The UK energy picture

In 2002 total inland energy consumption in the UK was 229.6 million tonnes of oil equivalent (mtoe). Nuclear contributed 21.3 mtoe to the total. Renewables and energy from waste accounted for a mere 2.7 mtoe (UK Energy in Brief, DTI, July 2003). Is it fantasy to support that renewable energy sources could equal, even exceed, this capacity without help from nuclear? This is a key question since the Energy White Paper of February 2002 put nuclear on hold pending a demonstration that renewables could fill the void left by the decommissioning of the present cluster of nuclear facilities.

The government has declared a target of 10.4 per cent for renewables by 2010 and an aspiration to achieve 20 per cent by 2020. The 20 per cent figure is significant since it represents the limit at which the present structure of the grid can accommodate small-scale and intermittent suppliers. Beyond this percentage the grid would have to be reconfigured to encompass extensive distributed generation, as recommended by the Royal Commission on Environmental Pollution (ibid., p. xi).

As far as the major power distributors are concerned, the 20 per cent threshold may well be regarded as the 'red line' beyond which they will be forced to run on less than full capacity, at the same time compensating for fluctuations in the supply from renewables. According to Hermann Scheer this would threaten the long-term ambitions of the power industry which sees the prospect of ultimately controlling information transmission as well as energy. 'They hold all the cards they need to construct a comprehensive commodity supply and media empire' (ibid., p. 60).

One of the key factors favouring the big suppliers is the web of direct and indirect subsidies which the industry enjoys such as the fact that its raw material is regarded as being a free gift from nature. Only now is it being widely realised that reserves, apart from coal, will be exhausted sooner rather than later.

At the same time the market pays scant regard to its environmental responsibilities, especially that of driving up global warming. The European Commission's ExternE project has sought to quantify the externalities. For example, it concludes that the real cost of electricity from coal and oil is about double the current economic cost to the producers. For gas generated electricity the shortfall is about 30 per cent. The New Elements for the Assessment of External Costs from Energy (NewExt) is refining the methodology to provide more accurate information and was due to report in 2004. The results should make it possible more accurately to calculate life-cycle environmental costs.

Government claims that energy suppliers operate within the framework of a free market and on a level playing field is based on flawed economics. The anomaly is that the cost-benefit system employed here ignores the element of risk. For some reason energy is not subjected to the normal rules of financial risk assessment in determining the market value of the commodity. Never has it been more apparent that oil and gas are high risk commodities that can have a powerful negative impact on the Stock Index due to price volatility.

In contrast, renewables, being relatively high capital cost but low running cost technologies, are not nearly so affected by macro-economic shifts such as the international price of oil or the Stock Index. Repayment of capital and operating costs are largely fixed and so represent a low risk. The problem is that renewables with their high investment costs violate one of the founding laws of accountancy that investors want a high return on capital in the short term.

This is the market situation in which renewables have to compete and it constitutes a sharply tilted playing field in favour of the fossil fuel industries. We have the bizarre situation that a highly subsidised, highly polluting, high risk energy stream is stifling the almost zero risk renewable systems that draw on solar and lunar energy and are therefore not reliant on a continual input of an extracted fuel. This is clearly an abuse of the term 'free market'. If the contours of the energy playing field really were level, then renewables would offer excellent investment opportunities.

Since it seems inevitable that renewables will have to fight their corner in a free market for an indefinite period, then these anomalies must be corrected if a decarbonised electricity infrastructure is to be a reality.

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