Sunday, 31 August 2008

Bold new thinking needed for UK energy independence

The Liberal Democrats’ commitment to reducing UK carbon emissions to zero in the long term has been joined by a new goal: for Britain “to become energy independent within the EU by 2050”. Nick Clegg’s energy paper advocates an Apollo project for British energy independence. This would have three stages: “a credible strategy” for meeting the UK’s 2020 renewables targets; sourcing all energy requirements from within the EU by 2030, with targets for the progressive reduction of energy imports from outside the EU; and becoming a net exporter of energy by at least 2050.  

We should focus on energy security a lot more than has been the case. The oil and gas price shocks, the depletion of North Sea oil resources, the world-wide scramble for resources, Russia’s lurch away from open markets and, now, the Georgian crisis have made energy security a much bigger concern than was the case five, let alone ten years ago. [See the article by Solar Century’s Jeremy Leggett in yesterday’s Guardian.] Also, “independence” has huge political potential as a way of framing energy policies.  This could be part of the "securing our economic future" narrative that I have previously advocated.

I have previously commented on the adequacy of existing Lib Dem policies to drastically reduce emissions, putting forward some lines on which they might further develop if the long-term goal of a zero carbon Britain is to be achieved. 

Achieving such reductions at the same time as ensuring energy independence would be another huge challenge. The EU has set the UK a goal to meet 15 per cent of its energy needs from renewable sources by 2020. For electricity, that translates into a 30 to 40 per renewables target. (The Lib Dems have previously advocated a 30 per cent clean energy target, moving up to 100 per cent for 2050.) According to BERR, if the UK achieved the 15 per cent target, gas imports would be reduced by 12 – 16 per cent by 2020. 

So, even if we try to put aside the concerns of James Hansen about climate science, achieving energy independence, with fewer non-EU imports, could require a faster move to renewables and a more rapid improvement in energy efficiency than even the Liberal Democrats have envisaged. We have to be clear how that would be paid for: who would invest the massive sums needed. The government’s existing renewable energy strategy for 2020 has been costed at £100 bn. That’s a small price to pay to help save the planet. Still, as Jeremy Leggett wrote yesterday:

"The government should create investment conditions that allow City capital to flow into efficient-energy technologies that can be delivered in short order."

Whether the targets pursued are those supported by the government and the Liberal Democrats, or more radical goals, the country would still be heavily dependent, possibly for some decades, on (imported) gas, as coal-burning and nuclear plants would not have been replaced. 

Could all the UK’s remaining needs for non-renewable energy (in particular, gas) be sourced from within the EU by 2030? 

The answer is: possibly, but there are some very big market and policy hoops to jump through.

One option could be buy more gas from Norway. That could be economically risky as that country has little interest in competing with Russia’s Gazprom on price. Another would be buy from other EU countries. But then the realities of the European energy market start to bite. Just 37 per cent of the EU’s gas needs are met from European countries’ “own production”. The European market is itself heavily reliant on gas imports, particularly from Russia (which account for around 30 per cent of gas used within the EU). Consequently, a coherent EU policy approach is needed to Russian imports. But Germany, Austria, Hungary and France have all made bilateral deals with Russia’s Gazprom in order to secure future energy supplies, making such unity more difficult to achieve. The other options, independent European pipelines, such as the Nabucco project, are vulnerable to Russian diplomatic and economic military action. 

In any case, if the UK is to rely on the European energy market to help achieve its supply security and carbon emissions goals, this would require other EU policy changes. The energy commentator Dieter Helm argues that ‘resilience’ measures needed at EU level to ensure security of supply include completing the European energy grid and introducing strategic gas storage. The grids in particular require a planned, ‘top-down’ approach – that is, massive political will. 

In addition, competition has still not matured, leaving price disparities in place. The European energy market is dominated by a small number of large companies. In Britain, for instance, the three largest European energy companies—EDF, E.ON and RWE are now dominant in the market. Even as the European Commission has increased competition in national markets, the European market as a whole has suffered a reduction in competition; in other words, it has become more concentrated. If the UK were to become energy independent within the EU, the level of market concentration would need to be addressed. This would, of course, require the agreement of other European countries. 

