UK energy policy: errors and solutions

Cast our minds back to May 1979, when the Conservatives replaced Labour in office. By the time I inherited Tony Benn’s role as Energy Secretary, along with his large (and draughty) office in Millbank, the oil investing world had come to see the North Sea as a thoroughly attractive investment prospect. All credit to Tony for that, despite his deep preference for the state, with which he seemed often to confuse himself by his frequent use of “we”.

Much of my time was therefore taken up with a stream of high-powered visitors from round the world. All were anxious to be in on any new licensing round and to get even better terms out of the UK — and also to invest in what now seemed under the Thatcher government to be a better managed economy.

Of course, my ministerial predecessor had left bits of broken china  around as he pushed ahead. The Benn legacy, even this welcome one,  did not come without  costs.  For example, Tony’s cavalier attitude to EU rules about supply sources for North Sea equipment  and networks was to ignore them (we were EU members at the time). I found myself having to fly to Brussels to mend relations with the most upset EU Commissioner.

More significantly the whole North Sea undertaking had been shaped  by Benn  with his ardent belief in the glories of state socialist ownership (now coming back once again into fashion, against all experience to the contrary). The  North Sea programme had been put  in a bureaucratic wrapper (BNOC) as an enormous state producer and trader. We Tories could not see the point of this, given that most nationalised industries had a poor idea of accountability, running rings round ministers and ignoring Parliament, taxpayers and consumers.

All that, along with ferocious and shifting tax regimes, under both parties, and half the oil produced being taken by the state (so-called Participation oil), would have to be unravelled. As we were plumb in the midst of the second Arab oil shock (this was 1979) this was  hardly the best time to start. But underlying all the ideological claptrap was the fact that global  investment in North Sea gas and oil was roaring ahead. Even the Soviets and the Chinese were among the investors. And Benn must be allowed credit for the general momentum.

It is true that a thriving North Sea gave no guarantees of absolute UK oil and gas security  (as Ted Heath found out to his surprise with the main energy companies during  the first Arab oil shock back in 1973). North Sea oil production always was  part of  a world market and entered strictly by investing oil companies  on that condition. But it did provide a kind of stabilising backdrop to a UK  energy scene in which reliability for consumers and reasonable pricing (except during the intermittent OPEC oil shocks) prevailed.

Internationally it gave the UK a strong voice in world-level fora. It also generated high revenues, high UK employment in the sector and high accumulation of oil and gas recovery technology. These were all in strong  demand round the world. Rapid North Sea development was a masterpiece of British engineering  and seen as such at the time. It  was, we believed, a central part of the growth and prosperity story to come.

At a personal level I was on good terms with Sheikh Yamani, the Saudi energy minister, although  I did not agree with his conviction that oil was so precious that it should be carefully husbanded in the ground or under the seabed for as long as possible. That seemed to me completely upside down.

Nor was I prepared  to put to Margaret Thatcher what Yamani longed me to  do   – that the UK with its booming North Sea  production (heading at that time  for over 2 million barrels a  day of oil and gas equivalent) should become a member of OPEC, the Arab oil cartel.

What an extraordinary contrast those days  make with the present day energy supply situation, in which the newspaper columns are full of mentions of power cuts and black-outs, prices are sky-high, crippling growth and export competition.   Not least, there is doubt hanging  over the whole energy supply chain sector with the puzzle of  how to maintain  the grid system in balance, and in the correct frequency range, when coping with intermittent sources and with random weather conditions adding to the uncertainty -– and therefore  cost.

In my early days as Energy Secretary my Permanent Secretary (first Jack Rampton and then later Donald Maitland) advised me to listen to a very senior and experienced official from the Central Electricity Generating Board (CEGB), which was responsible for power generation and transmission from 1958 until the 1990s. He was just about to retire, but knew an uncomfortable amount about balancing systems with a large intermittency component and heavy weather dependence.

His message was that while there might be the calm waters of a reliable carbon-free world way ahead, until then ran the most dangerous rapids. Without consummate skills, new technologies and vast new costs, the ship of state might well be overturned among the rocks and currents. He himself doubted whether the transition to renewables could ever be done. But if it was tried it would be very expensive, very disruptive  and very dangerous. Power cuts and black-outs there would be.  That of course is exactly where we are now, 47 years later.

