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We need a national energy company

The problem with the fast-crumbling ideology introduced by Ronald Reagan and Margaret Thatcher is that, like ideologies in general, it is very all-or-nothing.  Just as communists see absolutely no place for private ownership in their version of utopia, so the neoliberal dream was of a society consisting solely of marketplaces.  Both, of course, are destined for the dustbin of history (the communists merely checked-out early) precisely because the real world doesn’t work that way.

There are many (most?) activities that are simply best left to free individuals and groups to work out for themselves.  Attempts at state intervention in such activities invariably result in unforeseen consequences and are generally far less effective than if the state minded its own business.  The danger inherent in this observation is that one goes full-on libertarian and demands that the state be removed from all social and economic activities (incidentally, I would have a lot more time for libertarians if their proposed cuts to state handouts started with the corporate welfare at the top rather than food stamps and pensions at the bottom).

There are simply some areas of life that are too important to be left to the whim of private markets.  Indeed, introducing market arrangements into these “natural monopoly” areas results in the creation of quasi-markets that have all of the drawbacks of both untrammelled state bureaucracy and naked market greed.

The energy system is a case in point.  It is a natural monopoly in the sense that there is but one physical infrastructure over which consumers can exercise no real choice.  That is, if I don’t like the electricity coming out of my wall socket (perhaps because it isn’t very green) I cannot plug into a different socket that receives electricity from a different grid.  Instead, I have the pseudo-choice between several billing companies who charge me according to how good or bad a deal they can strike in the wholesale market, and to what extent they can use their other business activities to subsidise consumers’ bills.

This quasi-market in energy is further complicated by a history of state intervention that has separated and separately sold off the National Grid (which is responsible for the transmission infrastructure) and a host of generating companies – from multinationals like EDF and Centrica down to individual households feeding solar electricity into the Grid.  Overseeing this mess is a regulator tasked with maintaining price competition (something it has abjectly failed to do) while exercising little control over long-term energy security.

The biggest failure with these arrangements is that politicians were left in charge of setting strategic energy goals.  This would have been less of a problem if physicists and engineers were routinely elected to Parliament, or if scientifically literate MPs took advice from these specialists.  For the most part since the 1980s, however, Britain has elected lawyers who appointed economists as advisors; with the consequence that we are hard pressed to find a single Parliamentarian who can tell the difference between electricity and magic fairy dust.

Britain’s energy predicament is similar, but more immediate, to the global predicament.  Britain build an industrial economy on the huge coal deposits beneath the British Isles.  As coal gave way to oil, particularly in the wake of the Second World War, Britain attempted to follow the USA’s economic trajectory; developing the network of congested motorways that we enjoy today.  Electricity, however, remained coal-powered until relatively recently.  The only major change being that smaller urban power plants were replaced with much larger plants outside the cities where pollution would be less obvious.  Nuclear plants were also added, but these never realised the “energy too cheap to meter” that they were sold on.

Everything changed for Britain in the 1980s when the first barrels of North Sea oil and the first cubic metres of North Sea gas arrived on the mainland.  True to type, the parliamentary lawyers and economists treated these scarce, once-and-for-good fuel sources as if they were infinite.  Gas was promoted both for household heating and cooking, and for electricity generation.  The abundant supply of gas, prior to peak production in 1999, helped to cover up the structural deficiencies in the quasi-market for energy that the lawyers and economists created. Cheap local gas supplies helped to keep prices down while allowing shareholders to enjoy large dividends irrespective of whether they invested for the long-term.  At the same time, the government – awash with taxes from oil and gas exports – could subsidise energy markets in order to make them appear more robust than was actually the case.

The problem in the early 2000s was that the amount of excess oil and gas available to the UK economy fell alarmingly.  Although Britain continued to be a net exporter of some oil and gas until 2005, the amount of cheap gas available for electricity generation plummeted.  At the same time, the amount of tax revenue available to government to use for energy subsidies also crashed.  Then, of course, came the small matter of the 2008 financial crash which plunged the British state – and thus all of us – into debt servitude for the foreseeable future.

Put simply, at a time when our ability to afford energy was falling, the cost of generating that energy was rising alarmingly.  Suddenly, profits for next to nothing were not available and government subsidies were being slashed.  And the complicating factor was (and is) simply that there is no way out of this bind.  No combination of alternatives to locally-sourced conventional coal and gas for electricity generation can be delivered at a price the economy can withstand.

To the lawyers and economists in Parliament, so-called renewables appeared to offer a solution and, consequently received a great deal of public subsidy.  Wind turbines, in particular, seem to offer a competitive alternative to coal and gas.  However, within the current quasi-market arrangements, they cannot hope to do so.

Intermittency is the major flaw with renewables.  This is not simply about the difference between night and day (for solar) or days when the wind doesn’t blow; although these are important.  As an article by Rachel Morison at Bloomberg notes:

“Britain’s gone seven days with almost no wind generation and forecasts show the calm conditions persisting until the middle of the month… Low wind power isn’t a threat to supplies in June when demand is low, but on a dull, dark day in winter, this could be a different story.”

