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September 29, 2016

By Paul Homewood





The Centre for Policy Studies has published a highly damning report on the state of UK energy policy:


These are its main findings:






The UK’s electricity system has suffered from poor public policy since the late 1990s. Since 1996, there have been 14 Energy Secretaries and 18 Ministers, leading to a confused energy policy. Energy policy in the UK has suffered from a series of damaging state interventions both at the domestic level and the European level – the latest of which is the Hinkley Point project, which represents poor value for money for taxpayers.

In the post-Brexit world, this paper examines the problems caused by domestic and EU policy, and highlights the pathway that Britain should now seek to follow.

UK’s Unilateral Energy and Climate Actions

Over the past decade, UK Governments have implemented a series of unilateral decarbonisation measures, which have led to rising costs for domestic and industrial energy consumers. The primary driver of the UK’s decarbonisation policy is contained within the Climate Change Act 2008. This committed the UK to a unilateral commitment of reducing net UK carbon dioxide emissions by 80% by 2050 compared to the year 1990. There are, however, a series of other unilateral energy and climate measures that burden UK energy consumers with added costs. These include:

  1. Emissions Performance Standard (EPS): The Energy Act 2013 established the unilateral EPS to limit carbon dioxide emissions from new coal fired power stations. However, EPS sets carbon dioxide limits on what a new fossil fuel power station can emit.  The limits imposed mean any new coal fired power station is banned as it will over-emit, unless it is fitted with unproven Carbon Capture and Storage (CCS) technology. However, the limits allow new gas (CCGT) fired stations to be approved and built.
  2. Carbon Price Floor (CPF): The UK’s CPF, introduced in 2013, means that UK generators of fossil fuel based electricity pay a carbon price over three times higher than their EU counterparts under the EU’s Emissions Trading Scheme. The CPF is currently capped at £18 per tonne while the carbon price under the EU ETS is currently trading at less 5 Euros a tonne. The CPF is paid for by power plants using fossil fuels to generate electricity.

Implications for Costs…..

To meet the UK’s commitments on energy and climate change, the Government has set out renewable energy subsidy limits under what is known as the Levy Control Framework. Britain is legally bound under the EU Renewables Obligation to supply 15% of all energy from renewables by 2020; this implies that over 30% of electricity must come from renewables by 2020.  Renewable energy subsidies, which are levied onto consumer energy bills, are set to reach £7.6bn a year by 2020-21 (in 2011-12 prices). Some of the cost will be paid directly by households and some of the costs will be levied onto industry, which households will also end up paying for through higher prices for products and services.

It is also important to note that the Levy Control Framework does not include network and some other costs associated with renewables. John Constable of the Renewable Energy Foundation estimates that these costs could add £5bn onto consumer bills in 2020.

Table 1: Estimated Subsidy Payments on Low Carbon Electricity
Figures in £m and at 2011-12 prices

Source: Department for Energy and Climate Change & Renewable Energy Foundation

Table 2: Costs of the Carbon Price Floor (Revenue raised by the UK Treasury)
Figures in £m

Source: House of Commons Library
Table 3: Direct and Indirect Costs of renewables for Households (in 2020/21) [2011-12 prices]

* This relates to (a) direct costs on household bills and (b) indirect costs passed on from industry through higher prices for goods and services. £7.6bn/27m households in the UK = £281
** John Constable estimates that network and other costs associated with renewables could equate to £5 billion by 2020. £5bn/27m households in the UK = £185
*** Excludes costs of the CPF

State intervention in the energy market has increased the costs even further…

Spending caps for renewable energy subsidies have been breached in all of the past three years, suggesting that the spending cap to 2020 will also be breached, according to research by Policy Exchange. Furthermore in July 2015 the Office of Budget Responsibility (OBR) stated that the costs for renewable energy subsidies will reach £9.1bn in 2020/21, some 20% over the £7.6bn forecast cap for that year.

Perversely, lower than expected wholesale costs may lead to this situation. This is due to the way the new Contracts for Difference (Cfds) will work. Take the Hinkley Point project, for example. A Cfd is set to offer a strike price of £92.50 per MW/h, which will be index linked for 35 years. So, for example, if the wholesale price of electricity is £47.50 per MWh, the Hinkley Point plant will receive £45 per MWh subsidy. This means that if wholesale prices fall, the subsidies received by the Hinkley Point project will increase.

