On Pyhrrus and his campaigns

Well that went well, didn’t it? At least Ed Davey thinks so. I’m referring here to the results of the first capacity auction, the final results of which were posted earlier in the month. Here’s Ed responding to an intervention on the subject that I made during the recent Energy Prices debate in the house:


‘The results of the capacity auction were far better than we had predicted. The closing price – the clearing price – was significantly lower than we predicted, so there will be a lower impact on consumer bills.’

Hmm I’m not sure crowing about the low clearing price of the auction as a mechanism for protecting consumer bills (when that was nowhere in the specification of the auction) is a wise, long-term line to take. A bit like a general reporting that ‘our invasion force failed to land on the beaches and we were repulsed with huge losses. But we only sent ten ships, a far lower number than we had anticipated, so there’s a considerable saving to the taxpayer to take into account in evaluating the success of the operation’.

So were the results any good overall? Let’s start with what DECC thought the auctions were about when they set them up. Here’s what they say in the capacity auctions section of their website:

‘The Capacity Market will ensure security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed. This will encourage the investment we need to replace older power stations and provide backup for more intermittent and inflexible low carbon generation sources.’

And we also need to know that the idea of launching an auction for implementation in 2019 was primarily so that new power stations would have some investment security when they come on stream.

Well, yes, payments have gone out in the first auction to some generators, which one supposes will mean that they don’t switch off their generating capacity when it might be needed. Except to say that almost a fifth of the cleared capacity is coal plant which DECC is supposed to be running off the system in a few years, and extraordinarily, 7.8GW of nuclear power (which can’t be switched off without long term consequences even if the owners (EDF) go into a sulk) so that aspect of the ‘auction’ most certainly is free money with no gain in supply security. Most of the rest is money to existing gas plants, some of which arguably might have decided to mothball themselves if they hadn’t got a payment from the auction.  On the other hand, almost 4GW of gas plant didn’t succeed in clearing the auction, being displaced both by coal and (haha) nuclear. One might think that this will now INCREASE the likelihood that this plant will be mothballed in the not too distant future, decreasing overall energy security rather than making it more robust.

But leaving that all aside, what about the other aspect of what DECC thought they were doing with the auction – ‘encouraging the investment we need to replace older power stations etc.’? Well here the news is uniformly bad. Let’s remember that the same Department projects in its gas strategy that some 26GW of new capacity will be needed to provide that backup by about 2030. One power station (Trafford) that appeared to be in the process of commissioning anyway got a fifteen year capacity contract. The other station being currently commissioned (Carrington) did not.

So, to sum up, nuclear and coal did well, existing gas got shedloads of money, new gas got virtually nothing – oh, and demand side response measures got about 1% of share out. More fiasco then triumph, I think.

 But it is the central aspect of investment in new plant that is squarely in the ‘fiasco’ bracket. Let’s suppose, as they are scheduled to do, the Department tries again next year with another auction, which may procure some more I year contracts. Where does that leave new plant? It is, I concede, something of a paradox that the Government is bringing forward mechanisms to pay developers of gas fired power stations to run at relatively low levels of output, in order to balance the system that, by 2030, will be predominantly populated by non-gas generation. This is for the very good reason that if it does not, then we will forever be locked not just into high carbon generation, but generation at levels that by themselves will bust any targets on overall CO2 emissions we might set for the country.  We will need this backup, but it is beginning to be evident that capacity auctions are perhaps not the best method of ensuring that it is there. Maybe the drop in oil prices and the following (partial) drop in gas prices will come to the rescue of new development, in which case capacity auctions aren’t likely to be needed.

I wonder if longer term, new gas plant will need to be publicly built and then rented out to operators. At least then we’d know the plants were there, and by the way, that when we didn’t need them, they could be removed in an orderly fashion. Or we could (heaven forefend) revisit the idea of a strategic reserve of gas plants.

As for doing things in the present way the phrase ‘one more victory such as this and I am ruined’ springs to mind. He lost in the end (Pyhrrus, that is.)

Four surprises and one non-surprise

First the non-surprise: the final IPCC Fifth Assessment report is out and it is every bit as urgent and comprehensive as should have been expected. It is no surprise to be warned (again) just how urgent action on climate change is and how short the remaining time frame for meaningful action is. But nevertheless it remains enormously sobering to have it spelt out in such detail and so clearly. As Bill McKibben of 350.org puts it: ‘for scientists, conservative by nature, to use ‘serious, pervasive and irreversible’ to describe the effects of climate falls just short of announcing that climate change will produce a zombie apocalypse plus random beheadings plus Ebola.’

The symbolic handover of the synthesis from the scientists to the decision makers has produced some minor surprises. First surprise was Ban Ki-moon, UN Secretary General. After declaring that ‘science has spoken: there is no ambiguity in the message’ he added a request to energy investors, to quite simply ‘ please reduce your investments in the coal and fossil fuel economy and move to renewable energy’. I’m not sure anyone in such a position has put it quite so straightforwardly before. Except perhaps for my second surprise, the hitherto not-known-to-be-very-green Governor of the Bank of England, Mark Carney, who warned just a few weeks ago that industry was in grave danger of backing stranded assets. As he told a World Bank seminar, ‘the vast majority of [fossil fuel] reserves are unburnable’ if global temperature rises are to be limited to below 2 degrees. This is very much in line with the findings of the IPCC. Indeed one of the central points that the Synthesis report makes is about the consequences of delaying action until 2030; if we wait, the cost of reducing emissions will be much higher because the more recently built fossil fuel power stations will have to close early, stranding these assets.

