SOLAR PANEL LOOMING WASTE CRISIS

 The dark side of solar power & the looming waste crisis

Harvard Business Review, 18 June 2021
 
By Atalay Atasu, Serasu Duran, and Luk N. Van Wassenhove,
 
The solar industry’s current circular capacity is woefully unprepared for the deluge of waste that is likely to come. The economics of solar would darken quickly if the industry sinks under the weight of its own trash.
 
It’s sunny times for solar power. In the U.S., home installations of solar panels have fully rebounded from the Covid slump, with analysts predicting more than 19 gigawatts of total capacity installed, compared to 13 gigawatts at the close of 2019. Over the next 10 years, that number may quadruple, according to industry research data. And that’s not even taking into consideration the further impact of possible new regulations and incentives launched by the green-friendly Biden administration.
 
Solar’s pandemic-proof performance is due in large part to the Solar Investment Tax Credit, which defrays 26% of solar-related expenses for all residential and commercial customers (just down from 30% during 2006-2019). After 2023, the tax credit will step down to a permanent 10% for commercial installers and will disappear entirely for home buyers. Therefore, sales of solar will probably burn even hotter in the coming months, as buyers race to cash in while they still can.

Tax subsidies are not the only reason for the solar explosion. The conversion efficiency of panels has improved by as much as 0.5% each year for the last 10 years, even as production costs (and thus prices) have sharply declined, thanks to several waves of manufacturing innovation mostly driven by industry-dominant Chinese panel producers. For the end consumer, this amounts to far lower up-front costs per kilowatt of energy generated.

This is all great news, not just for the industry but also for anyone who acknowledges the need to transition from fossil fuels to renewable energy for the sake of our planet’s future. But there’s a massive caveat that very few are talking about. […]
 
The High Cost of Solar Trash
 
The industry’s current circular capacity is woefully unprepared for the deluge of waste that is likely to come. The financial incentive to invest in recycling has never been very strong in solar. While panels contain small amounts of valuable materials such as silver, they are mostly made of glass, an extremely low-value material. The long lifespan of solar panels also serves to disincentivize innovation in this area.

As a result, solar’s production boom has left its recycling infrastructure in the dust. To give you some indication, First Solar is the sole U.S. panel manufacturer we know of with an up-and-running recycling initiative, which only applies to the company’s own products at a global capacity of two million panels per year. With the current capacity, it costs an estimated $20-30 to recycle one panel. Sending that same panel to a landfill would cost a mere $1-2.

The direct cost of recycling is only part of the end-of-life burden, however. Panels are delicate, bulky pieces of equipment usually installed on rooftops in the residential context. Specialized labor is required to detach and remove them, lest they shatter to smithereens before they make it onto the truck. In addition, some governments may classify solar panels as hazardous waste, due to the small amounts of heavy metals (cadmium, lead, etc.) they contain. This classification carries with it a string of expensive restrictions — hazardous waste can only be transported at designated times and via select routes, etc.

The totality of these unforeseen costs could crush industry competitiveness. If we plot future installations according to a logistic growth curve capped at 700 GW by 2050 (NREL’s estimated ceiling for the U.S. residential market) alongside the early replacement curve, we see the volume of waste surpassing that of new installations by the year 2031. By 2035, discarded panels would outweigh new units sold by 2.56 times. In turn, this would catapult the LCOE (levelized cost of energy, a measure of the overall cost of an energy-producing asset over its lifetime) to four times the current projection. The economics of solar — so bright-seeming from the vantage point of 2021 — would darken quickly as the industry sinks under the weight of its own trash.

Full post
 
 
 
6) Solar power investors burnt by rise in raw materials costs
Financial Times, 21 June 2021

The rapid rise in prices for raw materials has reversed a decades-long decline in the cost of solar energy, denting investor interest in the sector following a record rally in 2020.

Shares in solar companies have fallen by 18 per cent this year, after more than tripling in 2020, according to the MAC Global Solar Energy Index, as companies face higher steel, polysilicon and freight costs.

The supply chain pressures are limiting the potential for further reductions in the costs of solar installations, just as governments pledge to focus on a “green recovery” from the pandemic.

The cost of solar energy fell by 80 per cent between 2010 and 2020, but those dramatic decreases have come to an end, according to S&P Platts.

“The narrative in the solar industry has shifted,” Bruno Brunetti, an analyst at S&P Platts, said. “We have seen steep declines in costs over the past decade, but we are seeing that stabilise now and even increase in some cases.”

The US price of hot-dipped galvanised steel coils, which are used in solar panel frames and structures, has more than doubled from early 2020 to record levels, according to S&P Platts. At the same time, prices for monocrystalline silicon cells, modules that allow for the conversion of light into power, have risen by a quarter from this time last year, BloombergNEF data show.

In addition, freight rates in China have also jumped by 41 per cent this year, according to the Shanghai Containerized Freight Index, which reflects rates for the export of containers from Shanghai.

John Martin, chief executive of the US Solar Fund, said higher raw material prices will probably increase the costs of installing new solar power by 20 per cent — putting solar costs back to the levels they were two years ago. “Decarbonisation costs will come down, but it’s not going to be free — capital will be required,” he said.

The US Solar Energy Industries Association said this week that “compounding cost increases across all materials are just beginning to affect installers”.

THE DEVASTAING IMPACT OF GERMANY'S GREEN ENERGY TRANSITION

Handelsblatt, 24 March 2016

Gilbert Kreijger, Stefan Theil and Allison Williams
 Germany’s massive push into renewable energy has a dark side. As green policies drive up the cost of power, entire industries are shrinking.



“It was a dark, dark day for us,” said Felix Kusicka, the mayor of Biblis, a small town on the eastern bank of the Rhine. For decades, the town’s main employer was a 2500-megawatt nuclear plant that supplied power to nearby Frankfurt. After the authorities ordered the plant shut down in 2011 following the Fukushima nuclear accident in Japan, workers have dismantled the reactor cores and are taking the plant apart piece by piece.

With the shutdown, the town lost 50 percent of its corporate tax take and hundreds of jobs. House prices have fallen. Now, once-prosperous Biblis is shrinking. Stores have shut their doors and hotel rooms are empty. Biblis residents, bitter that even the Japanese are turning on their reactors again, call their town’s demise “the catastrophe after the catastrophe.”

The fate of Biblis is only a tiny sliver of the vast economic upheavals that began when Germany launched its energy transition that simultaneously phases out all nuclear power, winds down coal and other fossil fuels, accelerates the push towards alternative sources of energy, and builds the new grid infrastructure to make it all possible. The fact that Germany is a world leader in green power is by now familiar. Much less familiar is the price the country is paying for it, not just in cold hard cash, but in growing losses and dislocations across the entire economy.

