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UK Energy Policy - far-sighted or misguided?

Oilfield Technology,

The 2008 Energy Act re-calibrated UK energy policy toward a low-carbon future through a re-configuration of the electricity generating infrastructure but the full cost implications of this far-reaching policy change have become apparent to electricity users only recently. In essence, low-carbon electricity supplies are only possible with a complex architecture of guaranteed minimum prices that could increase overall electricity prices by up to 75% over the next 11 years. This suggests that the recent adverse publicity suffered by energy suppliers may be misplaced since it is UK government policy that is the key driver in electricity pricing and will become more so in the coming decade.

Laudable goals for a meaningful reduction in UK carbon emissions would be worthwhile if such policies were adhered to by the entire global community but for all the good intentions of the UK and its European partners, such an outcome appears little more than a pipedream. Put simply, efforts by the UK to ‘go green’ will make a negligible difference to global emissions while risking widespread fuel poverty for domestic consumers and unsustainable cost burdens for industry, with inevitable consequences for employment. It is time for politicians of all hues to come clean with the public and lay out the facts:

The global carbon picture

Figure 1 provides a stark illustration of the world’s ‘carbon culprits’ with three countries, China, US and India accounting for 50% of global CO2 emissions. The energy to support China’s economic transformation in particular over the last 10 years has required the addition of 580 GW of coal-fired electricity, equal to c10% of global capacity or 7 times total UK capacity and the 9.8 billion tonnes of CO2­ emitted by China in 2012 was more than 20 times UK emissions. These statistics demonstrate that a wholesale shift to renewable energy for the major economies is impossible in the foreseeable future without catastrophic consequences for global growth. However, replacement of the world’s coal-fired power stations with natural gas would reduce global carbon emissions by an estimated 17% and with potential global reserves equal to more than 250 years of current demand, natural gas could provide an affordable and effective transitional solution to the carbon challenge.

Figure 1. Graph of global CO2 emissions.

The UK national picture

Current UK energy policy seeks to treble the share of renewables in electricity generation from 12% in 2012 to 36% by 2020, as shown in figure 2. However, with renewable load factors of only 25 - 35% and an EU-mandated shutdown of most coal-fired plant, reserve capacity will fall to what OFGEM’s chief executive describes as an ‘uncomfortably tight’ 4% margin during peak demand surges in the 2015/18 period. Similarly, weather-dependence for much of the renewable supply will necessitate the retention of significant gas-fired standby capacity, adding significantly to overall supply costs.

Figure 2. United Kingdom’s changing electricity supply by fuel type.

To make matters worse, the government has agreed to massive subsidies for both renewable and nuclear electricity supplies to secure this ‘green’ supply capacity with guaranteed prices for offshore wind of up to £140/ MWh – more than three times the current wholesale prices. With more than 50% of UK electricity to be supplied from expensive renewables and nuclear facilities by 2025, real-terms price increases of up to 75% appear inevitable. This pursuit of carbon-free energy in ignorance of the economic facts risks a paralysis of investment in new plant and, ultimately, significant supply interruptions. As E.ON’s Johannes Teyssen said at a recent conference “10 years ago, renewables were in an immature state and needed to be nurtured. Today, they are the biggest animal in the zoo and if you continue to treat them as imbeciles and feed them baby nutrition, you will just get a sick big cat”.

Not too late for a policy re-think

The praiseworthy goal of developing a carbon-free UK energy market may become a model for human society in the latter half of the 21st century but the near-term reality is that Kyoto and successive international gatherings have signally failed to agree universally binding carbon targets. Against this background, a headlong rush for renewable energy will leave the UK (and its European partners) at a significant economic disadvantage to the major developing economies, whose social priorities place the elevation of living standards above the environment. In these circumstances, the UK should adopt a two-stage approach in which its carbon footprint is lowered by a switch from coal to gas for the 2020-2050 period, pending a more radical shift to renewables thereafter. In summary, UK energy policy rests on a Euro-centric political philosophy that is out of sync with global economic realities.

Written by Barry Aling on behalf of Gaffney, Cline & Associates.

Edited for web by Cecilia Rehn

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