On misunderstanding energy pricing and security
1/ It isn’t entirely true to say, As Aaron Bastani of Novara Media does here, that “global market prices” dictate all consumer prices, and I think it’s important to be clear why, if we’re to make progress.
2/ While everyday prices are indeed a product of the global market, a really important aspect of energy security is the national level capacity market (CM) auction process managed by the National Grid Operator.
3/ It is the CM auctions — T-4 for guarantee of supply in four years, and T-1 for a year ahead, which set the price paid to generators, which are the real key to “energy security”.
4/ Indeed it’s to the shorter term T-4 process that the govt has turned recently to keep the lights on, not least with the 2022 decision by Kwarteng in his BEIS role to overrule the National Grid Operator and set a T-4 clearing price some 75, yep 75 times, higher than 2020.
5/ That decision, seen at the time a “shocking” by industry experts and still unexplained or even examined (not least in relation to his odd visit to Aramco just before his decision), does give an indication of the importance of T-4, and in turn the whole CM process.
6/ But national energy security options are not necessarily restricted to this auction process (a product of the Energy Act 2013). We need only look at Truss’s shortlived Energy Supply Taskforce, created in Sept 2022 and abolished in December by Sunak.
7/ The idea (and senior management) for the Energy Supply Tasforce, was drawn from the Vaccine Supply Taskforce, and the remit was to pay whatever needed to secure (fossil) energy via long term (up to 20 year contracts)
8/ It’s still unclear how far Truss had gone down the road of committing £bns to fossil fuel security before she was booted out — she now denies it all — but the important point here is that this was all outside the mainframe of the normal wholesale market
9/ So while it’s just not true to say that new fields in the North Sea are irrelevant to the UK’s energy security, because deals can be done, recent history suggests that relying on fossil fuels as the key back up may make it more expensive than relying on the ‘global market’.
10/ Addendum to this: one radical way to secure energy AND keep costs down already exists in law, in the form of S.2 of the Energy Act 1976, which gives govt powers of direction of supply and price, but I don’t see this being used any time soon.
https://www.legislation.gov.uk/ukpga/1976/76/section/2
11/ So the key question for those arguing against new North Sea exploitation is how we do maintain energy security at reasonable cost during the transition to all renewable sources.
12/ The most obvious starting point is investment in insulation, though this will mean not just household and industry uptake, but also investment in insulation material production, given current lack of capacity
13/ More important in the short term is likely to be the process, established under the Energy Act 2013 but then largely ignored first by Ed Davey and all his Energy Secretary successors, of energy demand reduction auctions
14/ This, as I’ve set out previously, is a well established method for taking pressure off the grid at high demand times, but also has a wider energy security part to play.
15/ Then of course we need to revitalize offshore wind generation, a disastrous failure this year because of government inflexibility on price, but resolvable — with quick results — through both better auction and through a GB Energy ‘golden share’ process…….
16/ ….with the latter potentially driven through under the powers set out in the Energy Act 1976 (see above)
17/ But the other essential element in both keeping down price and driving investment, including local community energy generation is to “break the link” between renewable and fossil fuel consumer prices.
18/ Truss got how important breaking the link was, highlighting it as a key ambition in her very first speech as Prime Minister in Sept 2022, but she had no real idea how to deliver on it…….
19/……so what we got instead was a cackhanded set of measures in the poorly named Energy Prices Act 2022, rushed trough in 11 days before she was kicked out, and with no mention of the actual answer: green power pooling.
20/ Fortunately, the new Energy Bill 2023, now in its last stages in parliament, gives us hope, because Ed Miliband has his team have been quietly on the case, with this important amendment requiring a Sec of State to come with up with a green pool price de-link plan quickly.
21/ Whether the amendment makes it through waits to be seen, but it is at least good to see an incoming Labour govt (or a bit of it) thinking this through at this stage, not least because it doesn’t need legislation to get the ball rolling when the time comes.
22/ All in all, then, there’s a bit more to it than the idea that energy security can be guaranteed by North Sea licences, but also the idea that it’s all ‘global markets’ at work.
23/ The left media, and perhaps especially Novara, would do well to speak to/invite on actual experts in the field if progress on energy security AND pricing is to be properly encouraged
24/ I’ll stop short of a critique of how Novara’s fan-based business model hinders the cascading of knowledge and expertise, as I’ll only get more hate mail. and I do think they are good, but they need to up their game on energy…..
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