But even that is not the whole picture or anything like it. At the heart of the current troubled scene are two  enormous and complete policy misconceptions  which  contort   and misshape every decision across the entire  energy sector – and beyond. Unless corrected these errors will hamper every effort to get energy policy working with and for, rather than directly against, future prosperity and security.

The first error is this: with the great energy transition now upon us,  those who are shaping policy have disastrously underestimated the amount of low carbon or carbon free electricity that a large and modern all-electric economy such as ours will require to prosper and compete.

Not many people seem to be aware of  even the basic figures. The UK  currently runs at  a total energy usage (from all sources) of circa 360-400 Gigawatts. Of that, one fifth (just below) is in the form  of electricity, and of that about half  came  last year  from renewable (“green”) sources. Some days  electricity supply is all green, sometimes almost none, with gas-generated power  filling in for most of it. But that’s the average annual picture — or has been until recently.

Government agencies (and some media) do their best to mislead the public on this issue when they  acclaim occasional days, or weeks,  when   renewables  (mostly wind) provide  100% of “all UK energy needs”,  with still more  for export. What they mean are not all energy needs but all  electricity needs, which are around 20% of total UK energy consumption.

In fact renewable or low carbon current provides one ninth of all UK power supplies. It  would  need to be multiplied eight to nine times to supply an all-electric economy by 2030, or 2035 or 2050. That is while the figures are getting  fuzzier  and shifting  all the time. The target might be Net Zero or 95 percent, or 90 percent, or whatever has been decided.

Of course wind and solar power, however much capacity is added from now on,  sea-based or on land, cannot  provide all that extra electricity  every day — and some days not at all. So at the very least some 60 GW or “other green electricity” has to be conjured up.

This  means nuclear output back to a hoped-for 25 GW, plus substantially more gas-fired generation, solar power and more marginal types of supply (biomass, tidal, pump storage, local, plant-dedicated  or private residence.  Reliable interconnector pipes and cables with neighbours, now under construction,  have got to be up and running by the 2030s or 2040s deadline dates.

Whichever way things go, gas will  play a major part in generating electricity, with  the carbon captured from new gas plants   stored in empty reservoirs under the North Sea or used in greenhouses. Again, that’s the hope.

But all that’s only touching the edge of the problem. With at least 13 new data centres being constructed, and up to 71 more waiting in the queue, all drinking up immense amounts of power, it will be a challenge simply to keep up with a changed world. To new data needs must be added a surge demand for air conditioning, heat pumps and cheaper electric cars (mostly from China). So it will be a miracle to hold electricity demand anywhere near that 400 GW figure, let alone to reduce it through “efficiencies”, as some planners hope and predict.

What wind and sun cannot reliably supply will have to come from new nuclear power and numerous gas-fired plants – when they are built and ready. We shall need every therm of gas we can release from the North Sea and oil too, imported and local, to fill inevitable  demand.

Long queues of future customers have already formed up to join the national grid, with waiting times of up to ten years. Two new giant nuclear stations are being built, adding about 7-10 GW to supply. One at Hinkley C in Somerset is 14 years overdue and still not finished. The other, at Sizewell C, claimed to be a “replica” of Hinkley, is using  an old trouble-ridden EPA French design and won’t be finished  until  the mid-2030s. The  sober Hinkley Point cost estimate is now £51bn (originally £17bn or less). For Sizewell C, some well qualified experts believe the cost will prove far higher than Hinkley. The official “hope” for Sizewell C is two years quicker to build than Hinkley, and  £2bn less, so by 2040 with luck. Definitely in the only-believe-when-seen tray.

This brings us to the most fearsome obstruction and potentially chaotic delays of all to our energy transformation.  There are, of course, a long string of well-researched and rehearsed reasons why the Sizewell C “replica” project should never have been started. For example the French EPA design called EPA 1 is wrong and out-of-date. Smaller machines,(SMRS, ABWRs, other designs ?) ,  some of them already installed  elsewhere, would have been far more commonsensical on the Suffolk site. Water shortage is a likely problem and the ground is marshy and tricky. And  sets of smaller machines are always less vulnerable than one or two rigid monsters — both vulnerable to local and international technical  problems.

