Energy Trilemma or Energy Muddle?

The trilemma

Global demand for energy will double between now and 2050 as the world’s population continues to grow, countries become more urbanised and people become more affluent. The amount spent on energy infrastructure by mid-century could amount to $50tn, according to ARUP. But governments everywhere are conscious that new energy projects should meet three goals.

First, they should be secure, ie reliable and with adequate capacity to meet peak demand. This means that imported hydrocarbons should be sourced from trusted and friendly counterparties – an issue that European leaders are currently struggling with as they face the prospect of restrictions on the flow of Russian gas next winter.

Any country’s energy security is a function of three factors. Countries which import most of their energy are less secure than those which largely generate their own. Countries which maintain large energy reserves are more secure than those which don’t. (Note how the UK has run down its gas storage capacity in recent years. We have only about two percent of annual demand in storage and buy most of our gas on the spot market.) And countries which run a diversified energy mix are more secure than those which rely on a single energy source.

Second, energy projects should be sustainable. This means that in an era of climate-change consciousness and decarbonisation they should be low carbon and ideally carbon neutral. No doubt hydrocarbons will still form part of the energy mix by 2050 but, to the extent that they do, they will be accompanied by carbon sequestration whereby, for example, CO2 produced is pumped into underground caverns.

Renewable-energy generation – principally from wind turbines and solar arrays − is intermittent because the wind doesn’t always blow and the sun doesn’t always shine (even in sunny countries like Morocco it only shines for half the day). Therefore, an energy network based solely on renewables would be insecure. It is accepted that there must be some non-renewable, backup generation to the grid, most likely from nuclear power.

The third goal is affordability. Energy costs should not be allowed to rise so high that most people can no longer afford to heat their homes or run their cars. In the UK, families who spend more than 10 percent of their disposable household income on domestic fuel are said to be in ‘fuel poverty’, and the number of such households has been rising. About 1.5 million rural homeowners who use oil-powered boilers are paying more than double what they paid this time last year to refill their tanks.

Also, businesses that are energy intensive, such as steel producers, should not be forced to pay significantly more for power than their foreign competitors. The UK’s high energy costs have been deleterious for the manufacturing sector.

Unless energy is affordable and priced competitively, economic growth will be restricted. This picture is complicated, however, by the fact that governments like to tax energy to fund their social programmes. Currently in the UK, out of the £1.85 you pay for a litre of unleaded petrol, about 53 pence goes to the government as fuel duty and 31 pence as VAT. The actual cost of the petrol is only about 83 pence. Then there are the levies on domestic electricity and gas to subsidise renewables. And this year the Treasury is set to collect £7.8bn in taxes from offshore fossil-fuel drillers – that’s 10 times more than in 2019-20. So much of the affordability issue lies with government.

The first two goals will inevitably drive energy prices higher over time and, as mentioned, there is a tradeoff between security and sustainability. Therefore, energy policy becomes an exercise in optimisation. There are always going to be tradeoffs between the three goals; and different governments will have differing priorities, according to the political sentiment prevailing in their country.

The UK government is committed to a legally binding target of achieving net-zero carbon emissions by 2050. This was the valedictory gift to the nation from Theresa May through a statutory instrument that was debated for just 90 minutes in the House of Commons. Yet it has been enthusiastically endorsed by Boris Johnson. But when the great British public realises how it will impact their living standards and lifestyles, they might not feel so supportive of the target. Many will argue that the rich consume more energy than the poor and thus generate more carbon emissions. That will flip the political debate back to one about the redistribution of wealth and resources.

Similarly, there is already a lively debate about whether low and middle-income countries should be expected to adhere to the same sustainability standards as high-income countries. Greenhouse-gas emissions per capita do vary widely – the average American generates around twice the amount of CO2 every year as the average Brit. One reason for that is because domestic energy is cheaper in the US than in the UK. But there are also lifestyle factors – nearly all Americans dry their washing in tumble dryers and use air conditioning, whereas relatively few Brits do. Americans tend to drive bigger cars than Brits – though, American cars are now getting smaller and more fuel efficient.

If you believe that we are facing imminent ‘climate catastrophe’ then you should be delighted that the cost of hydrocarbons is soaring, since this is leading to moderated consumption. With diesel at around £2 a litre and unleaded at about £1.85, people are driving less – something that ecologists regard as good news.

If there is a widespread trend in the direction of ‘energy austerity’ then it may be that ARUP’s figure for energy demand by mid-century is an overestimate. The day of the patio heater is over. That said, the energy mix is sure to change radically as petrol and diesel-powered cars give way to electric ones. If the UK targets for the take-up of electric vehicles is achieved by 2030, that will require an additional three gigawatts of electricity capacity.

Let’s take a brief look at the UK energy-policy horizon.

Offshore wind arrays

Given the war in Ukraine, there is now a new meaning to the term energy security. Offshore wind arrays are largely unprotected and could be attacked by a potential enemy, thus depriving the country of a vital source of electricity. Given the increase of Russian submarine activity in the North Sea, the government will have to step up naval patrols.

