Sticking plasters for the energy crisis

The recall of Parliament at the weekend was dramatic, but the fix that was put in place for the Scunthorpe steelworks was little more than a sticking plaster. Handing operational control of the business to ministers prevented disaster – on national security grounds alone, we simply couldn't afford to lose our last blast furnace – but did nothing to address the fundamental problem, namely that the plant's energy costs are too high.

As Net Zero critics are fond of pointing out, international price comparisons show that the UK has the highest industrial electricity prices in the developed world. That is the painful reality faced by companies like British Steel. However, a change of management does nothing to help. If, as seems likely, the Scunthorpe works is eventually nationalised, it will only transfer the costs and the associated operating losses from private owners to the taxpayer. The bill will be the same, but somebody different will be paying it.

Such cosmetic ‘solutions’ are becoming a feature of the UK energy market. For example, we have belatedly exempted intensive energy users from green electricity levies, putting the cost onto other power users. New proposals have mooted the idea of extending this scheme, exempting all electricity consumers, with the costs transferred to gas bills or to taxpayers. Similarly, generators have been exempted from the cost of dealing with the intermittency of renewables, with consumers making up the difference. The latest wheeze is to charge the rich more for their electricity than the poor.

In each case, the outcome is a change in who pays for the inflated underlying costs, but no change in the costs themselves. And that is why electricity bills keep rising: we are addressing symptoms rather than causes.

Finding a real solution will involve taking a long hard look at the costs of the system. Unfortunately, it is difficult to have a rational discussion in this area because there is so much disinformation put out by the so-called Green Blob – the swamp of activists and renewables subsidy junkies who dominate the public debate. Shamefully, the most egregious deceptions about energy costs come straight out of Whitehall.

Unsurprisingly then, even when our political leaders do discuss the costs, it is clear that they haven't grasped what is making our electricity expensive. During Saturday's debate on the Scunthorpe rescue plan, Business Secretary Jonathan Reynolds said that the high electricity costs faced by UK industry are mostly down to gas prices. While it is true that wholesale electricity prices closely track gas markets, Ofgem data shows that the Secretary of State is wrong: for most electricity consumers the main drivers of bill increases are what David Cameron memorably called ‘the green crap’: wind and solar subsidies, the costs of dealing with windfarms’ intermittent output, and building new power lines to connect them to markets. These costs have been going up for 20 years and official sources suggest they will continue to rise for the foreseeable future.

For households (and the large majority of businesses that are not exempt from paying their share of the subsidies), wholesale prices, driven by gas markets, are still a factor, but a relatively small one, adding only around £75 to bills in the last 10 years in real terms.

At the root of it all, the GB electricity system is grossly inefficient – we are effectively running two grids, a reliable one driven by gas turbines, and an unreliable one powered by renewables. The cumulative cost of this Heath Robinson contraption is far too high, is continuing to rise, and indeed is likely to accelerate in coming years. It is ruining our economy already, and we are still only in the early days of the push for Net Zero.

It is obvious to anyone who is not blinded by green ideology that this is unsustainable. A full-scale reversal is now inevitable.

The most important step in getting back to cheap electricity is to face reality and close down all the renewables. Getting them off the grid will save us more than £10 billion per year, mostly subsidies. Renewables investors will need to be compensated, of course, but if this were done over two decades, say, the benefits would far outweigh the costs. The elimination of renewables would also eventually reduce wholesale prices too, as it would give investors confidence to build new, efficient power stations powered by gas, or even coal.

For the political classes to admit that their previous consensus on Net Zero was an error of historic proportions will be hard. Only the upstart Reform Party can claim to have clean hands, and their commitment to reverse Net Zero entirely has been pivotal in changing the public conversation. To her credit, Kemi Badenoch’s Conservatives now seem to have read the writing on the wall too, stating that Net Zero by 2050 is off the agenda. Their recently commissioned policy review may well harden that position into full-scale opposition.

Unfortunately, Labour are still adherents of the Net Zero faith. The party’s 2024 intake of MPs is said to be fervent in its support for decarbonisation, and Sir Keir Starmer appears to have given a free hand to Ed Miliband, who is nothing if not a climate zealot. The party as a whole is therefore not yet ready to face facts. Nevertheless, they will have to do so eventually. While gas price reductions over the next two years may bring power bills down somewhat, bringing a measure of relief to consumers and businesses, those gains are likely to be shortlived, as renewables inexorably raise the costs of the rest of the system. At some point thereafter, the calls to change the direction of policy will become impossible to ignore.

But until then we can expect more catastrophic damage to British manufacturing, and more sticking plaster solutions.