Table 2 highlights how DECC’s assumed pathway for wholesale electricity costs differs quite considerably from some independent forecasters. Should independent forecasters be more accurate than DECC, renewable energy subsidies will increase.
Table 4: Wholesale Electricity Price Projections
Figures are in £s per MWh at 2013 prices

Sources: DECC EMR Impact Assessment (2014) [link] Page 101; Financial Times, 22nd June 2014 [link]

However, many of the EU’s policies are contributing to energy security issues….

Although much of the UK’s poor energy policy originates from domestic legislation, there are a number of damaging EU initiatives, which have contributed the UK’s poor energy security.  In particular, EU directives are forcing coal plants to close too early and the equivalent baseload capacity is not being built, leading to a huge fall in Britain’s reliable electricity generation (see Figure 1).

Figure 1: Changes in Dispatchable generation (2010 – 2016)

Source: Financial Times, 13th September 2015 link     
The Large Combustion Plant Directive has taken nearly 12 GW of coal and oil off stream since 2012 (see Table 5). Furthermore, the Industrial Emissions Directive will see off the rest of the UK’s coal fleet by 2020-21, meaning that a further 11 GW of remaining coal will go, according to evidence given to an Energy and Climate Select Committee hearing.
Table 5: Coal Plant closures from the Large Combustion Plant Directive

Source: Department for Energy and Climate Change link

This has led to a concerning situation for the UK’s electricity security….

National Grid’s Winter Outlook 2016/17 highlights the precarious state of the UK’s electricity generating system. Provisional derated capacity margins are estimated to be 5.5% with emergency balancing measures. Without the contingency balancing reserves, de-rated capacity margins for winter 2016/17 would have been the narrowest of margins at just 0.1%.

In an attempt to prop up the UK’s baseload power capacity, the Government has introduced subsidies for baseload power plants via the Capacity Market. Unfortunately, the Capacity Market’s flaw is that it does not appear to be encouraging new gas fired power stations into the UK’s electricity system. Based on the provisional auction results from the T-4 CM auction for 2019/20, existing CCGT plants were awarded 19,242 MW and new build CCGT plants were just awarded 2,566 MW. New gas plant equated to just over 10% of the Capacity Market’s gas contracts.  The next auction to be held in December will be critical.

In its 2012 Gas Generation Strategy the Coalition Government said up to 26GW of new CCGT capacity would be needed by 2030 as coal plants and older existing CCGTs close.  But only one CCGT is under construction (Carrington – Manchester) with a capacity of just 900MW.  There should be a minimum of 8GW of new CCGT already under construction.

Be careful with interconnector policy….

The Government is keen to expand the use of undersea cables known as interconnectors to import more foreign electricity and avert power shortages at home. However, interconnectors should not be seen as an alternative to building new gas fired (CCGT) power plants.

Interconnectors will not always be able to provide the UK with the electricity it needs as supplies can be diverted to meet demand elsewhere.

Foreign electricity imported into Britain (from coal and gas plants on the Continent) will also enjoy an unfair advantage over electricity generated in Britain as the foreign generator will not have had to pay the GB Carbon Price Floor.  This raises the charge of severe market distortion and a possible Competition and Markets Authority challenge from British electricity generators.

More interconnectors will also depress the capacity market price, which would reduce the incentive to retain existing gas fired power plants and new build. In a written Parliamentary Answer in May it was announced that foreign imports of electricity have risen by 30% in just two years, highlighting a trend to rely more on imports as power plants at home close prematurely.

The new Government will need to address the growing conflict of interest relating to National Grid. This is a privately owned company listed on the stock market which owns the main national pipelines and the electricity transmission network, alongside having the responsibility for keeping the lights on and balancing the electricity network. It has huge commercial interests in boosting the import of more and more foreign electricity through undersea interconnector, irrespective of the wider negative policy implications.

The Perfect Storm

Earlier this month a ‘perfect storm’ of circumstances caused electricity prices to rise to record highs after unplanned shutdowns and the unseasonal heatwave led to a severe power crunch.  National Grid was close to having to issue an emergency ‘Notice of Insufficient Margin’ to call on extra power.  On the evening of September 14 forward electricity prices spiked from £40/MWh to £999/MWh.

A combination of very low wind output, the unplanned shutdowns of two nuclear plants, an outage with the interconnector with France and high energy demand led to this situation. This highlights the need for more baseload and peak load electricity generating plant.

