So much for value for money

One has to despair sometimes at the ineptitude of politicians and their inability to listen to others. I was reading today the letters page of my Engineers journal and one of the contributors was telling about how back in 1987 he tried to explain to his MP the flaws in Tory plans to privatise the UK energy industry. That MP was none other than John Major, who could not grasp the concept that a private company will not invest in a new power station unless they have a strong financial incentive to do so, i.e. privatisation will lead to either higher bills or no new powers stations, or perhaps both. But of course John Major knew better didn’t he, why privatisation always leads to lower bills….doesn’t it!…oh wait no they’ve gone up massively!

And fast forward to our time. Amber Rudd/Osborne (depending on who you consider to be the UK’s energy minster) decide to cut the subsidy to renewables. They cited “value for money” but as I discussed in a recent post, its likely that creating an artificial shortage for Hinkley C (to please their Chinese masters) is a more likely explanation for these subsidy cuts. And again, critics like me came out and said that no, this won’t save money, renewable subsidies are a tiny fraction of the average bill anyway, in the long run it will push up prices.

And low and behold what’s happened? well we’re now being warned of possible future rises in bills due to the renewable subsidy cuts. The cuts have resulted in a chilling effect across the energy industry, interest rates for energy projects have risen and thus the capital costs for building new hardware, be it renewable or otherwise, has also risen.

Indeed somewhat ironically the UK has now been forced to start subsidising fossil fuel plants, given the drops in investment in power infrastructure recently. So it is very difficult to conclude these subsidy cuts ever have, nor were ever going to reduce bills.

Its entirely possible that if Hinkley C does finally sink, that EDF might even blame the subsidy cuts for making it harder for them to raise the necessary capital. That said, the resignation of two senior members of staff at EDF, including the chief financial officer, does in theory make it more likely that Hinkley C will go ahead, as both cited concerns over Hinkley as reasons for their resignation. Although it doesn’t exactly bode well for the project when the two people who would be responsible for its success decide to jump off the ship before the Titanic even leaves port.

I would note that low gas prices are currently depressing electricity prices. So for the time being, bills will likely continue to drop, but those drops are going to be limited in scale and limited in the time they apply. Inevitably once the higher CAPEX costs get factored into bills and gas prices start increasing again, we can expect bills to start to rise.

But like I said, we’ve played this game for years. Politicians are given clear advice by experts saying what they should do and how urgent it is to do it. This advice is ignored, because the providers of said advice are “biased” (in that they want to see the lights stay on and not see London disappear under the rising tides of sea level rise) in favour of some wing-nut baloney from a Daily Express journalist or back alley lobbyist for the shale gas industry, who apparently aren’t biased. And low and behold, what the politicians were warned would happen does happen, but somehow its not their fault.

On certain matters of critical infrastructure there needs to be disconnecting of politics from the important job of keeping things running.