Indeed, when the blast of Arctic air nicknamed the “Beast from the East” struck Britain in March, wind output was close to maximum; allowing National Grid to preserve short supplies of gas by closing down gas power stations.  Nevertheless, wind was insufficient; and without increased power from coal and nuclear, power outages would have been inevitable.  This is the intermittency issue that nobody wants to talk about – the need to store electricity generated in the summer months – when demand is low – for use in the winter – when demand is high.  No such storage currently exists.

To balance Britain’s intermittent electricity generation, gas, coal and even diesel power plants must be kept on stand-by.  This stand-by capacity should really be counted as part of the cost of renewables, since without it; the electricity generated is about as useful as an online account with TSB.  That is, in the 24/7 just-in-time economy we constructed on the back of fossil carbon fuels, we cannot cope with intermittent electricity.

The situation is compounded by politicians using state subsidies to pander to their particular constituencies.  Never mind that fracking, for example, is far too expensive to ever produce an economically viable supply of gas or that tidal barrages can never be constructed at a better price than an equivalent offshore windfarm.  All that matters is that energy policy plays to the ill-informed prejudices of the electorate.

In a fragmented quasi-market, this translates into a money-flow intermittency that mirrors the electricity intermittency.  Back-up electricity providers have to be paid to keep their power plants idle so that they can be available when renewables are insufficient.  Meanwhile, industrial consumers are paid to use more electricity when there is too much from renewables, and then paid again to use less when renewables prove inadequate.  This is the economics of the madhouse; and is no way offset by the relatively minor benefits of pseudo-competition.

A benefit of dispensing with the fragmented system and replacing it with a single energy organisation is that this would remove the intermittent monetary flows.  Nobody has to be paid to keep a coal or gas power plant on standby when there is too much wind, because both belong to the same organisation, and are factored into the cost of the only electricity that matters; that which is available to its consumers 24/7/365.  By removing the intermittent money flows, more rational investment decisions can be arrived at.  Fracking, for example, would only be worth investing in if the gas it produced (taking account of all of the environmental protections required) could be delivered in quantities and at a cost that is better than supplies from the North Sea, Europe and Qatar.  In the same way, fantasy renewables like the discredited solar roadway concept would always be rejected simply because rooftop solar will always provide more electricity at a lower cost.

With a single energy organisation, every offshore wind, tidal, wave and large scale solar project would have to be assessed against each other and would include the cost of the storage, back-up and transmission infrastructure required to allow them to deliver a constant flow of electricity to the end user.  Within the current quasi-market, these considerations are dismissed as “someone else’s problem.”  The company that generates wind electricity off the west coast of Scotland, for example, has no need to concern itself with the impact that its overproduction has on gas generating companies in England.  Nor is the National Grid overly bothered with the need to upgrade its infrastructure to allow load balancing on a national scale; since it gets paid for doing just that.  The true loser is the end consumer who gets to pay far more for electricity than need be the case.  As the government’s energy reviewer, Dieter Helm noted:

“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.”

For the most part, the energy debate in Britain has centred on climate change.  This has led to the delusional belief that it is possible to run a fossil-fuel economy without the fossil fuels.  However, Helm’s second object – security of supply – is by far the most urgent issue.  With North Sea oil and gas supplies dwindling fast, the UK has been obliged to compete for oil and gas on international markets that are becoming increasingly competitive due to demand from developing states (e.g. China and India) and from increasing consumption within producing states themselves.  It follows that the deployment of new technologies like wind, solar, tidal and wave are more to do with filling a looming energy gap between supply and demand than with making what is little more than a gesture toward tackling global carbon emissions.

The problem is that the economy that must provide the capital, labour, energy and resources required to plug the looming gap in energy supplies, cannot function with energy prices much higher than they are today.  On the other hand, given the current, fragmented quasi-market, energy supply companies are already experiencing profitability issues and may soon simply walk away from this business altogether.

While not a solution in and of itself, by removing many of the perverse unintended costs that arise from the quasi-market in energy, the creation of a single, national energy organisation would at least provide the basis for a rational energy strategy – one based on the full cost of deliverable electricity rather than the vanity projects dreamed up by lobbyists and politicians.  Whether that organisation is operated by the state (far from ideal) a quasi-independent agency (better) or a not-for-profit company (better) is a matter for debate; although responsibility for setting the strategic policy aims would still rest with government.

Such a body would also be far better placed to tell the truth to power; since it would be in it for the long term.  It may well be that no combination of technologies can allow the UK economy to function at the level we have come to take for granted.  Energy shortages and power outages are likely to be an increasing problem as we find ourselves ever more dependent upon other states to provide us with the energy we need.  If that is to be our future – and, barring the invention of some yet-to-be-invented energy technology, I believe that it is – then the sooner we face up to it; and develop more appropriate structures, the better our chances of mitigating its impact.

As the Carillion debacle has shown, placing strategic infrastructure in private hands for ideological reasons is a recipe for disaster when the economy is slowly collapsing.  The privatised energy companies could well turn out to be the next to hand back their franchises and dump the problem back on the public purse.  Far better to pre-empt this now than face it as a crisis later on.

As you made it to the end…

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