..and why “green energy” is economic nonsense
In a recent speech Ed Davey announced that energy intensive companies would be paid to switch off their machinery during times of high demand. As many have noted, this not what happens in healthy energy markets. Although this policy is called ‘demand-side management’, jargon does not disguise what is still a blackout. But simple economics can determine a much better approach to energy policy than the managed decline preferred by the deeply unpopular minority party in the coalition.
The problem of the UK’s diminished capacity is caused by energy policies, (not shortages of fuel), largely but not entirely driven by EU directives to reduce CO2 and other emissions from power stations. Much of the UK’s generating capacity has been forced to close by the EU’s Large Combustion Plant Directive (LCPD), followed by the Industrial Emissions Directive (IED), both of which are intended to reduce the emissions responsible for pollution. Nobody is against clean air, but the combination of these policies has compounded the UK’s energy problems, leaving an energy gap which threatens wide-spread blackouts.
The LCPD and IED force the operators of coal-fired power stations either to shut down within a given time (17,500 operational hours between 2016 and 2023), or to add systems to comply with the standards they set out. Retro-fitting older but still serviceable plants may not be economically viable, so the operational lifespan of these plants is reduced by a decade or more. Somewhat late in the day, the Department for Energy and Climate Change commissioned a report on the feasibility of building new gas and coal-fired capacity and extending the life of the UK’s existing power plants by making them compliant with the IED.
The existence of the report demonstrates that the current and previous governments’ plans for a greener energy sector have not materialised, and cannot now be achieved. No amount of wind turbines and domestic solar PV installations can replace the capacity that has already been lost to the LCPD and will be lost to the IED. So the government is now forced to face the consequences: begging energy companies to keep remaining coal and legacy gas plants operational for as long as possible in order to avert a deeper crisis.
Along the way, the report shows some interesting things about the history of the UK’s fleet of power stations. The following graph shows two main periods of building. Approximately 3.3GW a year of coal plant between 1965-75 and 2.5GW a year between 1990 and 2000, under different economic regimes.