The case for onshore wind

The Chancellor’s crusade against onshore wind, whatever the merits with his own backbenchers, is economically ill-judged.

In a straight political fight between George Osborne and Ed Davey, few pundits would have put their money on the Chancellor losing. Not only has the Department of Energy and Climate Change recently lost its Permanent Secretary, in what can only be described as strange circumstances, but a much-trailed cut in subsidy support for onshore wind was kicked into the long grass of the Parliamentary summer recess.

So how is it that when the extent to which subsidies would be cut was finally determined this week it was announced that it would be DECC’s 10 per cent cut rather than the Chancellor’s preferred cut of 25 per cent? There has been so much political debate around wind power that, perhaps, the economic case has been overlooked. Osborne’s case against onshore wind is simply this: wind does not blow all the time, so why should we subsidise a technology that is intermittent, cannot provide the base load of electricity supply and despoils some of the most beautiful landscape in the country which, incidentally, happens to be in Conservative-held seats?

The answer, of course, is that in the long-term we should not. Subsidies should never be a permanent feature of any market. They should be introduced only to address market failure and they should be withdrawn gradually as those distortions in the market are addressed. Treasury economists no doubt recognise the economic rectitude of such a position; whether they can square it with their ongoing subsidies to fossil fuels is entirely a different matter.

Last year, the OECD estimated that in 2010 the subsidies for coal, gas and petrol in the UK amounted to £3.6bn on top of which the Chancellor, in the 2012 budget, has announced further exploration and production subsidies of £65m to develop the West of Shetland fields. Quite what market failures these subsidies are being used to redress is unclear. On the contrary, it would appear that the fossil fuels has an entrenched subsidy culture where such taxpayer handouts are regarded as a right rather than a means of addressing what is an otherwise unlevel playing field. The total subsidy paid to onshore wind amounted to less than £400m in 2010-11 or £6 on the annual bill of the average household. This gives some better sense of proportion about the subsidy onshore wind currently enjoys against the £3.6bn in consumption subsidies that fossil fuels enjoy before the cost of carbon emissions is even factored in.

The real market failure is that the environmental, social and economic cost of greenhouse gas emissions is not properly factored into our fossil fuel price. The government has recognised this and has tried to attribute a price to carbon emissions through the EU Emissions Trading Scheme (ETS). Unfortunately the carbon price has neither been stable enough nor high enough to redress this market failure even for the 40% of the UK’s carbon emissions that are covered by the ETS. This means that fossil fuels are operating in a market that is tilted distinctly in their favour.  Renewables such as onshore wind, and which do not produce polluting carbon emissions, are perhaps entitled to claim therefore that there is a clear justification for being subsidised. Bringing new technologies to the market can be difficult and many technologies have died in the valley that lies between demonstrator prototype and full commercial development. If the UK is to develop world leading renewable technology the Government must be prepared to support them to market. The Renewable Obligation subsidy, brought in under Labour, was designed to do this - supporting new wind generation as technology is successively improved and economies of scale reduce production costs. It is worth noting that it is precisely the positive trajectory of onshore wind that led DECC to argue that the subsidy could be reduced by 10% in the first place.

This trajectory leads some in the industry to predict that onshore wind will be cost competitive with gas by 2020. For this reason the subsidy should progressively be reduced, but, at the same time, the gas sector should increasingly pay the full cost of its carbon emissions which it is currently failing to do. Even if average household electricity consumption remains unchanged (and we should all sincerely hope it reduces dramatically) and even if the subsidy remains unchanged (and it has already come down and will further) the additional cost to a household bill in 2020 as a result of the most optimistic growth forecast in onshore wind would still only be £13 per year. Yet gas produces significant carbon emissions and onshore wind produces none.

The Chancellor’s crusade against onshore wind, whatever the merits with his own backbenchers, is economically ill-judged. What compounds his mistake though, is that he has now demanded additional measures to subsidise gas. Should policy change to ensure we meet our carbon budgets, these investments will prove to be redundant as we will require electricity produced at approximately 50 grams of CO₂e per kilowatt/hour. Gas-fired power stations cannot achieve this. The Chancellor is using public money to subsidise investment in a technology that will be incapable of meeting the legal requirements of the UK’s climate Change Change Act.

Barry Gardiner is the Labour MP for Brent North and Ed Miliband's Special Envoy on Climate Change and the Environment

The Whitelee onshore windfarm in Scotland. Photograph: Getty Images

Barry Gardiner is Labour MP for Brent North and shadow minister for Energy and Climate Change. 

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.