North Sea oil

There are those – like the SNP government in Holyrood – who would like to desist from the development of new oil wells in the North Sea altogether on environmental grounds. And there are those who declare that new exploration will save us from an energy famine. The truth is more nuanced. The North Sea basin is a mature reserve, meaning that new wells will be less productive and more expensive than those brought onstream in the 1970s. But given the current oil price they would be economic and would help us to reduce the volume of imported oil.

But just when the oil majors such as Shell were about to consider new exploration in the North Sea, the UK’s chancellor (finance minister) slapped a massive windfall tax on them. This was Labour’s (or more accurately the Daily Mirror’s) idea; but of course, Rishi Sunak had to outdo the socialists and raise £3bn instead of £2bn they had proposed. Shell has already pulled out of new exploration of the Jackdaw and Cambo fields in response to eco-protests. Norway’s Equinor has indicated that all its North Sea projects are now under review.

Solar arrays

Plans to carpet the British countryside with solar arrays carry the heavy opportunity cost that they take valuable agricultural land out of production. This means that we shall have to import more food. Plus, these arrays are a blot on the landscape – but let’s put that to one side. That means that we shall have to import more food. This is a good example of where there is a tradeoff between energy security and food security. Yet the government has indicated that it will relax planning controls for solar parks.

It would be more efficient to compel developers to install solar panels on the roofs of all new-built houses – though that would put up the price of new homes, which would clash with our national obsession with affordable housing. In practical terms, homeowners would pay more upfront but would pay less in electricity bills over time. So, in discounted cash-flow terms, assuming electricity prices will rise further, they would probably be better off. Similarly, industrial buildings, office blocks and hospitals should be encouraged to install solar panels. I have also suggested here in the past that reservoirs should have floating solar arrays, as they do in South Korea.

Bradenstoke Solar Park in Wiltshire is England’s largest solar farm in operation so far. Operated by British Solar Renewables, it comprises 300,000 solar panels covering 213 acres of a former RAF base, RAF Lyneham. When operating at full capacity (that is, on a sunny day in summer) it generates nearly 70 megawatts of power – enough electricity to power 10,000 homes. There are currently over 100 planning applications in progress for solar parks across the UK.

The Sunnica Energy Farm which stretches across west Suffolk and Cambridgeshire, and which will cover 2,800 acres has attracted controversy. The local MP, Matt Hancock, who is a former energy minister, has come out against it, saying he is in favour of renewable energy but that this array is “in the wrong place”.

A planned 210-acre solar farm outside Silchester, Hampshire would prevent archaeologists from excavating the site of an important Roman town. The array is proposed by a subsidiary of Enso Electricity.

Land, as the saying goes, is the only commodity they are not making more of. It is also in demand from housebuilders, since the consensus is that “Britain does not build enough homes”. The government’s (unfulfilled) target is 300,000 new homes a year, set by the Department for Levelling Up. This government is incentivising councils to build on greenfield and even green-belt land with the New Homes Bonus. This has been criticised by the Campaign to Protect Rural England as a threat to hedgerows and biodiversity. More on that soon.

The fracking debate – latest

Many are not convinced that widescale fracking in Lancashire will be a panacea for our energy insecurity. Cuadrilla claims that it could have gas flowing into the grid within a year of restarting operations. Sir Jim Ratcliffe of Ineos thinks it’s a no-brainer, and that fracking would have done much “to level up” the north of England if it had been allowed to continue. Others contest whether much of the estimated reserves is realistically extractable. On the safety issue, Professor Richard Davies, a petroleum geologist at Newcastle University, thinks that the seismic risks posed by fracking are no worse than those from coal mining.

Much more shale gas could be shipped to Europe than at present. The major constraint is that, apart from the UK, few European countries have adequate liquid natural gas (LNG) terminals. The UK has a major facility on the Isle of Grain in Kent which receives LNG mostly from Qatar. This means, ironically, that the UK could supply US shale gas to the EU where hydraulic fracturing is almost universally proscribed.

Coal is back

Tata Steel has reportedly stopped importing Russian metallurgical coal, having been prompted to do this by the government. That would be the same government that has stalled the opening of a new coking coal mine at Whitehaven, Cumbria. Expect movement on this soon. Moreover, in Germany, the government has suggested that some mothballed coal-fired power stations might be brought back into operation.

Nuclear

In April the government pledged “to reverse decades of underinvestment” in nuclear power by building eight new nuclear reactors by 2050. But this ambition has been overshadowed by further delays at the £23bn Hinckley Point C reactor in Suffolk. EDF, the developer, now doubts that the plant, approved in 2012, will come online as planned in 2026.

The government is thought likely to formally approve only one new nuclear plant before the next general election – Sizewell C in Suffolk. The first of Rolls Royce’s small modular reactor sites is not likely to be licensed until the next parliament. Excess electricity from nuclear power stations could be used to generate pink hydrogen to power the evolving hydrogen economy. The UK is a leader in hydrogen technology, with companies like ITM Power in Sheffield, which manufactures proton membrane exchange electrolysers.

