Conservative party leaders and many of its members like to declare that they are the practical party of business.  They also are wont to declare that they are not, in contrast say with the Labour party, a party of ideologies.

John Maynard Keynes, the great economist of the 1930s and 40s, once said, “Show me a practical businessman and I will show you a slave of some outdated economic orthodoxy”.  At the time, the 1920s, Keynes had just published “The economic consequences of Mr Churchill” – who was Chancellor in the Conservative government (1925-1929) of Stanley Baldwin.

Keynes’s tract was aimed at Churchill’s decision in 1925 to tie the pound sterling to the price of gold (the gold standard) in obedience to City ideology.  This meant in practice $4.86 to the pound, its 1913 pre-war rate, a decision which, by pricing British goods out of world markets, led directly to the Miners’ strike of 1926-7 and then the General strike of 1926.  The whole motivation of the City in this regard was to tell their sterling-denominated bond holders that they were not going to lose money in dollar terms and thereby keep up sterling’s reputation for holding its value over the long term[1].  In effect they were substituting a dollar standard for the gold standard, although they didn’t recognise it as such.

This was a product of the common delusion: namely if you declare something about the economy to be true then it will be true[2].  This ideology has held sway off and on ever since, the present particularly dangerous object of delusion being around the subject of Energy.  This website contains an extensive archive on energy and techno-economic realities on the “Energy and Environment” pages and posts.  See especially “UK Energy Economy and Emissions Reductions Targets”.

Energy Illusions versus Energy Realities

Delusion No. 1: Competition can reduce electricity prices significantly

As most people except the government caste understand, the scope for electricity competition in reducing prices is very small.  The National Grid decides which power stations are to be used according to a CO₂ emissions per MWh[3] merit order moderated by costs of starting up and shutting down individual stations.

What is left for the electricity companies to compete on are:

• Efficiencies of power generation.  These are essentially determined by the original design of the power station, with perhaps opportunities for a 1%  day-to-day variation in operating costs.
• Efficiency of their billing systems, which are all much the same, disguised by different payment plans.
• Their fuel buying skills, which essentially boil down to contracts for supply of gas or coal on world markets.

All-in-all the scope for real competitive gains is very small – perhaps 1-2% on the retail price.

Hypocrisy of British Government about electricity prices

The British government’s approach to pricing is entirely hypocritical – as they are the source of the green taxes which dwarf the possible 1-2% competitive difference between suppliers.  British Gas has recently published its breakdown of the costs of all the measures which the government has imposed on industry and the consumer in pursuit of its “green” agenda.  These costs total over 10% on the average consumer’s bills.

There are three taxes in the UK imposed directly on electricity generators:

1. Renewables Obligation Certificates, which have to be bought from the electricity industry regulator, Ofgem, if the electricity company has not generated a sufficient proportion of its output from a list of qualifying “green” sources.  The actual “green” generators receive ROCs which they can sell to fossil fuel generators offshore.
2. The only serious green generator in the list below[4] is wind which is supplied by wind-farm owners at about £150 per MWh – about 3.5 times the current (3^rd October 2013) wholesale price of electricity which the electricity companies have to buy.  The cost of this is essentially a tax paid through customers’ bills.

From these two schemes of lunatic complexity, about £1 billion per annum is currently added to retail customers’ bills or 7%, which is several times the putative gains from competition between companies.

3. From April 2013, the government has brought in a third tax to be paid by generating companies proportional to the amounts of CO₂ emitted in making electricity.  The UK Chancellor, George Osborne, has fixed this at £16 per tonne, which will add £12.50 per MWh of electricity from a modern coal-fired station and £6.40 per MWh from a gas station operating a closed cycle[5] system.  These figures represent 25% and 13% of the current wholesale price of electricity, a tax which will either shut down the remaining coal-fired stations – reducing UK capacity below peak winter demand in 2016/17 (see January’s post “Wind Power’s Current Contribution to Electricity Generation” for a link to the Gridman model showing constantly updated National Grid data), or drive whole sections of British process industries out of business.  Does this mean Osborne is completely mad or just ignorant?

Delusion No 2: Taxes on Fossil Fuels will encourage a bonanza in “Green” energy[6] investments

Electricity

Apart from the odd special case[7], the only “green” contenders as serious replacements for fossil fuel-based electricity are windmills and solar panels (photo voltaic).  Electricity from these sources can be stored only in vast arrays of batteries, requiring massive amounts of wiring and cooling, so the National Grid has in practice to give priority to receiving current from these sources, which work only for wind between about 10 and 30 mph, and for solar only in daylight.  Demand for electricity in Britain for lighting and heating is however at a maximum during the short winter days, when prevailing high pressure reduces wind speeds to much less than 10 mph on occasion when the temperatures are at their lowest.

Trying to replace gas by wind and solar is simply mad.

While wind and solar can find specific applications in remote areas, distant from the National grid, 400 kVA[8] supplies, or low power applications like garden lighting, it is simply delusionary to suppose that these or any of the green alternatives can replace a significant number of the 50 odd fossil fuel electricity power stations.  Only nuclear can do that and that will take time (see “Averting Energy Catastrophe” on this website).

Fuels for transport

The equivalent of the wind and solar delusion for electricity is the biofuels fantasy for cars and trucks.  All deliveries of octane (gasoline) and diesel must now include 5% of combustion equivalent fuel derived from plants such as trees and sugar beet, or even animal fats.

