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« Close down DECC | Main | DECC's new adviser »
Thursday
Oct022014

The underpinning of energy policy collapses

UK energy policy has one key predicate, namely that fossil fuels are going to get inexorably more expensive. This is, not to put too fine a point on it, the sine qua non of the whole renewables programme. Renewables, we are told, will save consumers money, and only if we dig much deeper might we discover that in fact we are actually being told that renewables are being forecast to be cheaper than fossil fuels in the future.

For years that forecast has looked ever more implausible, as all around us a revolution in unconventional oil and gas has caused fossil fuel prices to fall. Now, finally, the government has been forced to respond and to reduce its forecast prices.

Burning gas for power is currently far cheaper than electricity from wind farms, which receive billions of pounds in subsidies from consumers.

Yesterday however the Department of Energy and Climate Change released new forecasts slashing its power and gas price forecasts for later this decade by as much as 20 per cent.

But ministers have repeatedly argued that gas prices will keep on rising, eventually making green energy good value for money.

This is a bit of a nightmare for the greens in government, and it is hard to imagine that the government and its advisers are not going to have to reassess the whole renewables programme. No doubt it is not beyond the wit of the bureaucrats in DECC to come up with some plausible explanation of why renewables will get much cheaper in the future, but it will be interesting to see just how much they have to wriggle first.

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Reader Comments (33)

I don't think Mr Davey will accept reality. He hasn't so far.

Oct 2, 2014 at 9:57 PM | Unregistered CommenterSchrodinger's Cat

Green energy might have claim to "good value" if it could function without subsidies.

Oct 2, 2014 at 10:00 PM | Registered Commenterjamesp

Hopefully, the price differential and continuation of the temperature hiatus will put pressure on the ludicrous 80% reduction in emissions. However it will need a significant change in political attitudes to get a sensible policy. Don't hold your breath.

Oct 2, 2014 at 10:06 PM | Unregistered CommenterSchrodinger's Cat

Diesel down to £1.28.9 at my local station today - :)

Oct 2, 2014 at 10:14 PM | Unregistered CommenterMartin

What a pathetic excuse by the green blob spokesman at DECC

He denied that the forecast revision undermined the case for green energy.

“We have a legally binding target to reduce our carbon emissions by 80pc by 2050. It’s not possible to achieve that without a diverse energy mix that includes renewable sources like wind and solar, which work alongside new technologies like carbon capture and storage that ensure we can continue to use fossil fuels in a cleaner way," he said.

“Home-grown energy produced by renewables is also not subject to volatile international events that disrupt global oil and gas markets and the transport networks that supports these fuels.”


Get rid of the 2050 target you moron - and get rid of yourself while you are at it.

Oct 2, 2014 at 10:18 PM | Registered CommenterPhillip Bratby

Hence greens vitriolic opposition to fracking. It's little or nothing to do with the process itself and much more to do with the fact that a successful UK shale gas industry would make renewables look absurdly expensive by comparison. Consider the implications and lost opportunity of their 40 year long anti-nuclear battle and now look how they're repeating the idiocy with gas.

Oct 2, 2014 at 10:22 PM | Unregistered CommenterCheshirered

Don't we have commitments to the eu under the Renewable Energy Directive? My understanding is that these are binding?

http://en.m.wikipedia.org/wiki/Renewables_Directive

http://www.euractiv.com/energy/eu-renewable-energy-policy/article-117536

However the REF think we are in good shape on this one, so perhaps there will be some wriggle room after all...

http://www.ref.org.uk/publications/313-progress-towards-the-2020-renewable-electricity-target

Oct 2, 2014 at 10:23 PM | Unregistered Commenternot banned yet

- Renewunables are not likely to become magically cheaper than easily available fuels in the Middle East where extraction costs are close to zero. If world energy prices dropped due to some renewables tech innovation then the logical oil shiek would simply drop his price below that of the new competitor rather than leave it in the ground.

Oct 2, 2014 at 10:24 PM | Registered Commenterstewgreen

From the Torygraph's article:

"Gas forecasts published last year suggested prices rising from 66.7p per therm in 2014 to 73.8p in 2020."

Nowt like trying to confuse the public with a unit of energy that was displaced 20 years ago.

At only 0.000667p/Btu that seems like a bargain.

For the past two decades, gas has been billed at p/kWh, and there's 29.3 of them, per therm.

Oct 2, 2014 at 11:00 PM | Unregistered CommenterJoe Public

Julian Simon's style of betting still seems to be the winning option: he bet on human resourcefulness, and he won. One day, they will teach his stuff in schools. Or so I dearly hope.

Oct 2, 2014 at 11:08 PM | Registered CommenterJohn Shade

Reality blows down the windmills.

