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Helm review pours cold water on fracking

Image: Paul Goyette

The big surprise in the Government’s Cost of Energy review by energy economist Dieter Helm is that fracking gets just one mention; and only then in a global rather than UK context:

“Technological change within the energy sector is profound. Fracking and shale oil and shale gas have already changed global energy markets.”

Given Helm’s well known support for UK fracking, this has to be seen as further evidence that UK government support for fracking is waning fast.

Helm continues to view gas as a “transition fuel” to bridge the gap between the closure of Britain’s ageing coal and nuclear power stations and a new low-carbon system based around renewables, biomass and nuclear.  However, there is no attempt to pretend that domestic shale gas will be cheaper than conventional gas supplies from the North Sea or imported from elsewhere in the world.

Crucially, the review finally gives voice to perhaps the single biggest barrier to the adoption of low-carbon energy technologies:

“It is not particularly difficult to set out what an efficient energy system might look like which meets the twin objectives of the climate change targets and security of supply. There would, however, remain a binding constraint: the willingness and ability to pay for it. There have to be sufficient resources available, and there has in a democracy to be a majority who are both willing to pay and willing to force the population as a whole to pay. This constraint featured prominently in the last three general elections, and it has not gone away.”

The fallout from ignoring this constraint is playing out as we speak in Australia, where there has been a large voter revolt against high green energy prices; spurred on by Trumpian outbursts from climate change denying politicians like former Prime Minister Tony Abbott.  However, the same calculation applies to all forms of energy generation.  At several points in the review, Helm is as clear as his remit allows that the Hinkley Point C nuclear plant is a complete turkey that will add unnecessary costs to energy bills for decades to come.  In the same vein, Helm will no doubt be aware of the growing investment issues affecting the UK fracking companies together with a clear government shift away from the kind of unconditional support for fracking that came from David Cameron’s government.

So while Helm does not explicitly rule out UK fracking as part of the future energy mix, he does not give it the anticipated gushing praise either.  And this is significant.  The Review is not Helm’s work alone:

“In preparing this review I have been extremely well assisted by a BEIS team, led by Jeremy Allen. He has been a great help and support, and his team have displayed all that is great in the British civil service. Particular thanks go to Harriet Arscott, Thomas Willems, Adam Bell, Andrew Robertson, Charlotte Fleetwood, and officials across the Department.”

Anyone who has ever sat on a government committee (I have sat on several) will understand all too well that among the other roles that senior civil servants have in supporting reviews is that of ensuring that the reviewer(s) do not stray too far into territory that the government would prefer they stayed away from.  To put it another way; had the government wanted a review that placed UK fracking at the centre of UK energy policy, those civil servants would have made sure Helm delivered one.

Does this mean that UK fracking is finished?  Far from it.  If – and it is a big if – the fracking companies can secure the private investment required to move from inconclusive small scale test drilling to full scale profitable gas recovery without government support, it is unlikely that the UK government will stand in their way.  But the days when David Cameron and George Osborne fawned over the UK frackers appear to be behind us.

What seems to have changed is that rose tinted spectacles fell from ministers’ eyes after the fracking industry approached them for financial support last year.  As it became clear that, aside from a handful of sweet spots, the US fracking industry was never going to turn a profit, so the fantasy that an immature UK industry could be anything other than loss-making disintegrated.  With Institutional investors like Barclays pulling their funding, and with geologists warning that the UK has the wrong kind of shale and geographers pointing out that most of it is inaccessible, the UK government looks to be turning its gaze instead to its last best hope of keeping the lights on – next generation renewables.

That the Helm review has turned out to be a proposal to create a market place that allows the development of renewables, smart regional and national grids, and the research and development of storage technologies, gives the lie to the idea that gas has more than a secondary part to play in Britain’s energy future.  While in the short term we will continue to utilise North Sea gas and gas imported from elsewhere in the world, it seems increasingly clear that UK hydraulically fractured shale gas is not going to be part of even that energy mix.

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