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The Government’s rhetoric has changed on energy, but not its policy

Oct 17th, 2011
by Matthew Sinclair.
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David Cameron and Chris Huhne have written for the website MoneySavingExpert.com this morning and argued that “everything that can be done will be done to help people bring their energy bills down”. It is a fine sentiment but not matched by their actions. They are continuing to impose regulations that will drive up bills, and are no friends of consumers. Attacks on energy companies are thinly veiled attempts to distract from politicians’ complicity in rising in energy prices by attacking a sector which will enjoy higher profits as a result of the regulation they have put in place.

Prices have risen for a number of reasons including instability in the Middle East; rapid rises in demand with strong growth in major developing economies; and climate regulation. But with instability in the Middle East subsiding for now and oceans of shale gas being discovered there should be every reason to be a bit more optimistic about the pressure on households easing a little. Unfortunately, they are going to have to pay for hundreds of billions of pounds in investment under draconian climate regulations, in order to meet Brussels targets. Citigroup estimates suggest Britain has to invest around £200 billion. That is far more than our European competitors, let alone the rest of the world:

Paying for that investment will require the energy companies to make more profit. That will drive up prices by over 50 per cent in real terms according to Citigroup. Even with greater efficiency, they think we will have to pay over a third more in dual fuel energy bills in real terms, and that is before paying for the extra insulation.

There is no way of making £200 billion cheap. Fiddling around the edges trying to bring down energy company margins might help some people in the short term but won’t address the fundamentals.  Any politician who was serious about helping to bring energy bills down would reconsider some of those regulations and targets. There are a few ways they could do that: stop picking losers and giving extravagant subsidy to the least efficient sources of power; scrap the renewable energy target and just focus on the emissions target; scrap the new carbon price floor that Credit Suisse think will mean £7 billion more in profit for energy companies while just shifting emissions from Britain to other European economies according to the IPPR.

If they want to be more ambitious, and really do all they can to ease the burden on consumers, they could rethink the fundamentals of our energy policy. Instead of trying to deploy expensive sources of energy now we should focus on research. Even if we were happy to pay higher prices for our energy, major emitters aren’t going to do the same so developing new alternatives is the only way we make a practical contribution. After all, our paltry under two per cent of global emissions won’t make much difference to the climate. There is a lot more detail on how to do that in Let them eat carbon.

Talking to the One Show about energy prices

Sep 13th, 2011
by Matthew Sinclair.
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Yesterday evening I appeared as part of a panel for the One Show responding to consumers’ questions about high energy prices.  With electricity and gas bills putting so much pressure on their finances, it is important that people are aware of just how much government climate regulations are already costing them, and set to add to their bills this decade.  We need to get rid of failing climate change policies but that won’t happen if the public aren’t aware of the price they’re paying.  Here is the clip, and there is a lot more detail in the book.

One thing that came up in that clip, which it is worth saying a bit more about, is Chris Huhne’s suggestion that we won’t get higher bills because of the measures they are taking to improve the energy efficiency of our homes.  When you think about it, that argument is somewhat absurd.  He can’t conjure £200 billion of investment in the energy sector out of nowhere.  Who does he think will pay for that massive investment?

When Citigroup looked at this issue they found that even with major efficiency improvements prices will still rise by well over a third in real terms, and then we have got to pay for all the insulation and double glazing too.

He was also misleading when he said that this investment was needed to keep the lights on.  Replacement and renewal to maintain supply is only a small share of projected investment.  It is attempts to cut greenhouse gas emissions that are driving the huge costs expected here.  Particularly building, connecting and backing up massive amounts of offshore wind.

Further evidence green policy will push up household energy bills

Sep 6th, 2011
by Liz Holliday.
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A cautionary, yet familiar, tale on how Coalition energy policies will affect homeowners was published this week in The Daily Telegraph. The article centres on a six-page document, entitled the “impact of our energy and climate policies on consumer energy bills,” and suggests that the Government’s move to increase alternative energy (like wind turbines and nuclear power) will increase the average family’s yearly energy bill 30 per cent by 2020.

