Homewood

 

 

(No, not the billionaire’s son on the right, the billionaire’s son on the left).

 

Ben Goldsmith, son of James and brother of ecoloon Zac, is co-founder and partner of WHEB Partners, described as a “green investment vehicle”.

Their website tells us:-

WHEB Partners invests in resource efficiency technology companies with high growth potential”

Unsurprisingly, therefore, he wants the UK to do away with fossil fuels,and commit ourselves to a green future.

 

Our Ben is not daft though. He knows that renewable energy is unreliable and expensive, and would not exist without huge subsidies. He therefore persuaded the Sunday Telegraph to let him write an article last week, entitled “Energy Subsidies Threaten Britain’s Economic Future”, attacking the use of fossil fuels.

The article bemoans the oft repeated nonsense that fossil fuels are somehow subsidised. If he had not noticed :-

  • Energy and oil companies pay rather large amounts of taxes, such as Corporation Tax, Vat, Fuel Duty etc.
  • North Sea Oil companies also pay extra taxes to the UK govt, and most, if not all, other countries raise similar taxes on their own oil producers.
  • UK energy users, both private and industrial, pay green taxes through their bills to subsidise inefficient renewable.
  • The tax breaks, that he fears are headed the way of shale gas, are not subsidies, but simply mean that less tax is paid up front, and is instead phased over several years. (It’s quite simple, Ben – No Shale Gas, No Tax)

Ben focuses on the UK Energy Bill, recently published. But what does it actually say about subsidies? There are two sections which are relevant.

 

1) Contracts For Difference

According to the Department of Energy & Climate Change (DECC)

“Planning our electric future: a White Paper for secure, affordable and low-carbon electricity” published 12 July 2011 set out our intention “to deliver…a new system of long-term contracts in the form of Feed-in Tariffs with Contracts for Difference” (CfD). CfDs are contracts that provide long term electricity price stability to developers and investors in low carbon generation (e.g. carbon capture & storage, renewable and nuclear energy). Generators will receive the price they achieve in the electricity market plus a „top up‟ from the market price to an agreed level (the “strike price”).

So plenty of subsidies to renewables, but none to fossil fuel generators, (unless they develop carbon capture, which is still a pipedream).

 

2) Capacity Markets

In essence, the government will take out long term contracts with generators, so that they will provide capacity as and when needed. DECC’s briefing paper describes it thus

In the Capacity Market, both generation and non-generation providers of capacity such as DSR and storage will receive a predictable revenue stream for providing reliable capacity, and face financial penalties if they fail to do so. In this way a Capacity Market will ensure adequate investment to minimise the chances of blackouts.

 

Ben may think this is a subsidy, but of course it is no such thing. Operators of, for instance, gas fired generators simply will not build new plant, just to see it lying idle while energy suppliers are forced to buy renewable energy.

If the government does not want the lights to go out at times when windpower cannot cope, it has no choice but to pay the cost of keeping fossil fuel capacity ticking over. DECC sum it up quite nicely

However, the market faces significant changes in the coming years which create challenges to security of supply, both in terms of resource adequacy (i.e. enough overall capacity on the system to meet demand) and operational security (i.e. enough responsiveness to ensure real time balancing of supply and demand). These changes include:

• We have already seen significant power plant closures in the last two years, and around a fifth of capacity available in 2011 has to close by the end of the decade. For example, the Large Combustion Plant Directive means around 8GW of existing coal power stations will need to close by the end of 2015.

• Despite improvements to energy efficiency, demand for electricity is expected to increase significantly over the long term, driven in particular by the increased electrification of heat and transport.

• At the same time, we aim to rapidly decarbonise our electricity supplies. This means moving to a system with a much higher proportion of intermittent wind, and inflexible nuclear, which makes it important that we have enough flexible capacity to provide electricity, for example during a run of still, cold days.

The chart below, included in the DECC briefing paper,  illustrates just how serious the prospect of blackouts is.

 

image

 

(DECC define de-rated capacity as “the gap between reliable electricity supply and peak demand”.)

 

In other words, within a few years, we could be down to about 5% spare capacity, an extremely dangerous state of affairs. Predictions into the next decade are more problematic, given various uncertainties, but even the optimistic base case sees spare capacity disappearing completely.

 

DECC some up the whole situation rather succinctly when they say “Historically, our electricity market has delivered secure supplies, largely due to competitive markets underpinned by robust independent regulation

Yes, it is the good old free market that has produced the goods year after year.

It is not a competitive market for fossil fuels that will threaten Britain’s economic future, Ben. It is government interference, decarbonisation targets and subsidies to renewables that stop the markets working in the way they should.

 

 

Unfortunately this is the sort of nonsense we have come to expect from silly little rich boys.

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