The assumptions, costs and chemical processes used to convert sugar-beet into ethanol (the industry’s preferred additive to gasoline) and fats to biodiesel are set out in the paper “Alternatives to Fossil Fuels” on this website.  The principal results of this insane policy are:

1. The 20 pence fuel duty rebate on 5% biofuels added to petrol and diesel now costs the exchequer about £600 million.  The actual cost of the imported biofuels to the balance of payments is much greater than this.
2. If the whole of UK sugar-beet were devoted to ethanol, it would yield fuel for 380,000 vehicles or only 1.2% of the 2013 UK car population.  Even if all the spare arable land were converted to beet to increase this percentage, this would mean:

• Importing all the 1.3 million tonnes of refined sugar currently used in UK food production;
• Converting all four of British Sugar’s beet factories to ethanol and building another 15-20 similarly-sized factories;
• Constructing some hundreds of miles of road and rail links specifically to bring sugar-beet from existing and newly converted fields.

Why is Britain enmeshed in this cat’s cradle of regulation and fantasy?

The short answer is the UK Climate Change Act 2008, which was guided through Parliament by the current opposition leader bidding to be Prime Minister, Ed Miliband to loud applause and insistent lobbying from the “greens”.  This pernicious piece of legislation makes no mention of the paramount need to provide British industry with secure minimum cost energy – as fuels and electricity – which would allow it to compete in the world and thus sustain the living standards of the British people.  The thing about the greens is that in no meaningful way do they care a jot about the welfare of the British people as opposed to humanity in general.

The Act, on the other hand, is very big on its obligations to the EU emissions reduction targets and the supposed serious consequences of global warming.  It and the “greens” swallow whole the completely unsubstantiated claims[9] that this warming, if it exists, is due to the increase of about 100 parts per million of CO₂ in the atmosphere since the beginning of the industrial revolution.  While Britain’s contribution to world CO₂ emissions is currently less than 2%, not one member of the government which was responsible for this Act (unopposed by the present government), could tell the British people how crippling British industry with uncertain, insecure wind and solar energy would contribute to “reducing” climate change if that were indeed the Act’s objective.

What is the fundamental reason behind all this?

Britain faces a devastating series of crises, all of which have been predictable and predicted for years by this writer among (a few) others:

• Indigenous oil and gas resources decreasing from a peak of around 207 Mtoes[10] in 1999 to around 80 Mtoes today with net imports around 120 Mtoes.  This has meant a loss of production valued at around £52 billion going straight on to the balance of trade deficit.
• A greatly shrunken manufacturing sector, which while it is internationally competitive by most measures, lacks the range of products to significantly reduce the effect of the massive reduction in oil exports.  Britain’s manufacturing industry’s output is now only about 35% of Germany’s and as can be seen night after night on the TV, or in the chain stores, produces virtually no consumer products other than food and cars[11].
• A rapidly ageing population, whose demands on the country’s health service, already at record levels, can only grow.

What to do?

1          Repeal the Climate Change 2008 Act and put securing Britain’s energy supplies, and electricity in particular, ahead of all other considerations, including emissions reduction targets.

2          Abolish:

• The Climate Change Committee
• Ofgem
• Renewable Offset Certificates
• Subsidies to “green” energy
• Biofuels requirement in petrol and diesel.

3          Impose a straight forward carbon emissions tax (like the petroleum revenue tax on North Sea oil) paid directly to a new nuclear investment fund.

4          Set up British Nuclear Construction plc to construct 50 GigaWatts of nuclear electricity capacity over a 35 year period, starting now in partnership with either Westinghouse-Toshiba –  owners of the AP1000 nuclear station design[12] or the Horizon consortium[13].

5          Cease negotiations with EDF over Hinkley Point.  British Nuclear Corporation would sell/lease its reactors to the electricity companies, using the proceeds of the Carbon Emissions tax to get started.  Some of the proceeds of the new compulsory contributory pensions could be invested in BNC – guaranteed by the State.

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Notes

[1]  After the First World War sterling had traded as low as $4.25 on occasion.

[2]  We have echoes of the City’s being allowed to dominate economic decisions today.

[3]  Mega-Watt hour.  The unit of power used in charging for gas and electricity on household bills is the smaller kilo-Watt hour.

[4]  Biogas from anaerobic digestion, biomas (quick-growing wood burning), tidal power, wind power, new hydroelectric!, photo-voltaic cells (solar power), landfill gas, sewage gas, wave power.

[5]  Means some of the otherwise waste heat from the primary stage of production is used to generate electricity in a second stage.

[6]  “The Myth of Green Jobs” by Gordon Hughes, published by Global Warming Policy Foundation, London (2011)

[7]  E.g. the tidal races between Islay and the Isle of Jura and the Pentland Firth between Orkney and the Scottish mainland.

[8]  400 Kilo Volt Amps (standard for transmission over distance)

[9]  See the International Panel on Climate Change (IPCC) and the EU.

[10]  Million tonnes of oil equivalent.

[11]  See “Britain’s industrial army needs more troops” by Stephen Bush, Parliamentary Monitor, Blue Skies Supplement, June 2005

[12]  Descendant of the Pressurised Water Reactor at Sizewell in Suffolk.

[13]  Comprises General Electric of the USA and Hitachi of Japan.  GE have offered to build a commercial Fast Breeder Reactor in the UK to make usable nuclear fuel from the huge accumulated stocks of plutonium held at Sellafield.