The losers include once-stalwart utility giants like E.ON and RWE that are struggling with rising debt and falling shares. Manufacturing companies, from chemicals maker BASF to carbon fiber producer SGL Carbon, have shifted investments abroad, where energy costs are often a fra_ction of Germany’s.

Losers include laid-off workers in these industries, but also millions of ordinary consumers. Their utility bills have skyrocketed, largely driven by subsidies for eco-friendly fuels. As much as the transition creates new jobs building wind turbines, farming biofuels or installing solar panels on rooftops, the changes are cutting a deep swathe through other parts of the economy. Germany’s “green” revolution has a dark shadow.

The reengineering of Germany’s economy is of course deliberate. When the environmentalist Green party first began co-governing at the national level in 1998, Berlin quickly drafted plans to exit nuclear energy. Generous subsidies to support wind and solar power, tacked on to consumers’ electricity bills, got their start in 2000.

Already struggling to expand renewable energy fast enough to compensate for the nuclear phaseout, Germany had to move even faster after Chancellor Angela Merkel’s surprise decision to accelerate the shift just days after the news from Fukushima. Now, the country is rushing to replace what was once 35 percent of German electricity generation by 2022.
 



Hit hardest, of course, are the traditional utilities. After all, the energy transition was designed to seal their coffin. Once the proverbial investment for widows and orphans because their revenue streams were considered rock-solid — these companies have been nothing short of decimated. With 77 nuclear and fossil-fuel power plants taken off the grid in recent years, Germany’s four big utilities — E.ON, RWE, Vattenfall and EnBW — have had to write off a total of €46.2 billion since 2011.

RWE and E.ON alone have debt piles of €28.2 billion and €25.8 billion, respectively, according to the latest company data. Losses at Düsseldorf-based E.ON rose to €6.1 billion for the first three quarters of 2015. Both companies have slashed the dividends on their shares, which have lost up to 76 percent of their value. Regional municipalities, which hold 24 percent of RWE’s shares, are scrambling to plug the holes left in their budgets by the missing dividends.

Thousands of workers have already been let go, disproportionately hitting communities in Germany‘s rust belt that are already struggling with blight. RWE has cut 7,000 jobs since 2011. At E.ON, the work force has shrunk by a third, a loss of over 25,000 jobs. Just as banks spun off their toxic assets and unprofitable operations into “bad banks” during the financial crisis, Germany’s utilities are reorganizing to cut their losses.

There has also been a quiet but noticeable exodus of energy-hungry manufacturing abroad, not with dramatic plant closures but with an inexorable shift in investments.

E.ON is spinning off its problematic fossil-fuel operations in a new company called Uniper. The utilities have also been calling on Berlin for fresh subsidies to keep idle power-generating capacity on standby – to jump in whenever the wind doesn’t blow or the sun doesn’t shine.

The corporate pain goes far beyond the utility giants. Suppliers to the power industry have also been rocked. Germany’s largest industrial group, Siemens, specializes in turbines, power plants and electricity infrastructure. Parts of that business have collapsed.

“I do not have a single order from Germany,” Siemens chief executive Joe Kaeser recently said about the company’s gas turbine business. “Not today, not next year.”

It’s the second major hit to Siemens from Germany’s energy policies. Siemens once built all of Germany’s 17 nuclear plants, and many more abroad. But after Ms. Merkel’s Fukushima decision, the company gave up its nuclear division and spun it off to the French company Areva. Today, Germany no longer has a nuclear technology industry.

Last year, Siemens also moved the global headquarters of its oil and gas business from Erlangen to Houston, and has been producing gas turbines in Charlotte, North Carolina, since 2011. Mr. Kaeser said Germany’s energy policies will lead Siemens to “reallocate our resources, as painful as that is.” The first to feel the brunt have been the company’s workers; since May 2015, Siemens has slashed 4,500 jobs.

“Several years ago, about one fifth of global demand for gas turbines was in Europe,” said Udo Niehage, Siemens’ head of government affairs in Berlin and representative for the energy transition. “Now, though, the energy transition that’s taking place not only in Germany but in many European countries has significantly reduced our business with fossil fuel power stations in Europe and in Germany, it is almost at a standstill.” [….]

There has also been a quiet but noticeable exodus of energy-hungry manufacturing abroad, not with dramatic plant closures but with an inexorable shift in investments. Automaker BMW and SGL Carbon, which produces carbon fibers for BMW’s lightweight E-series electric cars, built their latest $300 million carbon fiber plant in Moses Lake, Washington, because of “competitive energy costs,” the companies said at the time.

Chemicals giant BASF also chose the U.S. for its largest single investment ever, a $1 billion propylene factory in Freeport, Texas, to take advantage of low energy costs. In the U.S., industrial customers pay less than half the German rate for electrical power, according to the OECD. The difference between gas prices is even higher.

Not only are jobs disappearing, so is knowledge. “There’s definitely a brain drain in terms of conventional power plant production,” said Matthias Zelinger, energy-industry expert at the German Engineering Federation (VDMA), an association that represents manufacturers. “Companies might start just moving their manufacturing to China but eventually the engineering and development follows,” he said. Eventually, he said, knowledge related to fossil fuel power will disappear from Germany.
 


Klaus-Dieter Maubach, chief executive of renewable energy operator Capital Stage, said he experienced the loss of expertise when he worked at E.ON.

“I once helped to build a power plant of 1,100 megawatt in Rotterdam. I still remember it was a huge challenge to find enough people with the appropriate welding skills. Why? Because no one had been making such large plants for decades,” Mr. Maubach said.

Eventually, he said, knowledge related to nuclear power and fossil fuel power will disappear from Germany. “When students know that investments in coal and nuclear power will no longer be made they lose interest in these subjects.”
The result, industry experts like Mr. Zelinger say, is that Germany loses entire branches of industrial engineering in which the country has traditionally been strong, and which are still growing dramatically in the emerging markets.

Ordinary consumers have seen their electricity bills double since the introduction in 2000 of a renewable-energy levy, slapped on every household’s electricity bill to subsidize the owners of wind turbines and solar panels. The total cost has risen from €0.9 billion in 2000 to €23.7 billion last year, and will likely hit €25.5 billion this year.

Consumer advocates warn that a growing number of German families can no longer afford their electricity bills. Some 350,000 have had their power cut off, up 13 percent from 2011. The inefficiency is shocking: the renewable energy produced by €25 billion in electricity-bill surcharges this year will only be worth €3.6 billion on the market, according to the economics ministry.

