The Tories are stuck in a Net Zero trap of their own making

By Paul Homewood

h/t Philip Bratby

This is by Rupert Darwall in the Spectator:

 

 

With a general election due at some point in the next nine months, Sunak couldn’t resist playing politics too, accusing Labour of taking a ‘fantasy approach’ to energy security. This accusation was reinforced in a speech on the same day by the Energy Security and Net Zero Secretary Claire Coutinho. Without naming Labour, Coutinho argued that pretending ‘you can do things overnight is a fundamentally dishonest position’, referring to Starmer’s pledge to decarbonise the grid by 2030 rather than by 2035.

Having more onshore wind, as Miliband wants, doesn’t make wind intermittency disappear

But there is a fundamental difficulty with Sunak and Coutinho’s attempt to position themselves on the side of realism and honesty on this issue. They too are trapped by their commitment to achieving Net Zero. The Tories’ differences with Labour on this are mainly matters of degree. Both parties are committed to decarbonising the grid in absurdly short time scales, both pledge a massive build out of wind power that will push up energy bills and both have played down the impact of intermittent wind generation on the grid.

The fact that wind is an intermittent source of energy means that the grid can do without it, but it can’t do without fossil fuel and nuclear generation. ‘Without gas backing up renewables, we face the genuine prospect of blackouts,’ Coutinho said in her speech in a welcome statement of the obvious.

But Coutinho gets electricity generation back-to-front. Rather than gas providing backup for intermittent wind-generated power, gas-fired capacity provides the backbone of the grid and wind is a high-cost, optional extra. In essence, investing in wind requires having two parallel sets of generating capacity: one that generates electricity only when the wind is blowing and one that can generate electricity 24/7.

Coutinho’s speech last week was billed as a strategy for energy security. Any strategy worth its name includes the means of delivering its objectives, which, in this case, means building more gas-fired capacity. Energy ministers since Sir Ed Davey’s time in David Cameron’s coalition government have identified the need for more gas-fired power stations. In 2012, Sir Ed said that 20 new gas-fired plants would be needed between 2012 and 2030. ‘I strongly support more gas,’ he told the Guardian at the time.

In a 2015 speech, Sir Ed’s successor, Amber Rudd announced the government’s intention to take coal off the grid by 2025. ‘We’ll only proceed,’ she said though, ‘if we’re confident that the shift to new gas can be achieved within these timescales.’ Coal has since all but come off the grid, but hardly any new gas-fired power plants came on. In fact, gas-fired generating capacity peaked in 2012 at 37 gigawatts (GW). By the end of 2020, gas-generating capacity had fallen by over 2 GW to 34.9 GW.

Any serious energy strategy must ask why that is the case and then come up with a solution. Huge subsidies for intermittent renewable energy generation capacity mean that power stations are operated less efficiently. Meanwhile, the government’s policy of pushing up the artificial cost of carbon plunged the ‘Big Six’ energy companies’ thermal generators into loss. In 2014, the Big Six recorded losses of £1.6 billion on their gas and coal-fired power stations. As Rudd observed in 2015, ‘we now have an electricity system where no form of power generation, not even gas-fired power stations, can be built without government intervention’.

Rather than address the fundamental reasons why investors shun gas, Coutinho offered up a mishmash of contradictory soundbites in last week’s speech. Acknowledging that new gas would be permitted to emit carbon dioxide for a ‘brief window of time’, the Energy Secretary said that as more wind and long-duration storage is built, these new power stations will run less frequently. But this will make it an even steeper climb for investors to recover the capital expenditure sunk into the plants.

Furthermore, new gas power stations will be required to be ‘Net Zero ready’ when they’re built. Either they must be able to connect to carbon capture and underground storage (CCUS) or have turbines that can also burn green hydrogen. On CCUS, the government is making a £20 billion bet on what Coutinho calls ‘this game-changing technology’. CCUS needs costly pipeline and storage infrastructure, not to mention that the post-combustion removal of carbon dioxide incurs an additional energy penalty. Outside the oil and gas industry, where CCUS is used to enhance oil and gas retrieval, the technology has yet to demonstrate commercial viability and quite probably never will. Betting on silver bullets seldom turns out well.

Green hydrogen is another silver bullet that’s colossally expensive. In a 2022 report, policy expert Francis Menton went through the pie-in-the-sky economics of relying on renewable electricity to make hydrogen to burn in a gas-fired power station. To use green hydrogen to produce the same quantities of electricity as gas, you need a turbine capable of producing 288 MW, costing $305 million (£240 million), plus a supporting 4.7 GW of solar capacity – more than 16 times the capacity of the gas-fired power station – to provide electricity directly to the grid and generate sufficient hydrogen to be stored as backup. In total, this would cost $6.6 billion (£5.2 billion). By contrast, natural gas would require just the $305 million gas turbine plus $600 million-worth (£472 million) of natural gas, making a total cost of around $900m.

These numbers illustrate why the costs of Net Zero are off the charts. Yet Coutinho says the government will stand with potential investors if they avoid ‘hiking bills for families’. Similarly, the Prime Minister promises to deliver Net Zero ‘but not by piling thousands of pounds worth of costs onto households’. Both are being less than honest in their denial of a trade-off between decarbonisation and the cost of energy. Coutinho boasts that the newest auction round for low carbon energy has ‘the largest ever pot for renewables’. The word she left out is ‘subsidy’, as in ‘subsidy pot’, which is funded by painfully high and rising levies on consumer bills.

In this month’s Budget, the Chancellor has quadrupled the annual subsidy available to renewable investors after the industry complained that last year’s subsidy was not enough. Thanks to the Climate Change Act (2008) imposing on the government a legal duty to pursue Net Zero, the wind industry has ministers over a barrel. The government has ‘listened to the energy industry’, Emma Pinchbeck, chief executive of trade group Energy UK, told the FT, and Jeremy Hunt’s boost to the renewables budget had sent an ‘important signal’ to investors.

Shadow energy secretary Ed Miliband, who drove the Climate Change Act through parliament, said Coutinho was attempting to open up a culture war. Energy policy isn’t a form of wish-fulfilment. Having more onshore wind, as Miliband wants, doesn’t make wind intermittency disappear. This isn’t a dispute about culture: it’s the hard reality of intermittency that Miliband prefers to ignore.

Ironically, Miliband’s plan for a state-owned Great British Energy company presents Britain’s only realistic option to invest in new gas. Even if private investors could make the numbers add up to invest in gas, regulatory risk would have them run a mile. The government is the source of regulatory risk and is therefore better positioned to manage it than private investors. If Starmer wants to keep the lights on, the first call on Labour’s £23.7 billion green prosperity fund should be investing in a fleet of new gas-fired power stations. As Coutinho rightly says, ‘there are no easy solutions in energy.’

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