Oct 2, 2014 at 11:34 PM | Unregistered Commenterhunter

This is a bit of a nightmare for the greens in government, and it is hard to imagine that the government and its advisers are not going to have to reassess the whole renewables programme.

I disagree. A fall in wholesale price forecasts will motivate greens in Westminster to argue that fossil fuel taxes can rise to take advantage of that increased headroom. Simply put - that a fall in wholesale prices shouldn't translate to a fall in consumer prices. There will be some in Westminster who support it for green reasons. There will be many more who will support it for tax revenue reasons.

Oct 2, 2014 at 11:43 PM | Unregistered CommenterGareth

“Home-grown energy produced by renewables burning cow dung is also not subject to volatile international events that disrupt global oil and gas markets"

There's a reason we put up with a bit of volatility in using gas. It's because gas is cheap and easy to store and use. Nothing else comes even close.

Advocating something very expensive on the basis that it reduces volatility is pathetic.

In fact, as we know, all renewables are intermittently produced. The only reason their price doesn't spike wildly is because they are subsidised to an even rate. Remove the subsidy (and the requirement to purchase) and the volatility in their price would be horrendous. At least gas only spikes on the time scale of weeks and months, and slowly by comparison.

Oct 3, 2014 at 12:20 AM | Unregistered CommenterMooloo

On the subject of renewables and fracking, have a listen to this conversation on BBC Radio Ulster (from the 42:52 mark and available for another 6 days on BBC iPlayer):
http://www.bbc.co.uk/programmes/b04j9y5z

One guest is Nick Grealy of the No Hot Air blog - and he comes across as having reason and the facts on his side. The other guest is - well, the kindest way of putting it would be that she is away with the fairies.

Oct 3, 2014 at 12:33 AM | Unregistered CommenterAlex Cull

It is not quite as Andrew says.

As Andrew says, what matters is the relative price of fossil v renewable energy. Which is cheaper, wind or gas?

The gov't projections (and much of the EU and UN literature) assume that technological progress in renewables is faster than in fossil energy. This rests of the presumption that renewables are a novel technology and fossils are a mature industry.

That presumption is false. The costs of wind power are not falling nearly as much as was (is) assumed in the models, because the basic design has been around for a long time. There are some gains from control technology and novel materials, but that's about it.

Oil and gas, on the other hand, are making great strides.Multiple drill heads, vertical drilling, 3D seismic imaging, fracking were all unheard of not too long ago and have dramatically reduced the cost of reaching resources that were dismissed as science-fiction 20 years ago.

The presumption that renewables progress faster than fossil fuels, goes back to some dodgy research in the early 1990s by people who are at the heart of the IPCC and the European Commission.

Oct 3, 2014 at 6:33 AM | Unregistered CommenterRichard Tol

The real issue is that windmills plus diesel STOR uses more fossil fuel input per kWhr real energy displacement from th Grid than coal fired power stations. CCGTs are still more efficient and domestic CHP is the most thermodynamically efficient of all on a per heat + electrical basis.

Remember: these fascists are insisting on all windmill power for the heat as well, via heat pumps. Use a fuel cell to power the heat pump and the saving of gas is 70% or so.

Oct 3, 2014 at 7:31 AM | Unregistered Commenterturnedoutnice

Gareth has it right. Gas price reductions are opportunities for green tax increases and nothing more.

Additionally the great thing about being green and in government is that you don't have to face up to reality. It really is that simple!

Mailman

Oct 3, 2014 at 7:42 AM | Unregistered Commentermailman

"He denied that the forecast revision undermined the case for green energy."

Well it would do, had there been a case to begin with.

“We have a legally binding target to reduce our carbon emissions by 80pc by 2050. It’s not possible to achieve that without a diverse energy mix that includes renewable sources like wind and solar,..."

Yes it is, you just have to go nuclear.

"... which work alongside new technologies like carbon capture and storage that ensure we can continue to use fossil fuels in a cleaner way," he said."

Non of these so called technologies actually exist yet and probably won't exist ever, I think you might find that this poses a problem.

“Home-grown energy produced by renewables is also not subject to volatile international events that disrupt global oil and gas markets and the transport networks that supports these fuels.”

It is, however, subject to the vagaries of the weather, which in the UK is just as unpredictable as world events.

Oct 3, 2014 at 7:55 AM | Unregistered CommenterStonyground

Thanks for that link, Alex. Isn't this so drearily familiar? The sane logical and well informed person versus the fanatic spouting her passionate denunciations. Trouble is because she is convinced she sounds convincing especially to the BBC, whereas Nick sounds a little hesitant, no doubt because he is concerned to be accurate and truthful - not something that worried Diane whatever her name was.