No one knows what the final bill will be. The green-power surcharge on electricity bills has already cost consumers €188 billion since it was first introduced in 2000 – or €4,700 for each of the country’s 40 million households. The nuclear shutdown will cost another €149 billion by 2035, according to a Stuttgart University study.

The latest cost involves the vast new grid infrastructure necessary to connect new offshore wind farms in the country’s stormy but sparsely populated north with the energy-hungry south. Because of citizens’ outrage over new high-voltage lines crisscrossing the landscape, plans are now to run them under-ground, a novel experiment with long-distance transmission.

These costs, too, will be tacked onto electricity bills, while large industrial users will be hit with another €370,000 to €990,000 each year, according to the government. Altogether, the cost of Germany’s energy policies will reach €1.15 trillion by 2050, according to a Fraunhofer Institute study. Others say the costs will be even higher.

Ironically, the move away from nuclear power and towards renewables has left the climate losing out, too. Unlike in other European countries, German energy policies have always been more focused on ending nuclear power rather than concerns over the climate – nuclear power emits no CO2, after all.

As the country moved swiftly to wind down nuclear power, utilities fired up their carbon-spewing coal generators again, leading to higher emissions in 2012 and 2013. Total emissions have barely budged since 2008, despite the massive wind and solar buildout.

Adding to the bitterness about lost jobs and disappearing industries are big doubts if the changes even make sense. “Germany has set itself extremely ambitious targets but I don’t think the global climate is determined here,” said Michael Denecke, an official with Germany’s union of mining and energy workers.

“Germany is responsible for 2.7 percent of global carbon emissions, so we’re fighting over nanograms here while in China, they’re building coal power stations every other week.”
 


As the country plows ahead with its far-reaching energy policies, the future is uncertain for companies and consumers. “Industry has become fearful and skeptical about the political debate,” said the engineering association’s Mr. Zelinger, adding that companies need to be able to plan in the short and longer term.

More unknowns are ahead.

“There was a lot of initial euphoria, when we achieved the first 5 percent in the switch to renewables,” he said. “But reaching 50 percent is harder and a lot needs to happen.” The technical and economic challenges are enormous, Mr. Zelinger, though adding that there are many positive aspects to the energy transition as well.

Why aren’t more Germans complaining? The energy transition remains popular, with strong support in the political parties and leading media. Most of Germany’s current power brokers came of age in an era of fervent anti-nuclear protests, so in a sense this is the culmination of a generational project.

Most Germans also see the energy transition as positive for the environment.

Most Germans also see the energy transition as positive for the environment, even if Germany has negligible influence on global CO2 emissions. And the vast amounts of money that have been mobilized have created new jobs, new companies — and new power centers to advance the cause. For the companies and workers on the losing end, speaking up can seem like tilting at windmills — or the zeitgeist.

Another reason why the losers of Germany’s energy transition have kept mostly quiet could be that they, too, have been bought off. Utility workers can now retire as early as age 52 and receive 80 percent of their pay. In the past, layoffs on the scale of what is now happening at the utilities often caused a national scandal. Instead, union leaders have kept largely silent.

UK GOVERNMENT MUST ABANDON NET ZERO IF IT IS TO SURVIVE

 London, 29 December - Net Zero Watch has called on Boris Johnson to declare an energy emergency and introduce radical policy reforms in order to prevent the energy cost crisis turning into an economic and social disaster.

The call comes as fears grow over a devastating energy cost and energy security crisis, with spiralling prices hitting households and businesses hard, and warnings that energy bills could double or even treble next year.

It is reported that Boris Johnson is considering to hand out £20 billion of taxpayers' money to energy suppliers who are threatening to double or treble energy costs.

Despite the fact that Britain will need natural gas for decades to come, the ban on fracking and the curtailing of conventional gas exploration has led to serious shortages of domestic natural gas production. The result is super-charged energy prices and rising inflation, a painful cost burden already struggling households are now facing.

The government should suspend costly Net Zero plans as a matter of urgency and put energy costs and security of supply at the centre of national security.

The government has only one way to avoid political oblivion, and that’s for Britain to introduce radical policy reforms and to start using the UK’s massive natural gas resources, which would bring down energy costs and enhance energy security significantly.  

In fact, natural gas prices in the UK are nearly ten times higher ($35/MMBtu) than they are in the US ($4/MMBtu) where fracking is widely used and shale gas is cheap and abundant.

If the shale gas moratorium was lifted tomorrow, it would take at least 12 months to get the gas flowing. But the Government needs to take strong steps now, in order to send out a clear signal to investors. Otherwise the energy and cost of living crises will become permanent, posing an existential threat to this government and many businesses.

The British Geological Survey estimates that the total volume of shale gas in the Bowland basin is between 820 and 2200 trillion cubic feet, with a central estimate of some 1300 trillion cubic feet. It is estimated that if 25 trillion cubic feet of this huge resource could be recovered it would be worth nearly one £trillion at current gas prices.

The current energy cost and supply crisis is the result of decades of ill-considered climate policy which has prioritised costly emissions reductions technologies while neglecting national security, security of supply and economic and social impacts.

The severity of the current crisis merits emergency measures, not only to protect consumers and the economy, but also to avoid the crisis from turning into an economic and social disaster.

Net Zero Watch is calling on the Government to:

1. Suspend Net Zero plans as a matter of urgency and put energy costs and security of supply at the centre of national security.

2. Suspend all green levies on energy bills, funding subsidies temporarily out of taxation, but acting firmly to cancel these subsidies in the near term.

3. Cancel constraint payments, and compel wind and solar generators to pay for their own balancing costs, thus incentivising them to self-dispatch only when economic.

4. Remove all fiscal and other disincentives to oil and gas exploration, including shale gas, to increase domestic production levels.

5. Suspend carbon taxation on coal and gas generation in order to provide consumer relief and ensure security of supply.

6. Re-open recently closed gas storage facilities and support new storage projects.

7. Suspend all further policy initiatives directed towards the Net Zero target, including the Carbon Budgets, the heat pump targets, and the overly ambitious timetable for the ban on petrol and diesel engines, until the UK energy sector has been stabilised.

8. Facilitate the acceleration of building and deploying Small Modular Reactors for both electricity and heat.


Dr Benny Peiser, Net Zero Watch director, said:

"It is almost certain that energy companies, should they survive the coming storm, will not repay the £20 billion fund they are demanding. In any case, handing out billions to energy suppliers while energy prices are going through the roof would go down like a bucket of cold sick with voters."

"Boris Johnson must prioritise national security as a matter of urgency by declaring an energy emergency, restarting North Sea gas exploration immediately and abandoning the effective ban on the development of shale gas."

