“The biggest piece of energy legislation in the UK’s history has become law today… laying the foundations for an energy system fit for the future.” That will surprise anyone involved in the gas and electricity privatisations between 1986 and 1990. The truth of the matter is that the government will now be messing about with our energy supplies more now than they were before, increasing regulation and reversing the tide of privatisation. The six claimed benefits are:
The introduction of new business models for Carbon Capture and Hydrogen (CCH), which would create 50,000 jobs in Carbon Capture and 12,000 in Hydrogen.
We would become world-leaders in nuclear fusion regulation.
Energy network competition would be enabled through the introduction of competition to onshore electricity networks. This is predicted to save consumers up to £1 billion off their energy bills by 2050.
The expansion of heat networks through Ofgem, creating better pricing for consumers and businesses.
Better regulation of energy smart appliances.
The extension of smart metre rollout to 2028, saving consumers £5.6 billion.
There is no doubt that fossil fuel electricity will still be needed for a considerable period- in essence because the wind does not always blow nor sun shine. Current policy expectations for Net Zero means CCS (Carbon Capture and Storage) must be upscaled and extended until fossil fuels are mitigated by a sufficient baseload of alternatives. The fossil fuel providers should be expected to take care of this problem with its costs, and supply, in effect, green electricity to the national networks.
What is puzzling, and, frankly, nonsense is the idea that the Department for Energy Security and Net Zero (DESNZ) has to discover how that should be done and show helpless private companies how to do it. Of course, the fossil fuel generators are happy enough for DESNZ, and therefore the taxpayer, to take charge and pick up the tab.
Hydrogen is a more subtle issue. Contrary to popular belief it will not be efficient for heating homes (ever) or blending with natural gas for electricity generation (sometimes) except when it is virtually free because wind farms and / or solar are producing more than consumer / business demand needs. It also has uses for heavy goods vehicles but, because hydrogen’s storage space to power ratio is poor, not for aircraft- except the smallest. In short, the DESNZ claims for hydrogen are wildly exaggerated.
And so are its claims for fusion. Nuclear fusion, as distinct from fission, was discovered in 1922 and its use for commercial electricity generation has been receding ever since. There is no harm in government investing in scientific research, but the May 2022 Science Select Committee agreed there would be no commercial use by 2050. It might be commercialised in the next century, so why is it in the Act now?
DESNZ is correct in outlining that previous attempts towards energy market privatisation were only skin-deep. As energy analyst Ronan Bolton outlines: “The eventual market model and regulatory framework introduced in 1990 was a compromise. This was dictated by concerns about the risks that competition would pose to the coal and nuclear industries, along with concerns about the share price of the privatised companies if they were exposed to too strong a competitive threat.”
Yes, consumers had a choice of retailers but Ofgem and the National Grid, which bought the electricity and resold it to retailers at standard (wholesale) price, pretty much continued what the Central Electricity Generating Board had long done. Where DESNZ is wholly incorrect, is in moving the electricity market back to central control and regulation, rather than towards the full competition it claims.
The ways of achieving that include those suggested to the 2023 Energy Select Committee. One of them recommended that genuine competition nationwide (including Scotland) be introduced by distribution system operators (upgraded from today’s local “retailers”) whilst Ofgem and the National Grid retreated to simply balancing the books. In other words, DESNZ, having correctly identified the problem, recommends precisely the opposite of what is needed.
Domestic energy is about 40% of energy consumption and home heating (neighbourhood hot water – popular in Iceland) is 2% of that. 0.8% is not a large enough part of the UK’s energy problem to justify 17% of DESNZ targeting, though it clearly has room to grow, notably from local small modular reactors. In the five years to 2022, the number of people in government interested in home heating has doubled which may explain its appearance in the Act.
Finally, the Act addresses smart metres. In 2019, it became clear that only half of domestic energy metres were “smart” and the target to make 100% smart should be shifted from 2020 to 2024. By the end of March 2021, things were not going much better: a 1% drop since the previous quarter and 44% overall. Smart metres were turning dumb, installation costs were rising and being passed on to consumers. The 100% target date is now 2028. Thus claimed £5.6 billion saving per annum does not follow reasonable assumptions.
The Energy Act does, and does not, apply to Scotland and Northern Ireland which have their own legislation. The extent to which devolution applies is unfathomable. English and Welsh (presumably) consumers and businesses may save up to £16.6 billion but, as DESNZ has provided neither arithmetic nor rationales, their figures have the credibility of jingle bills. Absolutely no attention seems to have been given to dividing issues between what the free market can, and should, do for itself and where it is only the government that can bring some necessary public benefit.
Instead, the Energy Secretary, a.k.a. Santa Claus, claimed: “The Act also supports our new approach to make sure that families don’t feel a disproportionate financial burden as we transition to net zero, and forms a central part of our efforts to keep people’s bills affordable in the long-term.” In fact, as can be seen above, it does nothing for those objectives at all. And where are Chris Skidmore’s recommendations?