Oct 3, 2014 at 8:13 AM | Unregistered Commentermike fowle

No problem - It just shows that more government intervention and regulation is needed to direct things in the right direction. Such as more fossil fuel taxes and windfarm subsidies, as a temporary measure, until gas prices go up and wind costs come down, which we know will happen very soon, because our models say so.

Oct 3, 2014 at 9:04 AM | Registered CommenterPaul Matthews

Wind is free and if it is cold it is because all the trapped heat is in the bottom of the ocean.. Arch has nobody read contemporary science here?

Oct 3, 2014 at 9:32 AM | Unregistered Commenterptw

Which all reminds me of a piece in the DT the other day, trumpeting how Solar is competitive with fossil fuels "already" and getting better all the time etc etc.

Read the small print and the actual case is that (subsidised) Solar is competitive on top-line figures with (heavily taxed) fossil fuel.

A bit like saying my Rolls-Royce costs no more to run than your Ford Fiesta (whispers...) because I've just imposed enormous artificial extra costs on Ford Fiestas.

(For the avoidance of doubt, I have a Fiesta not a Rolls ;-)

Oct 3, 2014 at 10:09 AM | Unregistered CommenterAndrew Duffin

Joe Public:

Don't decry the therm (100,000Btu). In the most competitive markets gas is priced per MMBtu (Million Btu), usually in dollars. Just as we continue to price crude oil in US barrels (wholesale oil products are mainly priced in $/tonne outside the US, where the US gallon still prevails).

http://www.timera-energy.com/wp-content/uploads/2014/08/LNG-prices-Aug14.jpg

Oct 3, 2014 at 10:27 AM | Unregistered CommenterIt doesn't add up...

What is the real oil price trend ? anyone got an inflation adjusted graph ?
In quasi-ponzi markets there are 1000 people telling you that prices will go up and only 1 mug like me saying they could go down. So on the net and places like Wikipedia all graphs seem end at the point from 3 years ago so they are upward pointing.
- and it's no use looking at normal price graphs, $40 in 1979 is equivalent to $113 today ..so you need an inflation adjusted graph.
" past performance is not necessarily a guide to future ... The value of anything can go DOWN as well as UP" ..we know predicting is a mugs game
- The 5p petrol price drop 2 days ago was a big surprise to most of us .. Like the Middle East is at war, Russia is at war and the world is coming out of a slump ..you wouldn't expect the price to be be dropping.
- Seems to me in REAL terms (inflation adjusted) oil peaked in 1979, then a spike in 2008, climbed back up steadily..then 2011 steady decline for 3 years..now suddenly steeper decline
UG gov data graph (set graph on imported crude,monthly, pull slider back to 1974)
- Bear in mind
for the US falling prices are GOOD ..for industry
for the US falling prices are BAD .. it's world's largest oil producer ..so there'd be less oil tax money to fund subsidies to windfarms, electric cars etc.

Oct 3, 2014 at 10:56 AM | Registered Commenterstewgreen

“We are being ripped off by incompetence in Government and a desire to make excess profits in the industry," Mrs Hodge said.
.. Jeez that is Margaret Hodge of LABOUR coming out strongly againsts the eco-nutters !
Ed Davey, the energy secretary, said: “To keep the lights on in British homes and businesses we needed to move quickly to secure new capacity and give investors confidence - fast.”
..Poor guy, we needed to move fast to keep the lights on, so we signed up to intermittent unreliable option and way overpaid ... I pity him

Oct 3, 2014 at 11:27 AM | Registered Commenterstewgreen

@ It doesn't add up... Oct 3, 2014 at 10:27 AM

"Joe Public:

Don't decry the therm (100,000Btu). In the most competitive markets gas is priced per MMBtu (Million Btu), usually in dollars."

I wasn't decrying our dear old 'Therm'; and, wonder what would have happened to the name of the British Thermal Unit if Scotland had seceded.

UK energy/fuel bills benefit by showing a consistent unit - the kW - the public then have a direct comparison of how much more expensive electricity is, compared with natural gas.

On a lighter note WikiP helpfully explains some opportunities for confusion:-

The unit MBtu or mBtu was defined as one thousand BTU, presumably from the Roman numeral system where "M" or "m" stands for one thousand (1,000). This notation is easily confused with the SI mega- (M) prefix, which denotes multiplication by a factor of one million (×106), or with the SI milli- (m) prefix, which denotes division by a factor of one thousand (×10−3). To avoid confusion, many companies and engineers use the notation MMBtu or mmBtu to represent one million BTU (although, confusingly, MM in Roman numerals would traditionally represent 2,000) and in many contexts this form of notation is deprecated and discouraged in favour of the more modern SI prefixes. Alternatively, the term therm may be used to represent 100,000 (or 105) BTU, and quad for 1015 BTU. Some companies also use BtuE6 in order to reduce confusion between 103 BTU and 106 BTU.[8]

Riiiiight.

