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Nobody could have seen it coming

Eighteen months ago, the UK average annual combined gas and electricity bill was £1,287.  Later this week, we expect to learn that it will rise to £3,582 in October and to £4,266 in January 2023.  Not, in reality, that anybody is going to pay that amount.  All but those at the very top of the income ladder will instead cut back on energy use, with those at the bottom forced to self-disconnect.  The problem is far worse for business users, who are not “protected” by the price “cap” imposed by the regulator.  Energy is often the third largest cost – after wages and taxes – to businesses which have already been struggling with higher input and debt-servicing costs.  What this is pointing to is a major affordability crisis this winter, with growing concerns for public health and the likelihood of a recessionary wave of business insolvencies.

As with the 2008 crash, the Versailles-on-Thames establishment are keen to point out that “nobody could have seen it coming.”  After all, “Putin’s invasion of Ukraine,” coming just as the economy was staggering out of a two-year pandemic – itself arriving just months after the UK finalised Brexit – amounts to a combination of events which would have been considered outlandish in a work of fiction…  except that a work of partial fiction – a docudrama – accurately set out the main causes of the UK’s current energy woes eighteen years ago.

In 2003, BBC programme makers began work on a series called “If… ,” which aimed to explore the future crises which required political leaders to act immediately, using drama to make the point.  The three series, which were broadcast between March 2004 and May 2006, tackled issues like the impact of obesity on public health, the growing disparity between rich and poor, and intergenerational conflict between the boomers and millennials.  The final programme even examined issues around peak oil.  But it is the first of these docudramas – If… The Lights Go Out – which gives the lie to the claim that nobody could have seen Britain’s current energy woes coming.

The programme makers were not clairvoyant, and so could not have foreseen the exact cause – sanctions – of Russian gas supply disruption.  But they were fairly close – the programme begins with a terror attack on the Vyborg terminal of what was then only the proposed Nord Stream One pipeline.  But it was obvious enough to anyone paying attention back in 2004, that policy decisions made since the privatisation of electricity in 1990 had left the UK increasingly vulnerable to disruptions in its supply of gas… and that, in the future, this meant the pan-European supply of gas from Russia.

Central to the crisis anticipated in the programme is the hubris involved in the ideologically-driven attempt to create a competitive quasi-market out of a natural monopoly.  A natural monopoly exists where there is an absence of real competition because consumers have no real ability to choose.  Like railways and water, where we have no choice about whose pipes or tracks we use, we all receive our electricity and gas down the same wires and pipelines.  The quasi-market is created by separating the billing company from the physical grid, the generators and the coal, oil and gas extraction companies.  The billing companies then compete in the quasi-market by attempting to bid down the wholesale price, with the regulator ostensibly acting to maintain competition in order to lower prices, but somehow always allowing the companies to make higher than inflation profits… even during recessions.

The result, set out in the programme, is that all of the actors in the quasi-market – including the regulator and the state – are focused on short-term competition rather than longer-term energy security concerns.  Physics plays a role in this, since profits are made during peaks in demand.  But the coal and nuclear plants cannot ramp generation up and down rapidly enough to take advantage.  The result is that both were increasingly unprofitable within a system focused on short-term wholesale prices.  Gas, on the other hand, is an ideal fuel for capitalising on the moment-to-moment fluctuations in supply and demand.  And so, while coal and nuclear plants were closing, a new generation of combined cycle gas power stations were popping up across the UK… and why not?  In 2004, the UK was still a net exporter of gas.

The gas issue was made worse by the Blair government enacting the “Renewables Obligation,” which:

[Placed] an obligation on licensed electricity suppliers in the UK to source a [growing] proportion of their supply to customers from eligible renewable sources.”

At a time when just a fraction of UK electricity was generated with Non-Renewable Renewable Energy-Harvesting Technologies (NRREHTs) this was regarded as a general good insofar as it addressed climate issues while subsidising a leading-edge industry which would eventually offer electricity too cheap to meter because sunlight and wind are, for all practical purposes, infinite.  But, as experts interviewed for the programme make clear, the intermittency of wind and solar means that the greater their use, the more they render coal and nuclear unprofitable and, more importantly, the more dependent they leave us on imported gas to keep the lights on. 

In the programme, the crisis arises with wind accounting for just ten percent of electricity – today it is nearly thirty percent.  Coal back-up has disappeared almost entirely – just two plants in the East Midlands remain for use in emergencies (although Drax could return to burning coal if only there was coal available).  And as predicted in the programme, nuclear was allowed to fall from some 25 percent to just 15 percent of UK electricity, as older plants were retired and politicians dithered and failed to approve the building of new ones.  So that, even as the UK opened some of the largest offshore wind farms on the planet, it became increasingly dependent upon gas and – also alluded to in the programme – imports from continental Europe.