"By continuing to prioritise the Net Zero agenda over national security and economic stability, Boris Johnson risks turning a crisis into a national disaster."


Contact

Dr Benny Peiser
Director, Net Zero Watch
e: benny.peiser@netzerowatch.com
m: 07553 361717

UK GOVERNMENT WATCHDOG FAILS TO APPLY RIGOROUS ASSESSMENT OF GOVERNMENT'S NET ZERO POLICY

 

Office for Budget Responsibility has failed in its statutory duties to assess the fiscal risks of Net Zero

London, 9 July: The Global Warming Policy Forum (GWPF) has criticised the Office for Budget Responsibility (OBR) for failing to assess the full fiscal risks of the government’s Net Zero policy.  In a statement published today, the GWPF shows that the OBR’s Fiscal Risk Report 2021 relies unquestioningly on unduly optimistic assumptions and cost estimates by the Climate Change Committee (CCC).   Despite identifying the fact that the ‘indirect effects’ of Net Zero policies could have negative fiscal consequences, the OBR fails to assess these effects and does not address the likelihood that Net Zero costs could be significantly higher than the CCC’s £1.4 trillion cost estimate on which it bases the risk analysis.   The OBR failed to consider the possibility that far from seeing a steady reduction in the cost of decarbonisation,  renewable electricity and low carbon technologies (heat pumps, electric cars/hydrogen vehicles) remain expensive, thus increasing the cost of doing business in the UK, eroding economic competitiveness and reducing fiscal receipts from income and corporation tax.   By ignoring these possible and — in our view — likely scenarios, the OBR has failed to identify the grave fiscal Net Zero risks facing the UK state. The OBR’s adoption of the Climate Change Committee’s blinkered optimism undermines confidence in its projections of direct fiscal costs to government, but the danger of mistakes concerning indirect effects is of even greater magnitude, and suggests that the OBR is failing in its statutory duties.   Contact Global Warming Policy Forum e: info@thegwpf.com m: 07553 361717 -----------------   OBR turns a blind eye to Net Zero policy risks Global Warming Policy Forum, 9 July 2021   The Office for Budget Responsibility (OBR) has failed to assess the true risks of the government’s Net Zero policy and is not a reliable guide to the long-term sustainability of Britain’s public finances. The latest Fiscal Risks Report from the UK government’s independent Office for Budget Responsibility (OBR) devotes much of its discussion to the costs of implementing the 2050 Net Zero emissions target. Unfortunately, it has failed adequately to discharge its statutory duty to analyse the true risks this policy poses to the sustainability of the public finances. While it correctly notes a significant potential impact from the ‘indirect effects’ of climate policies it has failed to assess the possibility that these indirect effects could be significantly negative, causing economic contraction that reduces both income and corporation tax receipts. In short, the OBR’s Fiscal Risks Report 2021 has failed to produce a credible risk assessment and is not a reliable guide to the long-term sustainability of the public finances. This defect flows from the fact that the OBR relies all but exclusively on the opaque and tendentious cost estimates of the Climate Change Committee (CCC), which are extremely optimistic about the net cost of low carbon policies and thus project correspondingly unrealistic technology deployment scenarios. In sharp contrast to its excessive optimism about Net Zero, the OBR presents an unbalanced emphasis on pessimistic assessments of the costs of climate change. Unjustified optimism on the one hand, and blinkered pessimism on the other results in an overall lack of balance that means the resulting fiscal risk assessment is both incomplete, distorted and unfit for purpose. A wider range of scenarios, from a wider range of sources, with a stronger emphasis on current trends, however discouraging, not wishful thinking about the future, is badly needed. This inadequate report is yet more evidence that the lack of objectivity in the institutions of British government has itself become a fiscal risk factor, jeopardising the state’s reputation and potentially increasing the cost of public borrowing, as well as making the UK a less attractive jurisdiction in which to invest capital. Analysis The UK government’s independent Office for Budget Responsibility (OBR) has in the last week published its latest Fiscal Risks Report. It devotes a large part of the document (pages 83–152) to the consideration of climate change policies, concluding that the “Between now and 2050, the fiscal costs of reducing net emissions to zero in the UK could be significant but not exceptional” (p. 150). It is important to recall that this conclusion is narrowly focused on fiscal implications. The OBR does not consider the wisdom of current policies overall for British citizens, but only the implications of those policies for the public finances. The Office for Budget Responsibility operates under a remit set out in the Budget Responsibility and National Audit Act (2011) which states that the OBR has the duty of examining and reporting on “the sustainability of the public finances” (see paragraph 4(1)), with the specific obligation to reveal in its reports all the assumptions it has made as well as giving an account of “the main risks which the Office considered to be relevant” (6(b)). Though narrow, this is not an undemanding specification, and it is reasonable to ask whether the OBR has adequately discharged its statutory duties in this latest report. There are good grounds for thinking it has not done so. On page 123 the OBR authors write, correctly, that “An assessment of the fiscal risks posed by the transition to net zero must take account of four different ways in which this transition can affect the public finances”. The four items are listed as follows: * First, government is likely to be called upon to bear some of the direct cost of transition described above, at the very least for the buildings it occupies and vehicles it operates. * Second, it faces a direct loss of tax revenues linked to fossil fuels and emissions. * Third, it could derive a direct revenue benefit by taxing carbon more heavily. * Fourth, it must contend with the indirect effects (which could be negative or positive) of the transition on the public finances via wider economic outcomes. Of these four fiscal risks, the OBR, remarkably, only analyses the first three in detail, ignoring close assessment of the fourth risk. The credibility of the assessment of these matters is further undermined by the fact that it is all but exclusively reliant on the Climate Change Committee (CCC) for its estimates on policy costs and technology deployment rates, though reference is also made to equally optimistic economic growth scenarios from the Bank of England (summarised in 3.26, which shows a complete return to trend after the pandemic by 2023-2024, and an economy in 2050 almost 1.6 times larger than it is at present). It is bad enough that this blinkered optimism undermines confidence in the OBR’s projections of direct fiscal costs to government, but the danger of mistakes concerning indirect effects is of even greater magnitude and suggests that the OBR has neglected the main risks it has identified as relevant, failing to discharge its statutory duties. The fragility and opacity of the Climate Change Committee’s assumptions, for example concerning the costs of offshore wind, are well known. The OBR did not take into account the likelihood that the “indirect effect” it has identified as a fiscal risk is significantly negative and that the Net Zero costs could be much higher than its already startling £1.4 trillion cost estimate. It did not consider the risk that far from seeing steady upwards growth, the UK economy might stagnate or even contract as scarce resources were transferred on a large scale into low productivity energy sources (wind, solar) and high cost conversion devices (heat pumps, electric/hydrogen Vehicles), thus increasing production costs, eroding UK competitiveness and reducing fiscal receipts from income and corporation tax. That the OBR did not exercise this elementary caution is inexplicable. All the data required to start the alarm bells ringing can be found in its own pages. Table 3.1 in the study, for example, describes the three CCC Net Zero scenarios, which are implicitly presented as the Pessimistic (“Headwinds”) Optimistic (“Tailwinds”) and Middle ground (“Balanced”) pathways. But a glance at the table shows that even “Headwinds” is highly optimistic, projecting 75% of electricity from renewables, Electric Vehicles as forming 100% of sales in 2035, and over 70% of households using hydrogen for heating. The “Balanced” and “Tailwinds” scenarios are still more extreme, the latter projecting 90% renewable electricity, a 50% reduction in meat and dairy consumption, the planting of 70,000 hectares a year by 2035, and a 15% per cent reduction in flying. Transformational change on this scale is obviously an extremely high-risk undertaking, with physical, economic, and political dangers. But the OBR does not consider any alternative to the CCC’s assumption that this will undoubtedly be economically beneficial and politically acceptable to the United Kingdom. The scale of this gamble can be clearly seen in the OBR’s use of the CCC’s predictions for the net cost by sector of reaching Net Zero via the “Balanced” pathway:     Net cost by sector of reaching net zero in the CCC’s balanced pathway. Figure 3.12 in the OBR, Fiscal Risk Report 2021, p. 107.   The black line on the chart represents the total net cost to the economy expected by the CCC, and starts to fall by 2027, delivering a major saving from 2040 onwards. But that net saving is critically dependent on reductions in the cost of transport in spite of a shift to electricity and hydrogen. The OBR reports that these technologies will deliver “operating savings” of £30 billion a year in 2050 (p. 108), justifying this claim by reporting that “over the next decade, battery prices are projected to fall rapidly”, with “running costs” becoming cheaper than petrol and diesel as early as 2025. The cause of this incredible fall in running costs must be attributed primarily to the assumption of low cost renewable electricity (see p. 119), but also to the imposition of a carbon tax on fossil transport fuels. The OBR assumes that consumers will quietly accept a carbon tax of £101 per tonne of carbon dioxide in 2026, roughly double the Social Cost of Carbon, and five times the UK Emission Trading Scheme (UKETS) price, rising to over £180 a tonne in 2050. In fact, most of the projected saving is due not to a decline in battery costs but to these dramatic assumptions about cheap electricity and the imposition of carbon taxation, a point that can be clearly seen in the OBR’s own chart of the detailed effect, drawn once again from the Climate Change Committee: Surface Transport: Whole Economy Net Costs. Figure 3.14 in OBR, Fiscal Risk Report (July 2021), 110. Source: CCC balanced net zero pathway.   Note that the annual investment costs (capex) on cars and vans hardly falls at all over the period 2025 to 2050 and is predicted to be rising at the end of that period. The net cost reduction predicted in the black line is being delivered by “operating savings”, in other words low-cost renewable electricity and hydrogen. It is no exaggeration to say that everything in both the CCC’s and the OBR’s cost assessment depends on their optimistic assumption that the cost of renewable electricity will drop significantly. Given that sensitivity, the OBR should at the very least have considered the possibility that the reductions in renewable electricity costs, claimed to be likely in the mid 2020s, would not materialise. A number of analysts have been warning that in the light of empirical data in company reports this downbeat scenario is more likely than not.[1] Caution on the underlying trends in capital cost and operating cost for offshore wind are by no means unknown to the financial markets. No one will be surprised that the Climate Change Committee has simply ignored these concerns in its zeal to make the case for Net Zero, but the OBR, with its statutory duties towards the public finances, has no excuse for failing to assess these significant policy risks which have been known for some time now. Indeed, this latest Fiscal Risks Report confirms general concerns that the topic of climate change has induced a general institutional failure of responsibility in the British government. There is a growing tendency to unquestioningly copy and paste optimistic assessments about policy costs and risks from one report to another. The taxpayers who pay the salaries of these civil servants will look in vain for independent critical thinking, for the operation of the checks and balances which should prevent group-think and systemic policy error. There is a real possibility, and we would say a high likelihood, that the Climate Change Committee is mistaken about the costs of the Net Zero transition, and that indirect economic effects, correctly identified but not adequately examined by the OBR, will be severely negative for the economy as a whole and the public finances, with stuttering economic activity and stagnant or even falling tax receipts. One might even say that the absence of cool-headed and credible analysis within government is now itself becoming a fiscal risk factor of significance. International financial analysts and investors will undoubtedly see the OBR’s excessive optimism for what it is, a political exercise, a policy delivery boost, not the unbiased and comprehensive risk analysis and sanity-check that one expects from a competent administration. Over-optimism and the absence of rigorous internal scrutiny can only undermine the credibility of the British state, with poisonous implications for the cost of government borrowing and for the prospects for inward investment. Britain is beginning to look like a text-book example of a failing planned economy.   [1] For empirical data and analysis of offshore wind energy costs see * Offshore wind strike prices: Behind the headlines   * Wind Power Economics – Rhetoric and Reality   * Costs, Performance and Investment Returns for Wind Power Presentation   * Offshore wind cost predictions and the cost of outcomes