The figures in the paper, written by David Cameron’s senior energy advisor, Ben Moxham, reportedly now have the PM “very worried.” The document asserts the simple logic that increasing energy bills, at a time when most household budgets are already tight, might not leave voters at their happiest.

The notion that Coalition green policies will increasingly impact consumer household bills in the long-term is not new. Our Director, Matthew Sinclair, has been imploring the Government “to give families a better deal and cut unfair green taxes” for quite some time now. The threats of green taxes and subsidies on taxpayers are covered in details in Sinclair’s new book ‘Let them eat carbon’ In the book he discredits the claim that green taxes were “justified by the need to cut greenhouse gas emissions,” with new figures that show the taxes as “excessive compared to the harms they are meant to address”.

It looks like the message may have finally gotten through to Cameron and his team. The Daily Telegraph reports that “Ministers and officials from the Treasury, DECC [Department of Energy and Climate Change] and the Department for Communities and Local Government are expected to be called into No 10 for a high-level meeting to discuss how to pursue the policies.”

However, whether or not Cameron will finally heed the warnings have yet to be seen. Perhaps he should pick up a copy of ‘Let them eat carbon’ before taking the meeting.

The Government fiddle with their disastrous energy policy while nearly a fifth of households are in fuel poverty

Jul 14th, 2011
by Matthew Sinclair.
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My new book Let them eat carbon looks at the incredible cost and dubious record of climate change policy here and around the world.  This week we have had a graphic reminder of what that means, particularly for poor and elderly people who are hardest hit.  Statistics out today show that four million English households were in fuel poverty in 2009.  That is nearly a fifth of the roughly twenty two million households in England.

Even back in the summer of 2007 when we were still enjoying the fruits of a long economic boom 65 per cent of people responded to a TaxPayers’ Alliance/YouGov poll that the cost of utility bills was a major financial worry.  Now, with prices rising and other pressures on living standards from high inflation and lacklustre wage growth, many more people must be a lot more worried by their hefty energy bills.  The challenge right now is the simultaneous pressure of paying for huge investment in the energy sector to meet environmental targets with the fiscal adjustment and the associated spending cuts and tax hikes.  When we most recently totalled all that up, for our briefing on Budget 2011, it came to a combined fiscal crunch of well over £700 billion over the next decade.

Unfortunately the Government this week seemed content to fiddle around the edges, increasing costs instead of reforming energy policy to get families a better deal.  We responded to the Electricity Market Reform White Paper earlier this week by pointing out that in the short term it will increase the cost of the EU Emissions Trading System which puts a price on carbon and thereby makes conventional energy more expensive, doubling the cost if the price reaches the Government’s target.

That will make things harder for consumers and hit manufacturers competing with rivals abroad not bearing the same burden.  In the longer term it can’t reduce the cost by encouraging more renewables, they require other extremely expensive subsidies which add to our bills, but only if we get more nuclear.  Unfortunately there are huge construction risks in building the power plants so with these measures alone any nuclear renaissance is likely to be pretty limited.  The likely result of this bill is simply to hand energy companies a hefty windfall profit at our expense, Credit Suisse expect it will net the utilities a £7 billion profit.

The other thing they’re doing is locking in high prices with “contracts for difference” which mean that if conditions change, for example if the Middle East stabilises a bit and huge shale gas reserves become available, we’ll still have to pay high prices.  Risk is being transferred from energy companies to the rest of us.

In the end, the high price of these policies isn’t going to be fixed with minor adjustments.  Citigroup have set out how environmental targets require us to invest more than Germany, France and Italy (or Spain) put together.  Paying for that investment will mean higher electricity bills.  They expect bills will rise by over 50 per cent in real terms.  To change that we need to rethink the mad rush for renewable energy that just isn’t competitive right now and emissions cuts by 2020 to meet an EU timetable before the right alternatives to fossil fuels are in place.  Until the Government does that we will keep getting ripped off.

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