And the third surprise in the context of this theme is the apparent seriousness with which China, from where I have just returned, is now taking carbon trading when most people concluded at the outset that it would be a token policy at the most. China is now looking to go national after two years of its seven pilot schemes at provincial level (several of which, however, contain the population and industry of a larger European country). It also seems to have already started to rectify some of the early trading problems that dogged phase one of the European scheme. But if it is as serious as it looks, the emissions trading scheme cannot fail to impact very heavily on Chinese coal which, even now, the Chinese are looking to reduce reliance on by 1% a year. This could of course have some bearing on the crippling smogs which the capital and indeed the whole of eastern China are now afflicted by. Citizens there are enduring levels of particulates that are officially off the scale of conventional measurement of up to 500 micro particles per cubic metre. China’s increasing momentum on counter climate change measures may well be down to causes other than a benign interest in seeing emissions fall across the globe, but in the emergency set out by the IPCC report, all allies, for whatever reason, are more than welcome.

And the fourth surprise? Rather a banal tail gunner after the big three I set out above. Guess who was wheeled on by the BBC to ‘comment’ on the IPCC report on the day it was released: one Benny Peiser of Nigel Lawson’s so-called Global Warming Policy Foundation. That was a surprise, not in terms of the predictable stuff that Peiser came out with, but because I thought the employment of contrarians to provide ‘balance’ on the ‘unambiguous message’ of the effects of climate change had been sorted out. Apparently not. Have a word with them, Ban Ki-Moon, if you have the time. But meanwhile thank you for what you have said on energy investment – you are absolutely right.

This article was first published on businessgreen.com

It’s shale – the clean green gas of the future! (official).


Green giant?

The new wonder substance shale gas, is apparently now, according to ministers, not only bursting to get out of the ground from the solid rock within which it is currently encased at record breaking rates, but has hitherto unknown qualities as a sunrise fuel of the future. The Prime Minister himself, at the recent liaison committee meeting considered it to be ‘clean energy’ and in Prime Minister’s Questions yesterday, went further in declaring it to constitute ‘green energy’. Michael Fallon the Energy Minister (who I congratulate for adding ‘Minister  for Portsmouth’ to his already bulging portfolio bag) referred to ‘shale gas …and other  renewables’ on a recent Today programme appearance, and praised it as ‘one of the cleaner fuels’ in DECC Questions today, (Thursday).

I was hoping to ask the Energy Secretary at these questions whether he agreed with the Prime Minister’s assessment of Shale as ‘green energy’ and if so would production qualify for ‘contracts for difference’ when they come in, but the session unfortunately ran out of time.

So is shale clean, green and so on? Of course not. Had the Energy minister answered an admirably succinct question from my colleague, Ian Lavery, at Energy Questions on the emissions level of shale gas instead of just saying that the Chief Scientist has undertaken a report on its emission levels, he would be under no doubt by now. For the report itself quite clearly states that shale has ‘comparable emissions to gas extracted from conventional sources’ and falls in the range, for generating purposes of 423 – 535 grams per kilowatt hour. In other words, a bit cleaner than coal but not very ‘clean’ and certainly not ‘green’.

So just a series of co-incidental  mistakes then? I wonder.  The point of it all, I think is to start to position shale somehow as a vital, low carbon component of Britain’s energy mix in the future. Because after all, as the same ministers tell us, (non-specifically), ‘gas will continue to play a major role in our energy mix over future years’ even with a continuing commitment to substantial decarbonisation of our energy supply.

True, but what does that role actually look like when you get a little more specific? Or even, dare I suggest, read DECCs own projections, which they have handily set forward in the ‘Gas strategy’ last year? Well, in DECC’s central 2030s scenario of an energy mix averaging 100g per kwh in emissions, it is projected that gas will produce 88 terra watt hours of electricity, or about 22% of all electricity generated. Substantial then, but how substantial? For comparison purposes, we might turn to current output – last year gas produced 28% of electricity, or just over 100 twh of the stuff.

So a considerable downturn on current levels of production, and incidentally, as National Grid points out, easily suppliable at that point by whatever comes from remaining UK gas fields and from gas interconnectors from Norway.

And the conclusion then is…we don’t actually need shale as any sort of replacement gas supply, and nor on DECCs own projections will there be any sort of additional demand for gas that might need to call on shale to fill. The project will therefore not as the Prime Minister mistily declares ‘supply our gas needs for over 30 years’. If we force 7% of the gas out of the rocks using thousands of wells, it will provide some gas for us to sell to others because we won’t need it for UK purposes. Or at best replace some friendly and not exactly insecure Norwegian gas coming our way.  Unless of course one dispenses with all this ‘green crap’ and plugs the UK into the high gas, high emissions scenario beloved (as I have previously reported) of the Chancellor, but requiring the UK to tear up all its climate change legislation and adherence to the carbon budgets it produces.

So it may have a role…to make a lot of money for the Chancellor in sales tax, but clean and green it isn’t and never will be, even if the Prime Minister says it is.