Henri Proglio — former head of EDF (Electricité de France), the lead contractors at Sizewell as well as Hinkley — takes the view that their EPA designs (both EPA1 and EPA2) are so “phenomenally complex” as to be virtually “unbuildable”. Another giant  of this design will never be attempted, in France or anywhere else, he says. So Sizewell is probably the last one to be constructed ever, courtesy of the British. (Are we missing something? Yes!)

Smaller machines are far more reactor-plant resilient. If one breaks down, on site or elsewhere in the world, the rest continue. They are  quicker to fabricate  in the factory rather than on site, and probably cheaper to build and operate  per KW of product.

Meanwhile, to get the electricity generated, from whatever source, to the markets that will need it, whether industrial, public  or in the home,  requires major renewal and expansion of the high voltage transmission grid  and distribution systems.

The need for  this obvious link in the transmission chain did not seem to occur amongst the planners until quite late. Now it has sunk in, there is a  plan   which covers England’s green and pleasant land with at least  6000 new metal structures. Every one of these, whether pylon designs are new or old, (T-pylons?) and made of British or imported steel or other critical minerals, will be contested and delayed.

In terms of environmental impact, it  puts all other plans in the shade. This is the strongest possible warning light, in the name of preserving the environment  but in fact hideously scarring it, for countryside desecration there could be.

Finally, and this is the worst message above all from the Sizewell C project as to stands (and  one that certainly compounds  the North Sea negativity),  the design choice at Sizewell C  proclaims to the international investment  world that here we prefer to finance big  infrastructure  projects through the state, just when numerous states are borrowed to the hilt and investors are shunning Government paper and government debt (to the benefit of equity markets).

The new British PM, Andy Burnham, has firmly proclaimed his valuing of “public control over private flourishing”. As noted by the Spectator’s Martin Vander Weyer – thus confirming the  fustian view of  “the economy” as an unending  Marxian conflict between state and market.  The second major error is this: We are heading  backwards to the pre-Thatcher era of heavily nationalised and dogma-driven utilities, instead of forwards to new techniques of reliable cooperation and harnessing private resources to public needs – now infinitely more possible in the super-digital age. 

Several other major industrial economies are turning to new and cleverer ways of packaging and sharing risk  between public and private funds and enterprise. Ironically it was Britain that gave birth to the Private Finance Initiative (PFI) some 30 years ago, but seems to have lost enthusiasm since, while other nations push ahead, especially in Asia.

Perhaps all parties seeking common ground in this age of danger should now be returning to new and better versions of  the PFI kind of thinking. This would be on the principle that while Governments should  always try to operate under tight constraints with other people’s money, private investment funds are generally  interested in well designed and robust   investible vehicles, however innovative. This is particularly the case when they have well managed economies behind them and a creative government which understands the new priorities and battlelines in place.

A few signs are appearing of new thinking in this whole public/private area of finance and cooperation, and perhaps even in upstream energy in the North Sea. If the overall energy story can be corrected, if oil and gas are given their head again, if the state and private enterprise can find new ways to build hundreds of smaller nuclear power fleets on a major  scale, (including on the Sizewell site), that could be the signal. Aggravation and conflict could be turned to deep cooperation and the pathway for Britain to prosperity and regained influence would then be re-opened.  But until those signs are far stronger, and followed by bold strategy,  the UK will not have anything like as much investment appeal to the wider world, or to any investment sources, as it once had – and power shortages and black-outs will become  inevitable.

This would  not be like the flickering lights and power cuts of a past age, tiresome but manageable. In a world of digital dominance now run on microchips, this time it  would   spell national,  social and political breakdown of a different order. It cannot be allowed to occur.

Nor need it. Twenty years ago, in my book Energy Empires in Collision: The green versus black struggle for our energy future, I described in detail the pathway, via cooperation and green capitalism,  to  “a more balanced and harmonious world in which electricity flows reliably and affordably, and  in which carbon emissions and poisonous air-polluting substances are minimised”.

Needless to say, we are not yet on that pathway. Above, two or three major steps to help regain it (amongst many others), are proposed, just for a start. I am sending a copy to Miatta Fahnbulleh, the new Energy Secretary, assuming she has not already read it. If she sees the need for a change of direction, then she is my new heroine.

Lord Howell was Energy Secretary, 1979-81.

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