In competition, the EU’s main policy drive has been for unbundling of ownership in networks and supplies. (This is also needed to deliver the European grids) Unbundling has, of course, been resisted by France and Germany and a “third way” compromise appears to have been reached. What has happened over unbundling illustrates the political difficulties involved.

Many of these issues are picked up in Shaping Our World Through A Strong Europe, the policy paper going to this year’s autumn conference.  This supports “an efficient EU energy market”, to be delivered through the Lisbon Treaty and / or “the development of a common EU energy policy” that aims to deliver “a open, competitive European energy market, with effective market regulation and a requirement for the supply and distribution of energy to separated”. The party has called on the EU to engage more effectively with Russia.

Still, all of this underlines the extent to which the issues around energy security are EU-based and require political will at European level. And, once again, the issues around energy security and climate change are about money, markets and investment. More big thinking for the Liberal Democrats to do.

And to think that just a couple of months ago, someone told me that we had now “done” energy and climate change policy!


Tristan said...

I wish we had done with it. This 'energy independence' thing is the most idiotic, nationalistic piece of crap to come out of the party for a long time.

Why should we be energy independent? That's not sustainable. We'd be dependent on what we can produce in the UK, if something went wrong we'd be helpless - its the same with food, something the Liberals recognised once upon a time.

Its right for us to be wary of being dependent upon one source for energy, we definitely don't want to depend upon Russia or Saudi Arabia, but to say we can provide all our needs ourselves is the path to poverty.

Has nobody in the party heard of comparative advantage? We are crap at producing some things, its the way it is, so lets produce what we're good at producing and sell them for those things we're crap at selling.

James Schneider said...

Hear, hear Tristan (p.s. don't go)

Andrew H said...

Converting real time shaft power from renewable energy sources such as tidal stream, waves and perhaps wind into HEAT and storing it in large thermal accumulators (batteries) will give this country total 'energy independence'.

Electricity can be generated from the heat store subject to demand at a considerable time later.

See Gentec venturi for more details

Liberal Eye said...

I wonder: could the person who opined that we have "done" energy policy be the same person who told me that the green revolution had "sorted" the World's food supply just months before the price of agricultural commodities started to soar!

I don't think the Lib Dem establishment has yet understood the gravity or imminence of the energy crisis which very different from earlier crises.

While it is well known that oil and gas reserves in the North Sea are past their prime and that production is tapering down it is less generally known that this will happen globally in the next few years. Indeed, because of surging domestic demand in OPEC, export volumes are already declining - hence recent high oil prices.

We therefore face a future of recurrent run-ups in the oil price which will impact, then limit economic growth.

And because gas prices tend to follow oil (and are likely to do so more closely in the future)this will spill over into electricity prices with dire consequences all round - "eating or heating" is the invidious choice increasing numbers will face. I will be very surprised if burnig gas to generate electricity is seen as even remotely feasible for several "decades" into the future.

Against this backdrop to talk of improving markets is to miss the point. Yes markets can and should be better but, however desireable, this does not amount to an energy policy.

In fact the market is working rather well - for the Russians! They have understood that markets are about power, specifically relative power between buyers and sellers. By consolidating power on their side and negotiating with individual EU countries they have managed the age-old trick of divide and rule to their own huge advantage and the EU has fallen at the first energy hurdle.

(As an aside, this is just another example of why I think Lib Dems need to take a far cooler look at just how fit-for-purpose as currently organised the EU really is. Not very!)

As for the implication that the EU might "possibly" eventually source all its non-renewable requirements from within the EU, this will, I think, be a big surprise to anyone in the energy business.

We need urgently to develop new sources of energy. The choices are strictly limited yet neither the EU or the UK has an energy policy worthy of the name.