Policies promoting renewables should be technology neutral and market based…

The Government should accept that intervention in the energy market is not working. The Hinkley Point nuclear power plant deal is bad value for money, and a combination of EU and domestic interventions are leading to mass closure of baseload power plants before replacements are ready. The Government is attempting to centrally plan Britain’s energy market. Market mechanisms have been squeezed out of energy policy to the detriment of consumers. The Government therefore needs to urgently review how its interventionist policies are damaging the UK’s energy policy, particularly on the carbon price floor and the promotion of renewables.

A new Energy Bill is required in a Post-Brexit Britain….

Two days before becoming Prime Minister Theresa May delivered her first major campaign speech in Birmingham. A key extract which was welcomed by consumer groups and industry declared, "I want to see an energy policy that emphasises the reliability of supply and lower costs for users".

The Energy Act 2013 is already out of date.  It was based around a flawed Department for Energy and Climate Change analysis, which assumed fossil fuel prices would continue to rise and that Britain would remain inside the EU and be bound by its directives and targets.

A new Energy Bill should take the opportunity of setting out how combining energy policy and a new industrial policy can deliver for the economy.  For years the old Department for Energy and Climate Change (DECC) denied its policies did not take into consideration the concerns of energy intensive industry and other sections of industry which rely on competitive electricity prices – to the chagrin of Industry Ministers. The abolition of DECC and the creation of a new Energy and Industrial Strategy department opens up the opportunity to deliver a new energy policy which prioritises costs, competitiveness and security of supply in the national economic interest after Brexit. Furthermore, the new Government needs to address the growing conflict of interest relating to National Grid and the growing use of interconnectors.


Daniel Mahoney, Tony Lodge and Tim Knox
Centre for Policy Studies

  1. September 29, 2016 11:32 am

    I’m currently doing some work on the ANTI-correlation between UK wind power and winter peak demand. So far, every cold spell looked at has at least one day of very small wind power at the time of the evening peak demand. The killer (literally) conditions are probably an easterly advective spell bringing Siberian air and snow, followed by anticyclonic conditions with clear skies, giving big temperature drops at night, but fear not, Oxford Uni and Ambrose double-barrel say that this does not happen.

    Wind power in winter is higher than in summer, a major propaganda soundbite for the Green Blob, but the problem is that most of that winter wind power comes during the mild, wet and stormy periods, WHEN IT IS NOT NEEDED.

    • Gerry, England permalink
      September 29, 2016 1:03 pm

      I can recall many times when the airflow stopped and the sun created a brown smog visible over London. Cold and clear. And if the stormy winds do come they will be too strong for the windmills so they get stopped – ask South Australia.

  2. CheshireRed permalink
    September 29, 2016 11:33 am

    Hi Paul. O/T but WUWT have an article on NOAA data manipulation. You and Tony Heller were miles ahead of the curve. 🙂 Right up your street. 🙂

  3. September 29, 2016 11:45 am

    At least Ontario is showing some sense cancelling a new round of renewables contracts, despite big Green pressures.

  4. Graeme No.3 permalink
    September 29, 2016 12:07 pm

    South Australia has beaten you to the blackout with the whole State dark in the evening of Wed. 29th. A lot of the State will be blacked out for weeks. An intense low pressure system arrived over the State a few hours earlier, with driving winds and heavy rain. It was variously predicted to have winds of 60-80 mph and be either “the worst for 50 years”, as bad as 1953 or 1948, so hardly unprecedented. (and after 34 hours possibly none of these).
    For once our Premier was telling the truth, probably accidentally, when he said it had nothing to do with the high level of wind generation in the State (40%) but with the wind blowing over a number (12? to 30?) of HV transmission towers, leading to a cascade of shutdowns. NOTING that the wind turbines had already been shut down because of the high winds. How he, and the leader of the Greens could conclude from that that SA needed more wind turbines to stop the shutdown is hardly proof of sanity.
    There was a black start when they started up an unused CCGT (for the second time in 2 months) with others, and from there got the OCGTs going. The Premier then compounded his stupidity by claiming that the OCGT were ‘base load’.
    Power was out for most of Adelaide for 5-6 hours, but it was difficult in one major hospital when their backup generator and then their emergency battery setup failed. Fortunately no deaths thanks to the nursing staff. Places north and west of Adelaide will have to wait on the towers are replaced.
    Then the 2 “leaders” of our federal parties opened their mouths to demonstrate that neither of them had a clue about electricity generation. So 4 out of 4 politicians know nothing but tell us how the electricity generation system should be. I am costing generators.