IT ALL COMES DOWN TO THE COST OF ENERGY

John Constable: Energy Cost Is Why We Disagree About Climate PolicyGWPF Energy, 4 June 2017

Dr John Constable: GWPF Energy Editor

By withdrawing the United States from the Paris Agreement President Trump has put the burden of proof on those private investors and nation states that believe renewable energy is economically beneficial. Far from being a disaster, this is a step towards a reasonable and spontaneously attractive climate change policy.

Like many of those vilified for their views on the subject of climate change, President Trump is more of an energy policy sceptic than an anti-rational “denier” of atmospheric science. He senses, and with good reason, that the aggregate of energy policies proposed to mitigate climate change brings with it the threat of major wealth destruction and a reversal of several centuries of exponential increases in human well-being.

Mr Trump sees this from his own national perspective, believing, again with good reason, that the policies are extremely and comparatively disadvantageous to the United States. However, this narrow view is a subset of and entirely compatible with the broader conclusion that renewable energy policies will be damaging to human prospects at the global level, however much they may favour certain countries in the short term.

Those who disagree with him are, for the most part, either explicitly or implicitly affirming the contrary proposition, namely that the renewable energy transition envisioned is already economic and will bring enhanced global prosperity.

That is the black and white of the matter; you either think that the low carbon energy policies make sense, or you don’t, and it is this root level division that provides the most profound explanation of why we disagree to any extent about climate change. If there were no differences of opinion about energy, there would be hardly any disagreement about climate change policy.

