The Departments of Business and Energy have made the rather good observation that the decline in British industry is, in part, due to UK energy prices being higher than our competitors.
They plan to “supercharge” industry by reducing the energy costs of the 300 or so largest manufacturers, not by taking the money from primary producers like Big Oil and their extravagant profits of late, nor from the Treasury (heaven forfend!), but from ordinary households who, once energy prices start falling, will not notice.
The Energy Intensive Users Group (EIUG) have a case, albeit unquantified, but only 210,000 members. It is not clear who the other 90,000 plus beneficiaries will be or how they are to be selected. And is it fair to other companies who do not have the time, or inclination, to join the EIUG but are just as penalised?
The cost of the measures will eventually be funded through consumer bills, with the cost to the average household expected to be an extra £3-£5 a year. As there are about 28.1M households in the UK, the “carefully crafted” supercharge for the 300 or so manufacturers would be rather over £100M p.a.
The Departments of Energy and Business have not shared their “careful crafting” but this would seem a relatively small incentive and certainly ineffective in supercharging industry. Trinomics produced an interesting review of EU member state energy subsidies in 2018, i.e. when the UK was still in the EU, which did not appear to support the action now being taken.
Rather than clobbering the poor old consumer, it would be far better to network what should be the lowest cost electricity production, i.e. wind farms, directly to these 300 or so large manufacturers. The odd thing is that, thanks to government intervention, the three Europe countries with the highest electricity prices: Denmark, Germany and UK, have the highest share of wind generation. The Trinomics research shows that government interference in energy marketing is the main reason for higher costs. If government really wants to supercharge manufacturing, it should simply butt out of pricing energy.
The reality is that the Energy Department is living in fantasy land and have yet to grasp that energy shortage forces prices up and only a superabundance will bring them down. The new policy is based on their energy strategy white paper of 2020 in which the figures simply did not add up.
This month, the National Audit Office, in the course of demanding an update, said the longer the energy department “goes without a critical path bringing together different aspects of power decarbonisation, the higher the risk that it does not achieve its ambitions, or it does so at greater than necessary cost to taxpayers and consumers.” And the NAO is assuming we will need only 60% more electricity by 2050 whereas, if total energy demand is static, the electricity demand will grow by 100%.
The truth of all this is a little embarrassing: the government confuses making announcements with making decisions. When it comes to energy, the wind comes from Whitehall does not drive turbines. On-shore wind farms are officially approvable but are effectively banned. Just one was built in England last year and no plans are on the table.
Great British Nuclear has been announced countless times since April 2022 but no decision has yet been made. Sizewell C was consulted upon in 2012 followed by four further round of consultation concluding in 2019. In November 2022 the Chancellor announced a decision would be made “within weeks” and that has now been postponed until, probably, 2025.
Our government seems to be under the impression that a superabundance of energy will drive prices down and that will come from off-shore wind and nuclear because they say so. The reality is that Whitehall wind achieves nothing and the lights will go out unless action is taken soon.