    • September 29, 2016 12:51 pm

      Bang on the blind leading the blind. Maybe Prof Brain Cox can give us a solution……..

      • AlecM permalink
        September 29, 2016 3:21 pm

        Cox is an eejit.

  5. September 29, 2016 12:14 pm

    “I want to see an energy policy that emphasises the reliability of supply and lower costs for users” according to Prime Minister Theresa May. What a breath of fresh air. Now if we can get Donald Trump in here, sanity may continue.

    • Gerry, England permalink
      September 29, 2016 1:01 pm

      While doing the opposite in agreeing to have the Chinese/French build the world’s most expensive nuclear power station using a technology that is not proven to work and with guaranteed unit costs that make it the most expensive electricity in the world.

      • Vanessa permalink
        September 29, 2016 1:30 pm

        This may yet fall flat on its face in the not too distant future! You may know that this technology has yet to work in France and Finland and is riddled with problems and increasing costs. We may stop it at a later date (of course having paid an enormous amount of money for the privilege!)

      • September 29, 2016 6:09 pm

        And continuing the insanity of more offshore wind farms, with the world’s largest.
        Greg Clark, the business and energy secretary, said: “The UK’s offshore wind industry has grown at an extraordinary rate over the last few years, and is a fundamental part of our plans to build a clean, affordable, secure energy system. Britain is a global leader in offshore wind, and we are determined to be one of the leading destinations for investment in renewable energy, which means jobs and economic growth right across the country.”
        Affordable and secure! I think not.

      • Gerry, England permalink
        September 30, 2016 12:53 pm

        There is still a possibility that EDF might stop the scheme if they see that it won’t be profitable for them in the future as the government fiddle around with the rules. It could be that although it has been promised a stupidly high unit price there is nothing about requiring the energy to be bought. It could be priced out of the market most of the time.

        The two things renewable energy doesn’t deliver are jobs and economic growth. It destroys both all the time other countries have cheaper energy.

  6. Vanessa permalink
    September 29, 2016 1:27 pm

    Thank you for this honest and well researched piece. It shows that we have nowhere else to go for the truth on our lack of energy and hopelessly expensive bills. Very enlightening and depressing!

  7. Coeur de Lion permalink
    September 29, 2016 2:15 pm

    Slightly worrying that all the above doesn’t discuss WHAT ITS ALL FOR. – viz the relationship between ‘global warming’ and CO2.

  8. AlecM permalink
    September 29, 2016 3:19 pm

    At the beginning of November 2001, I was on my way to Westminster Hall to hear the then Science Minister, History and Psychology graduate Lord (David) Sainsbury, talk about NuLaber’s environmental policies. Near the HoC, I was waylaid by a FoE group telling me how wonderful would be the trans-EU virtual power station, windmills replacing all the old steam turbines. I told them that to maintain grid inertia required <~20% wind and solar, and massive pump storage, with the rest being nuclear steam for CO2 abatement. The young man with whom I talked was clearly convinced I was right but was taken away for re-education by a couple of burly, technologically-ignorant FoE harpies.

    Nearly 6 years ago I warned a contact close to the heart of government that windmills could never work as planned and, furthermore, I was homing in on the physics which showed the GISS/IPCC science was wrong: no CO2-AGW problem, AGW from another source. I laid out a highly innovative Plan B to solve the UK's electrical grid problem. My contact was convinced and soon left government employ. In February 2011, the CEO of the National Grid Company warned that by 2020, with no policy change there would be no guaranteed grid supply to houses.

    We now hit the real blackout phase in which there will be substantial deaths. This winter is fairly confidently predicted to be a 1 in 50 year event, like 1962-63 (very cold N Atlantic, La Nina), the true start of a new Little Ice Age. So, we'll find that the Continent at 8 K lower mean temperatures will not export electricity to the UK. This on its own would mean power cuts in a normal UK winter. However, with heavy snow, real damp cold from November to March, and no open fires, we could get 100s of 1000s extra deaths. This failure to maintain a public utility will be a once in a Century political scandal and the government is likely to fall.