Oct 3, 2014 at 11:45 AM | Unregistered CommenterJoe Public

Richard Tol:

The presumption that renewables progress faster than fossil fuels, goes back to some dodgy research in the early 1990s by people who are at the heart of the IPCC and the European Commission.

"Renewables progress" a very unfortunate phrasing there, Richard.

Yes, it is all "dodgy research" indeed.

But imho the origin of this doom mongering ethos, a type of groupthink - and mentally incontinent at that - of 'finite resources' bunkum goes back further than that. Back, to some dodgy global cabal of nutters self anointed patriciate circa 1968 called, 'The club of Rome'.

Oct 3, 2014 at 11:58 AM | Unregistered CommenterAthelstan.

Joe Public:

Unfortunately the British people have little idea that the gas price they pay is more than twice the wholesale price, now that their bills no longer price in the same units as the wholesale market. It's a gargantuan markup. Obfuscation in electricity pricing is of course even worse, as is evident every time there is an opinion poll on what energy sources should provide our power. Of course, that's because it is illegal for OFGEM to reveal the true cost of greenery, thanks to Miliband's 2010 Energy Act. I wait with baited breath to see whether the referral to the Competition and Markets Authority will see the veil lifted - at least they aren't statutorily compelled to lie.

Oct 3, 2014 at 1:30 PM | Unregistered CommenterIt doesn't add up...

There seems to be a feeling afoot in Europe that all we need is smarter grids and better carbon markets. It would be nice if they considered the possibility that maybe that won't be enough; a plan B in other words. Having just looked at the European parliament, seemingly dominated by green-dreamers, berating the Energy commisioner-delegate about his evil fossil fuel connections, his cutting of unsustainable green subsidies in Spain, and his apparent support for evil fracking. I am not confident that common sense will break out in Europe or the UK any time soon. We are on our own.

Oct 3, 2014 at 1:31 PM | Unregistered CommenterJamesG

I have just renewed a gas supply contract for commercial premises. The new price is 6.5% lower than the price set 2 years ago. The pricing information includes a Climate Change Levy - which seems to be working as climate has completely stopped changing.

Oct 3, 2014 at 1:32 PM | Unregistered CommenterBusiness as Usual

@ It doesn't add up... Oct 3, 2014 at 1:30 PM

"....the British people have little idea that the gas price they pay is more than twice the wholesale price, ........... It's a gargantuan markup."

Knowing a little about the gas distribution system, the gas industry, its obligations, and its performance, I consider you're a little harsh in describing the mark-up as 'gargantuan'.

Can you name any other commodity which is supplied on a 'Just in time' basis with near-as-dammit 100% reliability? Irrespective of the weather, the market, the competition.

Certainly not electricity.

2. Can you name any other product which is significantly cheaper to use than ALL its competitors in a wide range of applications, yet has the advantages of #1 above?

3. That mark-up helps cover the cost of providing & maintaining infrastructure that cost £billions; and, the obligatory 'safety' services.

4. Visit your local supermarket and enjoy their BOGOFs. They can only provide a BOGOF is their mark-up is about +150% - 200%; and, their BOGOFs are short term.

Apart from those facts, yes, annual fuel costs are bloody expensive. But they'd be a damn sight worse for any other fuel.

Oct 3, 2014 at 9:17 PM | Unregistered CommenterJoe Public

Brent crude down to $92.2/barrel - and still falling in big chunks..

Unleaded at my local Tesco now 126.9p/litre..

All of which , I agree, could well give the 'pollies' the opportunity to increase fuel taxes - I mean, we've been told that the era of cheap energy is 'over' enough times, haven't we..?

Just a point about the endless pronunciations from the government about our 'legally binding' target of 'reducing carbon emissions (whatever they are) by 80% by 2050..'
What happens if the government doesn't achieve this reduction..? Fine itself..??

Oct 4, 2014 at 2:08 PM | Unregistered Commentersherlock1

One dog that has yet to bark.....when will lower oil prices feed through to lower gas prices for consumers - and indirectly to lower electricity prices via lower gas costs for generators?
"Long-term contracts, linked to oil prices" is one of the standard justifications for the behaviour of gas prices. Apparently oil prices are down by about 20% from their recent peak. Anyone seen any knock-on reductions in gas pricing?
Thought not.

Oct 6, 2014 at 5:16 PM | Registered Commentermikeh

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