Furthermore, this account not only explains the fact of the quarrel, but also the haut en bas and moralising tone of Mr Trump’s critics. If you believe that economic, low-emitting renewable energy is already available, then it will also seem to you that only ill-will and stupidity prevents its adoption, and thus that President Trump’s decision to withdraw from the Paris Agreement is ignorant at best and probably malign.

But his views are neither of these things. The reasoning is certainly elliptical, and the manner is brusque, to say the least, but in the last analysis he simply has a different view about the economic consequences of renewable energy, views that are in fact widely held amongst both specialists and the general public.

The case for renewables is not proven, and in spite of a rolling barrage of positive PR round the industry there are still very good grounds for reserving judgment. Even if the claimed equipment cost reductions are real, and this is extremely dubious in the case of wind power, the economic lifetimes remain deeply uncertain, and the electricity system integration costs for uncontrollable generators are without doubt extremely high. Upbeat babble about electricity storage, smart metering and ingenious demand management cannot conceal the fact that these “solutions” all tend towards increasing the capitalization of the electricity sector, thus greatly reducing its productivity, a clear recipe for higher consumer costs and for deeply unpleasant macroeconomic impacts.

As with many problems in technology and commerce, a resolution to this matter cannot be delivered politically or administratively. It is, to use Easterly’s convenient phrase, not a matter of administrative deployment, but a research question, the answer to which can only be discovered by free experiment and the taking of risks. Indeed, the President’s de facto rejection of state support for alternative energy actually brings this discovery closer.

A number of US corporates and other interests are now declaring that they will continue to invest in low carbon technologies in spite of the President’s decision to withdraw from the Paris Agreement. Fine. Let them do so. If the enthusiasts are right, then renewable technologies will sweep the board through fundamental and real advantage, bringing general benefit. If they are wrong, the lesson will be learned painfully and in full public view but with limited malinvestment.

So in pursuit of truth, let us remove all the deep market coercions that are currently feeding the suspicions of President Trump, amongst others. Delete the portfolio standards, abolish the tax credits and income support subsidies, and make the ‘alternative’ technologies pay their costs on the system and earn their their place in the wholesale markets through normal competition. And by all means do the same for equivalent subsidies to fossil fuels, though green campaigners will be disappointed to find that these are not nearly as common as they think.

Many “Parisians” are now consoling themselves with the thought that a Trump presidency cannot last more than eight years at the most. That is an evasion. The reality to which Mr Trump has given voice is enduring. It can be temporarily suppressed, but it will not go away. The disagreement about energy is not trivial. Cheap energy is the cause of prosperity. Climate policies grounded in anything other than cheap energy will not be sustainable.

CLIMATE POLICY RISKS UK RECOVERY

Climate change policies risk major damage to the economic recovery

A preoccupation with 'green' energy policies at any cost undermines the competitiveness of manufacturing industry

A newly published report from the independent think tank Civitas reveals that the increased costs of energy arising from 'green' energy policies are set to increase significantly. Increased costs will hurt manufacturing at a time when much depends on the sector to generate the economic growth the country needs, and to rebalance the economy.

In British Energy Policy And The Threat To Manufacturing Industry, Ruth Lea and Jeremy Nicholson examine the impact of the recent Labour Government's policy on energy prices. They argue that Labour's aim to reduce carbon emissions and increase the proportion of energy generated from renewable sources, significantly increased costs for energy consumers. Lea and Nicholson's analysis provides a timely warning because under the new Coalition Government, energy policy could be as damaging to manufacturing industry as it was under Labour.

Business electricity bills already incur a 21% 'surcharge' because of 'green' commitments

Lea and Nicholson cite evidence that the recent Labour Government's climate change strategy hiked up electricity bills. For example, BERR estimated in 2008 that the 'surcharge' on electricity prices, attributable to climate-change policies, amounted to an extra 14% for domestic users and 21% for business. Furthermore, DECC's The Renewable Energy Strategy (2009) suggested that these surcharges could be as high as 33% and 70% by 2020 respectively.

Lea and Nicholson highlight the two major legislative commitments responsible:

1. The Climate Change Act (2008) - including a legally binding target of at least an 80% cut in greenhouse gas emissions by 2050.

2. The EU's Renewables Directive (2008) - under which the UK must meet 15% of its final energy consumption through renewable sources by 2020.

Britain will bear a greater cost than other countries

This country is particularly badly placed for such commitments. First, Britain is starting with a very modest renewables industry, so the burden of the EU's Renewables Directive will be substantial:

'The proportion of renewables to total energy consumption in 2005 was just 1.3%, compared with an EU27 average of 8.5%.' (p.6)

Secondly, even without the extra costs associated with climate change policies that are due to be imposed, Lea and Nicholson argue, Britain's industrial electricity prices already tend to be amongst the highest of any major economy. This puts British business and, in particular, energy intensive users at a cost and international competitiveness disadvantage. Moreover, given the expected increases in the climate change surcharges, Britain's cost disadvantage will almost certainly increase, thus undermining competitiveness further.

'Such extra costs would inevitably tilt the balance for many businesses and render them unviable in Britain.' (p.10)

Energy intensive industries to be hardest hit
- with a domino effect on downstream industries

Energy intensive users, including steel, glass and ceramics, bulk chemicals, industrial gases and cement, are especially vulnerable. These are important contributors to GDP not only in their own right but also because of their inter-dependent relationship with 'downstream' industries. As Jeremy Nicholson comments:

'Britain is already losing energy intensive businesses because of the lack of competitiveness... There is no doubt that high energy prices have already been a factor behind industry closures.' (pp.10-11)

Lea and Nicholson outline specific examples of the layers of 'fall out' from such closures - for example, the INEOS Chlor plant in Cheshire manufactures chlorine and caustic soda which are vital inputs to a wide-range of 'downstream' industries including disinfectants, plastics, pharmaceuticals, soaps and detergents.

'Rather than import the basic chemicals, many of the downstream businesses would migrate to countries where they were still domestically produced for reasons of reliability of supply and transport costs.' (p.13)

Policy must help rather than hinder

As the economy struggles to emerge from the economic crisis of 2008-2009, it is widely assumed that the manufacturing sector will contribute positively to the general recovery and the rebalancing of the economy. Under these circumstances, the report calls on the new Coalition Government to ensure that manufacturing industries are supported by policies that help rather than hinder their competitiveness to enable economic growth and therefore lead to fewer public spending cuts. According to Ruth Lea:

"The economy desperately needs a competitive and thriving manufacturing sector if it is to prosper. Competitive energy prices are vital to the success of manufacturers, especially energy intensive users. Government energy policies are, however, remorselessly driving up energy costs thus risking the 'migration' of manufacturing plants to economies where the costs are lower." To read the full booklet use this link.