    I suspect this CPS report has been put together in haste to offer a political fig-leaf to May's new government, to allow her to blame Cameron and Lib Dems for their incompetence and snouts in the renewables' trough, and we need immediate emergency measures. I suspect de-commissioned coal power stations have been mothballed on purpose, waiting for the go-ahead now we can chuck out the Large Plant Directive, and that Plan B which will significantly cut electricity costs will be developed pronto. Watch this space…….

    PS The real problem with CO2 science is that for a Century, atmospheric scientists and astrophysicists have made a key wrong assumption about Max Planck's 1913 teachings on radiative energy transfer, plus a failure to understand that a radiometer does not measure a real energy flux. There is exactly zero mean radiative energy transfer from surface to atmosphere; it's all convective and latent heat. Real CO2-AGW would be a maximum of ~0.85 K for doubled [CO2], but it is bought back to near zero by another bit of physics the present researchers have missed. The paper will be published but because it overturns the $1.5 trillion renewables' industry, it will be blocked at every turn. Interesting times……

  9. Robin Guenier permalink
    September 29, 2016 4:11 pm

    But there’s a simple issue that’s too often overlooked: arguing about the validity of CAGW claims is an unnecessary distraction. Even if the most gruesome warnings about the dangers of CO2 were justified, there would be no point in the UK basing its energy policy on emission reduction. Indeed it would, if anything, strengthen the argument for protecting ourselves by prioritising a strong economy, underpinned by reliable affordable energy. Here’s why:

    This article was written over two years ago; but its conclusions were confirmed by last year’s Paris Agreement. Paul’s article yesterday about the trajectory of SE Asia’s emissions neatly illustrate my point.

    • Harry Passfield permalink
      September 29, 2016 7:25 pm

      Robin: “Unnecessary distraction”. Absolutely right – with knobs on. Even the people we think of as being intelligent still slip out the statement that ‘we’ need to take into account/blame ‘Climate Change’ (See any item on BBC). It is the modern-day bogey-man – but in spades. I hope I live to see the end of it. I’ve managed to survive long enough to see Brexit; Clexit might be a few more years yet.

      • Robin Guenier permalink
        September 30, 2016 7:11 am

        There’s an example in today’s Telegraph: LINK. An extract:

        An official assessment claimed the Franco-Chinese project to build Britain’s first nuclear plant in a generation represented “value for money”, despite being more expensive than gas, because it would help meet climate change targets.

        The response to this sort of thing is too often to challenge climate change claims. But, as we’ve surely learned by now, that never achieves anything – except futile argument. In contrast, the simple assertion that, whatever the science, UK action is pointless is I believe unanswerable: LINK.

  10. tom0mason permalink
    September 29, 2016 4:13 pm

    If the future is Green Energy…
    The future is cold, dark, and medieval.

  11. September 29, 2016 5:05 pm

    Alec M. The paper that you refer to in your last para. above will be published where and when.With anticipation.I always enjoy your comments.

    • AlecM permalink
      September 29, 2016 5:58 pm

      In preparation are two papers. The first was ready but I found a mistake and have corrected it; just tidying up. The second is really innovative because Planck was correct in his analysis.

      But he assumed a vacuum with what are now called photons criss-crossing, hence Goody and Yung’s bidirectional photon diffusion argument which appeared unassailable.

      However, a GHG-containing atmosphere is not a vacuum and because of self-absorption is for each such wavelength a virtual emitter acting like a mirror; wavelets combining by the Huygens-Fresnel principle into a plane wavefront for each wavelength and interface position. Then we have condensed matter emitting in the same way – the physical interface disappears in the maths!

  12. September 29, 2016 6:28 pm

    I really hope so!
    A few blackouts will quickly turn the Public against “unreliables”- and the politicians will soon follow.

  13. September 29, 2016 6:42 pm

    Has Cardinal Harrabin covered this yet?

  14. September 29, 2016 6:43 pm

    Alec M.Thankyou.

  15. September 30, 2016 3:35 am

    Reblogged this on Jaffer's blog.

  16. Max Sawyer permalink
    October 1, 2016 1:00 pm

    A high and ever-increasing price that we will all have to pay for pointless virtue signalling. Is there no hope that a UK government will ever see sense? I fear that “the green crap” is so entrenched in the minds of those who decide energy policy that even blackouts won’t effect any change – the response will be, “more green”.

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