Britian - Dark days ahead - The looming electricity crunch
SOUTH AFRICAN burglars pay close attention to electricity. A moratorium in the early 1990s stopped new power stations from being built, and by 2007 demand was overwhelming the country’s electricity grid. So Eskom, the national power company, began cutting supplies to specific suburbs for hours at a time. One side-effect of the rolling blackouts that afflicted Cape Town and Johannesburg was that they disabled the electric fences, spotlights and alarms that adorn richer people’s houses, making them easy pickings for thieves. At first the blackouts were announced in advance; later, aware of the risks, Eskom imposed them without notice. Fortunately for South Africans, the economic slump has trimmed demand (and a huge, rushed building programme boosted supply), but it will be 2013 before order is properly restored.
Britain is running short of power too—so quickly that some economists claim, only just tongue-in-cheek, that the economic slowdown is useful. “A recession is the best demand-reduction policy ever invented,” says Dieter Helm, an energy economist at Oxford University. Many power stations are due to close over the coming decade (see chart 1), and supplies are getting tight. The government reckons that, of a total of around 75GW in generating capacity, 20GW will disappear by 2015.
The private sector is less optimistic. EDF (a state-owned French firm that wants to build nuclear plants in Britain) puts the size of the hole at 32GW, and E.ON, a German competitor, reckons it will be 26GW. One survey of experts before the recession (conducted by Mitsui-Babcock, another power-station builder) found that three-quarters expected blackouts by the time of the London Olympics in 2012. When the BBC did a similar poll in 2008, the downturn had pushed the date back to 2015. “There’s a risk of blackouts somewhere between 2013 and 2016, depending on how fast the economy recovers,” says Mr Helm. “It may not happen,” says an engineer, “but we’d be lucky”.
Indeed, Britain’s energy grids are already showing signs of stress. A cold snap in the winter of 2005-06 led to a spike in demand for natural gas, which is used both as a heating fuel and to generate electricity. Prices shot up but, despite several pipelines linking Britain to Europe, no extra gas was forthcoming from the continent. Big factories were instructed to stop work, and National Grid, the firm that runs the electricity network, came close to cutting supplies to homes as well.
Last year two power stations—one nuclear, one coal-fired—failed within minutes of each other, causing blackouts across the country. Officially, this was a one-off stroke of bad luck, but privately some think that a system with more spare capacity could have kept the lights on. Less obvious but just as worrying, says John Constable of the Renewable Energy Foundation, a think-tank, is that electricity prices are becoming more unstable. “Volatility is a sign of a system under stress,” he notes.
Acid rain and old age explain the shortage of capacity. Britain’s coal and nuclear plants together account for just under 45% of all power generation (see chart 2). But most of the nuclear plants, and around half of the coal plants, are due to close in the near future.
The nuclear stations are simply too ancient to carry on: most are over a quarter of a century old. Around half have already shut down and are being decommissioned. Those that remain are increasingly doddery. British Energy, which runs most of the remaining reactors, had to shut two of its eight power stations last year after engineers discovered cracks in components. By 2023 only one nuclear plant will be left, a modern reactor at Sizewell in Suffolk. Some of the power plants may be patched up a bit and granted life extensions (one on Anglesey was recently given a nine-month reprieve), but not for long.
New nuclear plants are on the way, but there are worries about how much they cost and how uncertain returns on them are for investors. Even the most optimistic atom-splitters think that 2017 is the earliest date by which the first one can be built. They will come too late to help with the supply crunch.
Pollution controls will doom the coal-fired power plants. New European Union rules in the Large Combustion Plant Directive impose tough limits on emissions of nasty oxides of sulphur and nitrogen, which cause acid rain, as well as of carcinogenic particulates. To stay within those limits, coal-power stations will have to fit expensive scrubbing equipment. Because the facilities are comparatively old, many owners will not bother. Unscrubbed stations are allowed to operate for only a limited number of hours, and must close in any case by 2015. Those hours are being used up faster than expected, as recent high oil prices dragged up gas prices, making coal more attractive as a fuel.
In theory Britain’s liberalised energy market (which leaves private firms to make big investment decisions, with the occasional nudge from an independent regulator), should bring investors flocking to a once-in-a-decade opportunity to rebuild huge chunks of a developed nation’s electricity system. But there are concerns beyond simple economics, chief among them global warming and politics.
Britain has committed itself to meeting punishing climate-change targets. Its carbon emissions in 2020 must be 34% lower than their level in 1990, and that is only a stepping stone en route to an eventual cut of 80% by 2050. These targets would seem to rule out rebuilding coal-fired power stations, because coal is the most planet-warming of the fossil fuels.