Perhaps to evade EU state aid restrictions, the Blair government added the cost of NRREHTs as a regressive flat rate tax within the standing charge for electricity – the amount we pay irrespective of our usage.  This gave renewable energy generators an advantage which could never have existed in a truly competitive market.  Worse than this though, the Blair government created a system which allowed renewable energy generators to avoid the full cost of supplying “firm” renewable energy.  This not only had detrimental short-term effects – coal, gas and nuclear were made to pick up the cost of intermittency – but it removed the incentive that renewable energy suppliers would otherwise have had to invest in energy storage solutions.  In short, there was no penalty on NRREHTs suppliers when the wind didn’t blow, and the sun didn’t shine – they got their subsidies anyway.  Meanwhile the higher cost of balancing intermittency with coal, gas, nuclear and/or imports was passed on to consumers who had few ways of avoiding them.

No matter how much the state and the regulator attempted to encourage consumers to play the quasi-market game and switch suppliers to save money, a combination of inertia and the underhanded methods of the energy supply companies meant that some sixty-percent simply stay with the same supplier.  Those making a switch generally do so to get a cheaper deal or to lock in a price.  However, the run of energy supply company bankruptcies, which began long before the pandemic, raised the risk of losing the supplier and being put onto the highest tariff of another company.  Moreover, cheap introductory offers are only available to customers who set up direct debits, which energy companies have exploited by taking far more money than customers owe.  In theory, customers can claim this money back, although in practice companies cajole people into accepting a rebate on future bills.   This combination has led to a large drop in the number of people now switching suppliers… not least, one suspects, because people struggling to pay their bills need to be in a position to pay only for what they use, even if that comes at a higher price than the nominal price of a direct debit deal which, in practice is more expensive in the short-term.

In short then, switching – the central component of the quasi-market – largely failed to bring about the supposed benefits of a private energy system, even as all of the design flaws (features?) of electricity supply discussed in If… The Lights Go Out, have returned to bite the UK in spades.  Nor is it true to say that the crisis is the result of events following the pandemic and the economic war against Russia.  In fact, the first crisis of the kind envisioned in the programme hit Britain on 9 August 2019, when bad weather took out the giant Hornsea offshore windfarm.  Backup gas power stations which should have balanced the intermittency failed to kick in.  And the resulting drop in frequency across the Grid forced a shutdown of supply to much of eastern and south-eastern England.  The one saving grace being that unlike in the programme, the power outage occurred on a balmy August evening rather than at the depths of a sub-zero December night.  We are unlikely to be so fortunate in the coming winter.

My reason for drawing attention to the programme – which was made back when the BBC was something other than a neoliberal propaganda outlet – builds upon the points made in my previous article.  While declining surplus energy and, indeed, some energy shortages, have been an issue since the peak of global oil production in November 2018, these are not primarily why the UK is facing its energy crisis this winter – even though it will need to learn lessons quickly if it is to mitigate global shortages which will gather pace over the coming years.  Rather, almost all of the immediate crisis is the result of hubristic and plain stupid policy decisions whose inevitable consequences were so obvious to anyone paying attention that it was simple enough to create a dramatization of exactly the crisis we face this winter.

In a parallel universe, the UK might have been a little less gung-ho about switching to wind power before anyone had the first idea how to balance the intermittency.  We might, instead, have followed the French example and generated a larger part of our low-carbon electricity from nuclear.  We might have accepted that – as China and India have so obviously done – that we needed some coal at least until the intermittency issue had been addressed.  And insofar as we ended up using gas as a cleaner fuel than coal, we might not have taken the insane decision to close the Rough gas storage facility, thereby leaving us vulnerable to the volatility of the overnight wholesale market.  What our leaders might, perhaps, be forgiven for, is not anticipating the insane decision of the EU technocracy to disconnect itself from its main supplier of gas.  Britain’s leaders had operated under the assumption that continental Europe would always be able to provide us with some of its excess electricity for when the wind isn’t blowing here.  Instead, our North Sea gas producers are selling gas to European countries who can pay more for it than we can.

Done differently, Britain would still be facing an energy security problem resulting from declining energy production and the remorseless fall in surplus energy.  Nevertheless, had we not made the mistakes set out in If… The Lights Go Out, we would have been in a much better position to face that crisis.  Instead, our economy is collapsing in the face of an energy price-induced recession that we are powerless to prevent.  At the same time, as the majority of households are forced to rebalance their spending, with those at the bottom having to choose between food and heat, public health experts are warning of mass hypothermia and malnutrition, and politicians are encouraging us to forego warm showers and domestic heating in favour of old flannels and covid super-spreading “public warm spaces.”

Social solidarity was always a necessity for getting through the long-term surplus energy crisis.  What a revisiting of If… The Lights Go Out helps to reveal is that by putting short-term self-interest ahead of long-term survival, we blew it.  It is hard to see any harmonious path through a crisis which has been accelerated in recent years.  Instead, the vision of guillotines on Parliament Green comes into ever sharper focus as those at the top continue to ignore and misunderstand the depth and seriousness of the crisis before us.

***

At the time of writing, If… The Lights Go Out was available on YouTube in two parts, here and here.

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