THE REAL COST OF OUR LOW-CARBON OBSESSION

NIGEL LAWSON  Daily Tel. 3rd June 2017

Our low-carbon obsession is costing us dear

The next government must prioritise energy that is cheap and reliable
if it is to mend public trust

Donald Trump‘s decision to withdraw the United States from the Paris
Agreement has dealt a hammer blow to an elite consensus which has
built up around the issue of climate change. That consensus has placed
cutting carbon dioxide emissions above people‘s jobs and protecting
the environment. With US industry already enjoying a substantial
competitive advantage over European firms, this decision will make
European climate policies all the more unsustainable. If Britain is to
keep up with the rest of the world, it is essential that the next
government rethinks energy policy to prioritise competitiveness and
affordability.

The 2017 Conservative manifesto has promised to do just that, and sets
a target for Britain to have the lowest energy prices in Europe. This
is a striking change of tone compared with previous manifestos, but
this objective will only be achieved through extensive reforms to
existing policies, alongside the political will to fight powerful
vested interests.

The next government will first need to acknowledge what has gone
wrong. Britain‘s obsession with unilateral decarbonisation has taken
precedence over relieving fuel poverty and keeping prices competitive.
It is inconceivable how political parties can reconcile being on the
side of working people while at the same time driving up their cost of
living. The Climate Change Act is set to cost the UK economy
approximately £320 billion by 2030 - equivalent to funding the NHS in
England for three years.

Existing energy policies that claim to be ”environmental• are nothing
of the sort. Bjorn Lomborg, the head of the Copenhagen Consensus
Centre, has estimated that even if every nation meets its pledges
under the Paris climate change agreement, the total reduction in the
planet‘s temperature will only be 0.17C by 2100. With America‘s exit,
even this paltry figure may not be achieved.

By contrast, the bad environmental consequences of energy policies
have been tangible and significant. Commitments to bioenergy are
damaging biodiversity and have distorted international food markets.
The rare earth metals used in wind turbines come from poorly regulated
mines in China which leak toxic and radioactive waste into nearby
lakes on an industrial scale, perfectly illustrating the vacuity of
the ”out of sight, out of mind• attitude of virtue-signalling ”clean•
energy advocates.

But the harmful consequences of low-carbon policies are harder to
ignore when they are right on your doorstep, or even inside your home.
Britain‘s air pollution crisis is the result of misguided low-carbon
policies that incentivised diesel cars. People have died because
politicians couldn‘t resist the desire to ”save the planet•. Recent
research also suggests that biomass power stations may not have lower
CO2 emissions than coal and gas. What will it take for politicians to
question the wisdom of spending hundreds of billions on failing
policies instead of putting the needs of ordinary families first?

Flexibility will be crucial to a more competitive approach. The
current programme of five-yearly decarbonisation targets guarantees
prohibitive costs for consumers today, and prevents the UK from taking
full advantage of the falling costs of various technologies. Renewable
energy lobbyists often claim that costs have come down to competitive
levels; this should be put to the test by the removal of subsidies
after 2020.

The manifesto also described ”the discovery and extraction of shale
gas in the US• as ”a revolution•. As a result, US manufacturers have
done even better and investors are flocking back to North America;
perhaps $160 billion has been earmarked for petrochemical plants alone
since 2012. Proposals to change the planning law for shale
applications could not come soon enough.

Energy policy in recent years has been marked out by an unhealthy
relationship between government and lobbyists from large renewable
energy firms. After leaving office, former energy secretary Ed Davey
walked into three advisory roles with firms with links to renewable
energy companies: unmistakable evidence of a ”revolving door• between
big business and government, even if no rules were broken. The power
of lobbying interests can be seen clearly in the fiasco surrounding
the Swansea Bay tidal lagoon. This project, promoted by another former
energy minister, is expected to be formally rubber-stamped by
government in the next few weeks despite being a completely uneconomic
technology. If expensive projects like this continue to get the green
light, the full benefits of the shale gas revolution are unlikely to
be realised. Stronger safeguards against corporate lobbying will lead
to better value for the taxpayer and a more competitive energy sector.

Britain‘s decision to leave the EU has illustrated a deep disconnect
between the political elite and many people in the rest of the country
who feel ignored and left behind. By leaving the Paris Agreement,
Trump has delivered on his pledge to the left-behind in America. We
too must now look beyond a narrow obsession with renewables to a
fairer alternative that prioritises cheap and reliable energy. This
will help mend broken public trust, boost the economy and put Britain
on a secure footing as we look outward to trade with the rest of the
world.

EU ENERGY DOCUMENT LEAKED

 The Energy Collective, 18 February 2015

Roman Kilisek

Last week, the European Commission held its first orientation debate on the Energy Union in the college of the Commission. “It was the first time that all commissioners together had an in-depth discussion on the issue. And I can tell you that there was very broad agreement on the main features of the future Energy Union, an Energy Union that puts citizens at its core,” the Vice-President for Energy Union Maroš Šefčovič said in his opening speech at the Energy Union Conference in Riga (Latvia).

Thanks to Alice Stollmeyer – an excellent source for the latest transpiring news on EU energy and climate policy in Brussels – who granted access on her website to an internal Commission discussion paper on the Energy Union (dated January 30) leaked to her, we are in a position to catch a glimpse of the preliminary outline of the future EU Energy Union. According to Ms. Stollmeyer, the EU Commission is expected to adopt this ‘Framework Strategy’ on February 25.

The discussion paper starts out explaining why the EU needs an Energy Union and lists a slew of ‘ills’ as they relate to energy procurement in the EU:

“We import 53% of our energy, which makes us the largest energy importer in the world, at a cost of 400 billion euro a year. Many Member States – especially those dependent on a single supplier or a single supply route – remain too vulnerable to supply shocks. 90% of our housing stock is energy inefficient. 94% percent of transport relies on oil products, of which 90% is imported. Collectively, we spend almost €110 bn per year – directly or indirectly – on energy subsidies, often not justified. Our energy infrastructure is ageing, and often not adjusted to the increased production from renewables. There is a need to attract investments, but the current market design and national policies offer insufficient predictability to potential investors. Our internal energy market is far from complete. Energy islands continue to exist and many markets, for instance in South-East Europe, are not properly connected to their neighbours. From 2012 to 2013 post-tax electricity prices for households increased on average 4.4%, while at the same time wholesale prices fell considerably. (…) For European companies, electricity prices are 40% above the US, and gas prices are even three to four times higher than in the US, which impacts the competitiveness of our industry, in particular our energy-intensive industries.”

