Wake up Labour MPs: the price of electricity is a crisis for industry and growth | Nils Pratley
The price of electricity is less entertaining than a bout of leadership plotting but Labour MPs, if they lifted their gaze, could note that the boss of one of our largest energy companies made a significant prediction this week,British electricity prices in 2030 would be higher than they were in 2022 after Russia’s full-scale invasion of Ukraine, said Chris O’Shea, the chief executive of British Gas-owning Centrica,If he’s right, the implications may matter more for those MPs’ re-election prospects than if or when the prime minister goes,O’Shea was not making a point about net zero,He was merely saying all options for the necessary upgrade of the country’s energy infrastructure were expensive.
“We’ve underinvested in the system for many years, and whether it’s the cost of building a new gas-fired power station or a new windfarm, the costs have gone up,” he said.Well, quite.The energy secretary Ed Miliband’s “record” auction for offshore wind last month was declared a triumph because guaranteed prices for developers did not come out at the nose-bleed levels that had been feared, but nobody can call £91 a megawatt hour for 20 years a bargain when the past year’s wholesale price for electricity was £80-ish.Equally, though, the government probably has a point when it says the gas-fired route would be expensive because the price of turbines has gone through the roof (though we may have to buy a few anyway because today’s fleet of gas stations is ageing and some will be needed as backup).Nor are Hinkley Point C and Sizewell C nuclear plants, or the coming small modular reactors, cheap.
And, behind it all, sits the enormous £80bn-ish upgrade of the transmission grid out to 2031, a chunk of which would be required under all scenarios – indeed, some of it relates to gas.O’Shea’s prediction is not controversial, even if it’s striking to hear it spelled out starkly.Most mainstream energy analysts who crunch the numbers on the interplay between falling wholesale prices (because gas will be less influential) and higher network costs (because of the fixed-price contracts for renewables and nuclear and the extra spending on pylons and cables) end up concluding that system-wide savings only start to arrive sometime about 2040.One can quibble over details – and O’Shea was probably referring to the 2022 average price of electricity, not the peak – but one gets the broad picture.The direction is probably up a bit for the next few years.
The government seems to have accepted as much because it has given up claiming its 2030 clean energy plan will – of itself – bring down household bills by £300.From April £150 is being removed by shifting a potion of costs into general taxation.It may be the future mechanism too because Miliband, in front of the energy select committee on Wednesday, called the £150 a “downpayment” by the chancellor to meet his £300 promise on household bills.Let’s hope Rachel Reeves realises.That still leaves British business exposed to some of the highest industrial electricity prices in the world.
One can’t say the government is doing nothing because 500 companies in the most energy-intensive industries will get bigger discounts on their network charges via the established “supercharger” scheme.But that hardly adds up to a rounded strategy to address the inevitable consequences for growth and competitiveness.A “British industrial competitiveness scheme” for another 7,000 companies will arrive in April next year but ministers have yet to say who will qualify or what savings in electricity bills of “up to” 25% will mean.It’s vague stuff.Meanwhile, look at the mood of despair in vital manufacturing sectors.
The Chemical Industries Association this week predicted more closures, on top of the 25 sites that have gone over the past five years.“One of the biggest pressures on the sector has been the crippling cost of energy – needed to not only run factories but also as a feedstock, underpinning production processes,” said its chief executive, Steve Elliott.“In the UK these costs continue to be as much as four times higher than in some key competitor countries – with government policy significantly reinforcing that differential.”Complaints go beyond high electricity prices – theyre also about carbon taxes out of line with those of other countries, unsustainable decarbonisation deadlines and the run-down of the North Sea.The net result, though, is loss of competitiveness in core industries that, according to the government’s own industrial strategy, will be critical in supplying the chosen “high-growth” sectors, including life sciences, defence and advanced manufacturing.
Scunthorpe’s steelworks was rescued and Ineos’s chemicals plant at Grangemouth got £120m of funding to save the UK’s last ethylene plant.But they were 11th-hour interventions made when ministers judged the alternatives to be worse.They don’t add up to a strategy for industry to live with high electricity costs.If prices will be even higher by the end of decade, Labour needs to find some answers.Economic growth used to be its top priority.
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