According to Karl Williams of the Centre for Policy Studies, even if the ambitious targets for solar and offshore wind are achieved, another 16 gigawatts of power will be needed to cover the shortfall. That can only be achieved by adequate additional nuclear capacity.

Small things we could do

Sunak cannot keep subsidising domestic fuel bills indefinitely. However, there are some practical things that the politicians could do to increase energy efficiency. Some of these ideas have been recently endorsed by the International Energy Agency.

First, we could cut the speed limit on motorways from 70 to 60 mph. The Americans did this after the oil-price shock of 1973, and most federal highways still maintain a speed limit of 55 mph. For those of us who still drive cars powered by internal combustion engines, cruising at 60 mph is much more fuel efficient than the current UK limit of 70 mph. Journey times are more likely to be affected by congestion and (currently ubiquitous) road works than the speed limit.

Secondly, in urban areas, traffic congestion is often caused not just by the volume of traffic but because cars are parked along both sides of the road, thus constricting traffic flow. In effect, the British use their public highways as free car parks. Many great Asian cities such as Tokyo and Singapore do not permit citizens to own a car unless they can prove that they have an off-road parking space. In contrast, many London boroughs are actively encouraging developers not to provide parking spaces on the dubious grounds that this will discourage car ownership.

Third – and this is happening, anyway – we could encourage employers to allow employees to work from home at least one day a week. That would reduce commuter travel by 20 percent. I agree that working from home permanently has a negative effect on productivity, but we should be seeking a happy medium.

Fourth, we could incentivise car sharing. There are numerous ride-sharing apps available in the UK including BlaBlaCar. But other countries, notably India, are well ahead of us in terms of uptake, perhaps for cultural reasons.

Fifth, more trains should run at night. The main justification for HS2 was the limited capacity of the East Coast mainline. This overlooked the fact that by scheduling freight services at night, daytime capacity could be freed up. Personally, I would love to see the revival of long-distance sleeper trains as epitomised by the Caledonian Sleeper. But why are there no sleeper trains from London to Cornwall? In fact, rather than high-speed rail, a slow sleeper train overnight from London to Falmouth might be more relaxing. Speed is not everything.

Sixth, we could turn down the heating. I have made the case previously for wearing thermal underwear in winter, as our forebears did.

Seventh, we could better insulate our homes. There have been numerous government-funded schemes but ultimately property owners will regard decent insulation as a good investment, as the cost of heating their homes rises. All new homes should be built according to the highest thermal standards, including triple glazing and cavity insulation. That will not necessarily put upward pressure on the price of new homes as property developers adapt to best practice.

Ideological confusion

Hardcore environmental activists like Extinction Rebellion and even softer ones like the disciples of Greta Thunberg think that capitalism (the market economy) is responsible for climate change and its attendant environmental degradation. Therefore, they believe that the people must extinguish capitalism before capitalism extinguishes the people.

They further believe that the world is about to enter a climate catastrophe because they believe that the climate models which foretell such a catastrophe are infallible. (All cults believe in the infallibility of their prophetic founders). Therefore, anyone who disagrees with their beliefs, or even their methods − such as Insulate Britain’s “raves” on the M25 − is ipso facto evil. They think that in order to fend off extreme climate change we need system change – in other words, a revolution. Check out This Changes Everything: Capitalism vs The Climate by Naomi Klein − or perhaps – don’t!

What is the evidence that capitalism destroys the environment? Yale University has been publishing the Environmental Performance Index (EPI) for more than 20 years. This ranks countries according to the health of their environments. Similarly, the Heritage Foundation has been publishing its Index of Economic Freedom (IEF) since 1995 across 178 countries and territories.

Recently, the Heritage Foundation’s researchers compared the two indices. They found that the countries with the highest IEF scores were highly correlated with those which had the highest EPI scores. Dictatorships are miserable to live in because people are not free; but also, the environment gets trashed. From 1952 to 1990 Germany was divided between the Federal Republic of Germany, which ran a market economy and the German Democratic Republic, which was communist. Of the two, the latter had by far the worst environmental record.

Then there is the belief that economic growth is inherently bad for the environment. This arises from the idea that as economies grow, we automatically use more of the Earth’s finite resources. But there is a lot of evidence to suggest that, as we grow, we become more efficient. This is a product both of technological innovation (eg low-energy light bulbs are almost 100 percent efficient because they do not generate heat) and more optimal resource allocation. Economic growth means more value added, but also less waste – and sometimes less consumption.

What was on your desk 35 years ago? You had a typewriter, a pocket calculator, a dictaphone, a landline, a chunky camera – and tons of stationery. Now you’ve just got a laptop and a smartphone.

Most eco-activists, as far as I can see, also sidestep the issue of human population. The fewer people there are on the planet, the lower the carbon emissions. Therefore, unbridled population growth drives more carbon emissions, and should be addressed. But to say that, for example, the great people of Africa should be keener on birth control, is to invite accusations of racism.

The very people who prophesy doom also try to stifle discussion about solutions. That is another reason why energy policy is not so much a trilemma to be optimised as a muddle. The politicians have their work cut out.