Safely out of anyone’s backyard
Instead, ministers want to see a big expansion in the amount of energy Britain gets from the waves, the sun and the wind—especially offshore wind. They are hoping to see 33GW-worth of maritime windmills (somewhere around 5,000 turbines in all) built over the next 11 years. That is quite an ambition, and many doubt whether it can be realised. Britain’s entire offshore capacity in 2008 was only 0.6GW, although admittedly this was the biggest in the world. History is not reassuring: a combination of nimbyism and poorly-designed state subsidies means that Britain’s previous, less-ambitious renewable targets have all been missed.
Even if the windmills are built, they will not in themselves plug the generation gap because they do not generate power on a calm day. National Grid reckons that compensating for that uncertainty of supply will require a huge amount of over-engineering. 25GW of wind power, it reckons, would be worth only around 5GW of fossil-fired generation.
Since coal is too dirty, nuclear plants are too slow to build and renewables are of only limited use, investors are turning towards more gas plants, encouraged by rollercoaster power prices that make planning long-term and expensive projects difficult. Gas plants are cheap to build (though expensive to run), so they seem ideal for a market with a murky future, like Britain’s. The first sizeable new power station in Britain for half a decade—built in 2008 at Langage, near Plymouth, by Centrica, a big energy firm—is gas-fired, and there are plenty of others on the drawing board. The Department of Energy and Climate Change reckons that three-quarters of the fossil-fired power stations already planned are to run on gas.
The trouble is that Britain already gets 46% of its electricity from gas; over half of its houses use it for heating and cooking. That is a legacy of Britain’s North Sea wealth, which for three decades provided all the energy the country could possibly consume. But the golden goose is showing its age: North Sea production peaked in 1999 and has since been falling faster than all but the gloomiest foresaw (see chart 3).
That leads to worries about security of supply. “The best way to have a secure energy system is to have lots of different fuels,” says Mr Constable. “It’s hard to see how a system that’s two-thirds gas-fired fits that definition.” In a gas-dominated system, power providers would be unable to hedge easily against changes in the gas price, which tends to shadow the notoriously volatile oil price. Firms can simply pass on price increases to their customers, but voters are unlikely to appreciate unpredictably gyrating bills.
Other worries are political. Britain currently imports around a quarter of its natural gas, much of it from Norway; by 2015, according to one estimate from Centrica, that could rise to three-quarters. It is an open question how well Britain’s laissez-faire approach will cope with the distinctly illiberal world of cross-border energy politics, but early signs are not encouraging. The reason that so little gas flowed through the pipelines connecting Britain with mainland Europe during the cold snap in 2005, when prices quadrupled overnight, is that continental firms prefer long-term contracts that make it difficult to shunt gas around quickly.
Other sources are becoming available, particularly liquefied gas shipped from the Middle East, but the worldwide market is—for now at least—immature and thinly traded, and Britain’s storage capacity is limited. The more gas plants Britain builds, the likelier it becomes that, like much of the rest of Europe, it will be reliant on Russia for a lot of its gas, either directly or indirectly through agreements with continental energy firms. That is a worry: under Vladimir Putin Russia has proved itself an unreliable supplier, cutting gas to countries such as Ukraine and Belarus that have incurred the ire of the Kremlin.
All this leaves Britain in a hole. The lights are dimming, but green targets are an argument against new coal plants, security-of-supply concerns make gas dicey, lack of time rules out nuclear, and worries about practicality dog renewables.
The situation is so bad that many former fans are openly questioning Britain’s hands-off approach to energy, which it has spent the past decade trying to export, particularly to Europe. Lord Browne, a well-regarded former boss of BP who now heads the Royal Academy of Engineering, wants to see state-owned banks forced to invest in renewables and has spoken warmly of the dirigiste policies of Tony Benn, the hard-left minister who ran Britain’s energy department in the 1970s. Malcolm Wicks, who has twice been energy minister, warned Gordon Brown on August 5th that the reliance on “companies, competition and liberalisation” should be reassessed, and counselled state intervention to boost nuclear power.
It is unlikely that Britain’s energy situation will ever be as dire as South Africa’s, but that this should even need saying shows how disastrous things are. Something has to give, and it will probably be environmental targets. The government can simply ignore the European pollution rules and its own climate-change targets and keep coal plants open. “A decision between building a new coal plant and letting the lights go out—that’s a no-brainer,” admits one official. But the risk that Britain will simply run out of juice is real. Even if it doesn’t, the liberal energy model for which it has proselytised long and hard is misfiring, and is in urgent need of a tune-up.
The Economist Newspaper and The Economist Group