SIR DIGBY JONES is normally a cheery fellow, not given to intemperate outbursts. But if you want to see the CBI chief reduced to a rare, righteous froth, all you have to do is mention Britain’s energy market.
Better still, remind him that this winter wholesale gas prices have soared and it is touch and go whether industry will find itself facing power cuts in the event of a prolonged cold snap.
“People are saying that our only hope that the lights will stay on this winter or next is that the prayer mat will work,” said the director-general of the employers’ organisation. “I can’t help thinking that ‘fingers crossed’ is not the ideal policy.”
Jones’s anger reflects rising heat among his members about the state of energy supplies. Big industrial power users are warning that high prices and the prospect of power cuts are harming competitiveness. Some have told the government they have plans ready to switch production to continental plants if the switch is thrown.
And this in a nation that is still a big — if declining — producer of oil and gas, where only a couple of years ago it was fashionable to worry about low power prices and excess supply, not the reverse. It still comes as a shock to our self- image as a former petro-power to learn we have been a net importer of gas for a couple of years, and are on the verge of going the same way in oil.
But these tremors are only a foretaste of the problems Britain will face in securing sustainable energy supplies in the next two decades. So, as the government finally shows signs of waking up to the long-term challenge with the consultation exercise launched by industry secretary Alan Johnson last week, it is time for some home truths.
Home truth one: existing official policy on energy is a shambles, with a raft of misguided and unrealistic government interventions masked by a pretence of laissez-faire. As a result, Britain’s supply is dangerously unbalanced — over-dependent on gas, and unable to generate enough low-carbon power to meet the exacting targets the government has set to combat climate change.
Home truth two: meeting the demand for secure, diverse and clean supplies in the next 20 years will require huge investment, substantial price rises for all consumers, and probably a draconian effort to force households to save power.
We have been living in a fool’s paradise for years. We have to recognise that a combination of tight world energy markets, the increasingly antiquated state of Britain’s infrastructure and the demands of reducing carbon emissions have brought it to an end.
Home truth three: this effort will push government into a new, more overt role in setting the framework for the energy business. That doesn’t just mean taking the first cautious steps towards building a new generation of nuclear power plants. It also means resolving the contradictions built into current policy in a way that is both transparent and durable. Billions of pounds over decades are at stake. Business will not invest unless it is given a stable contractual environment.
Is this what the latest government consultation will bring? On the evidence of the past few years, I wouldn’t count on it.
As one senior oilman said within my hearing the other day, energy policy in this country has long been “a bit of an oxymoron — like a family holiday”. Hands-on management became discredited in the dying days of Old Labour (remember Tony Benn and the Advanced Gas-Cooled Reactors?).
In the Thatcherite 1980s, energy was to be left to the market: privatised utilities duked it out with arm’s-length regulators, and perish the thought of a co-ordinating government hand. Under Tony Blair, intervention has focused more on climate-change targets than on security of supply. For the business of actually producing power and getting it to the consumer, the watchwords have been patch and mend.
In fact, it was always an illusion to think that energy was a matter purely for the market. Government sets the prices, dictates market structures and subsidises pet technologies and the consequences have been perverse and potentially harmful.
Take the “dash for gas” of the past 10 years. The industry built an array of new gas-fired plants without thinking through where the gas was coming from or how to get it here. The result: as gas consumption soared, Britain’s production slipped, alternative supplies from Norway were slow to come on stream, and British companies such as Centrica — at the end of a long supply chain dominated by Russia and Germany — found themselves scrambling for gas on the open market.
To compound the problem, Britain failed to construct remotely adequate domestic gas-storage facilities.
Thus when supplies are under strain everywhere in winter we will find ourselves short, for the perfectly understandable reason that other European countries with gas in storage and long-term contracts prefer to consume it themselves.
All the while, the big-ticket decisions — What was the right energy mix for the longer term? What role for nuclear? — were ducked and deferred.
Labour’s 2003 energy white paper was a classic. Instead of squaring up to the long-term issue of how to replace our existing nuclear plants when many of them are retired about 2020, it laid the main onus for the reduction of emissions on renewable-energy sources such as wind power.
I have not come across a single expert outside the green lobby who believes that windmills have a chance of meeting the agreed targets for reduced CO2 emissions — or that they amount to anything more than a small part of the answer to our energy problem.
Regardless, Whitehall is pouring public subsidies into them equivalent to the disastrous Anglo-French investment in Concorde. Meanwhile, CO2 emissions have actually been rising of late, thanks to a resurgence of coal-fired generation.
Against this background, meeting those pesky Kyoto treaty targets will come to seem like pushing a boulder uphill. Failure to deliver on key promises will make Blair’s great climate-change campaign during his G8 presidency last year seem like — well, so much hot air.
So a lot is riding on Johnson’s three-month energy consultation. Given the failures of the past, it seems an uncommonly hasty and flimsy exercise on which to base policy decisions affecting billions of pounds of mostly private investment, and intended to last decades. For the sake of Digby Jones’s blood pressure, among other things, let’s hope they get it right.
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