This extensive list leads to only one conclusion; namely, that “Europe has no choice: if it continues on the present path, the unavoidable challenge of shifting to a low-carbon economy will be made harder by the economic, social and environmental costs of having fragmented national energy markets.” As a consequence, the “move away from a fragmented system characterized by uncoordinated policies based on narrow national interests, leading to national barriers and energy-isolated areas,” is inevitable.

So, what is “The Way Forward” in the Commission’s view? These are actually the most interesting paragraphs in the leaked discussion paper. The ‘energy security’ dimensions that need to be worked on read more like a ‘memorandum of understanding’ with respect to well-known, persistent but often latent issues, than a real actionable strategy. It begs the question of why something will get done this time, given these issues have persisted for at least a decade.

First, it should not come as a surprise that “energy security depends on solidarity and trust between the Member States.” The paper states that “[j]oint approaches in the field of energy can make all parts of the European Union stronger, for instance in case of supply shortages or disruptions.” In general as well as in theory, that makes perfect sense. However, it is not conducive to solidarity if Germany pays effectively lower prices for Russian natural gas – admittedly because of long-term supply contracts – than Eastern European countries.

Furthermore, the paper recognizes that European gas supply needs to be diversified – perhaps modeled along the lines of Northern Europe’s ‘multiple suppliers structure’: “Work on the Southern Gas Corridor must be intensified to enable Central Asian countries to export their gas to Europe. We will equally explore the full potential of liquefied gas, including as a back-up insurance.”
Leaving the project funding part aside, the fact that the Southeastern flank of Europe is very much in geopolitical flux is often underappreciated. Greece is attempting to – at the very least – emancipate itself from Brussels and the EU’s tentacles with regard to Greek post-financial crisis economic policy, which includes stringent labor-market reforms and austerity. Additionally, Turkey’s EU membership has hung in the balance, with Ankara left to ponder its “candidate country” status for over a decade.

HOW THE UK ENERGY REGULATOR WAS RENDERED TOOTHLESS

John Constable: How Ed Miliband Neutered UK Energy RegulatorGWPF Energy Comment, 16 May 2017

Dr John Constable: GWPF Energy Editor
 There is likely to be increasing pressure to reform the gas and electricity regulator, Ofgem, which is widely held to have failed in the protection of consumers. This accusation is to a large degree both misguided and unjust. Ofgem is constrained by its Statutory Duties, which were revised by Ed Milliband in 2010 to put climate policy costs beyond criticism. It is this, as much as institutional lassitude, that accounts for it being so ineffective a consumer champion.

In the wake of concern about rising electricity retail prices to domestic households, the Conservative Party has suggested a price cap on Standard Variable Tariffs. It is fair to say that this policy has not been well received by commentators and economists, who with very good reason believe it likely to be counterproductive. Whether the voting public will be persuaded that a price cap is in their long-term interest remains to be seen, but it could well prove popular. – With a maladroit sense of timing that is typical of the hapless energy industry my own electricity and gas supplier has just sent me a letter explaining that due to price rises next year’s annual dual fuel bill is likely to be about 8% higher.

Doubtless many other households are receiving similar news, and perhaps thinking positively about Mrs May’s offer to stamp on rip-off tariffs.

One, more sophisticated, reaction to this sort of news is to blame the regulator, Ofgem. If the government needs to wade in to protect consumers, surely the regulator must have failed in its job. This is an understandable conclusion, but to a very significant degree it is unjust to Ofgem, which is itself tightly regulated by the legal definition of its Statutory Duties and powers. These are defined in the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002, the Business Protection from Misleading Marketing Regulations 2008 and the Unfair Terms in Consumer Contracts Regulations 1999, and, crucially, in amendments to these acts. Perhaps the most important of these amendments occurred in the Energy Act of 2010, which originated under Ed Miliband when he was Secretary of State at the Department of Energy and Climate Change. Though a small change, it drew the regulator’s teeth.

The Utilities Act 2000 had described the overarching principal objective for energy regulation as the protection of the interests of existing and future consumers, wherever appropriate by promoting competition (for further details see this DECC analysis). This was a lucid and unconstricting brief. A determined regulator could range far and free in the pursuit of consumer welfare.

The Energy Act of 2010 amended this principal objective by defining “interests” thus in two separate paragraphs (16 (3) 1A and 17 (3) 1A referring to gas and electricity:

Those interests of existing and future consumers are their interests taken as a whole, including—
(a) their interests in the reduction of gas-supply/electricity supply emissions of targeted greenhouse gases; and

(b) their interests in the security of the supply of gas/electricity to them.

This change was of enormous importance, since an increasingly large part of the charges on the consumer were (and still are) the result of policy. In effect, the revision to Ofgem’s principal purpose made them unable to comment on the imposition of cost increases resulting from measures to mitigate climate change.

Since these coercive cost increases are invisible to the market and cannot be reduced by competition, there was no means other than the regulator, or the slow and uncertain cycles of electoral democracy, to expose them to criticism.

This is no trivial matter. Policies now account for about 17% of the price to domestic households, in other words about £26/MWh of a total price to household consumers of £154/MWh (see the Committee on Climate Change Energy Prices and Bills). Median annual domestic electricity consumption in the UK is approximately 3.5 MWhs per household, so this amounted to about £91 per household per year, or roughly £2.4 billion a year, assuming 26 million households, a sum that greatly exceeds the £1.5 billion a year rip-off that prompted Mrs May to suggest a price cap.

According to the government’s estimates, in the now discontinued Estimated Impacts, we can see that this problem is set to grow dramatically. In 2020 the domestic price impact will have in all probability doubled, to £52/MWh, or about £180 a year on the electricity bill, a nationwide cost of about £5 billion per year.
Constrained by its remit, as set out by Ed Milibands Energy Act of 2010, Ofgem is powerless to comment on these enormous impositions. In essence, by being compelled to have regard to the interests of future consumers in the light of climate change the regulator has been absorbed by government and, like the Committee on Climate Change, made a mere cog wheel in the policy delivery mechanism. Consequently, and with the sole exception of the National Audit Office, there is no statutory body that has any interest in holding the government to account on climate policy costs, and none that is exclusively focused on the energy sector.

Restoring Ofgem’s Statutory Duties to their earlier free-ranging state could yield enormous benefits for the consumer. Such a reform should also be supported by electricity retailers, who, for all their faults, are carrying the can for climate policy related price increases over which they have no control. By contrast, a ‘reform’ of Ofgem that further weakened an already crippled body would be a disaster for all concerned.