Electricity is magical stuff. From a couple of tiny holes in a wall comes an apparently endless supply of invisible, weightless, silent ether that turns instantly into light, heat, motion or information at your command. It is a metaphor for the modern economy: we use pure energy to create useful outcomes in the real world.
We found out last week that Britain has now for the first time achieved top spot, among 25 nations, in terms of the price we pay for this supernatural ichor, for both domestic and industrial use.
This is a disaster. Electricity prices have doubled in Britain since 2019. They are 46 per cent above the International Energy Agency’s median for industrial and 80 per cent above the median for domestic electricity. As the independent energy analyst David Turver points out, British business pays almost four times as much as American business for each unit of power and British consumers pay almost three times as much as Americans. And that is last year’s data, before Ed Miliband has even started on his policies to accelerate decarbonisation: all the technologies he champions are more expensive than gas.
High electricity prices make companies based here less competitive, so some will leave or die; and consumers less well off, so some will freeze and all will buy less of other things: a drag on both production and consumption. Consumers pay for high electricity prices both when we use it and again when we buy things that have been manufactured or refrigerated with it. Given that the plan is for us all to use a lot more electricity in the future, for cars and home heating, this is alarming news.
How was the double triumph of chart-topping electricity prices for both business and homes achieved? Green lobbyists say that it is because we have not built enough wind farms and are too reliant on gas. But this is belied by the facts. Last month, the results of an auction of contract bids for generating electricity were announced. You will recall that because of inflation, the subsidy junkies in the ‘unreliables’ industry boycotted the previous auction for offshore wind, demanding and getting more generous terms.
Sure enough, last month’s bids by onshore wind, offshore wind and solar power are at average ‘strike prices’ higher than the recent going rate, which is set by the price of gas. The way contracts for difference work, the suppliers pay us if market prices are higher than the strike price; we pay them if they are lower. Only very briefly, when gas prices spiked during the early phase of the Ukraine war, did we get a little money back under the scheme.
In August, contract-for-difference subsidies were £237 million, the third highest ever and a record for August. That includes a £72 million rise in offshore wind subsidies, caused by a windy month, new wind farms coming online and falling gas prices. The more the wind blows and the lower the gas prices fall, the bigger the subsidies we pay wind farms. It’s a system of beauty as far as producers are concerned, but a thing of horror for consumers. ‘For the generators it’s heads they win, tails the consumer loses,’ says Turver.
Yet the strike price is only a small part of the cost of relying on unreliable wind and solar. National Grid plans to spend around £11 billion a year upgrading the transmission grid by 2035 to connect distant wind farms to where people actually live.
Add the extra cost of balancing the grid when supply varies, and backing it up with just-in-time gas power when the wind does not blow and the sun does not shine. And the cost of storing electricity in batteries, for which Mr Miliband just announced new subsidies: forecast by Edinburgh University’s Professor Gordon Hughes to hit £5 billion a year by 2030.
Had we stuck with coal, like China and Germany have partly done, storing energy in heaps would be all but free and our electricity would be far cheaper (I can say this now I no longer have an interest in coal). We closed the last coal-fired power station this week. Had we gone for shale gas, like America did, it would also have been much cheaper: imported gas is always much more expensive than home-grown (unlike coal and oil, where there are world market prices). Mr Miliband is intent on shutting down the North Sea gas industry, ensuring we pay more still. The slogan that unreliables are now cheap remains a lie however often the subsidy junkies repeat it.
When things cost more, people buy less. Because of these high prices Britain is using less electricity every year. Final electricity consumption is down by about 23 per cent since 2005 – in spite of a rising population. Dr John Constable, of the Renewable Energy Foundation, adds: ‘And no, it’s not efficiency. This is price rationing pure and simple.’ We are de-industrialising.
It is not just old industries like steel that are driven away by high electricity prices. Data storage and bitcoin mining are getting more energy hungry. A query with ChatGPT costs ten times as much as a Google search.
Despair not. Ed ‘Baldrick’ Miliband has a cunning plan. As a tweet from his department revealed last week, the government plans to repeal a couple of laws, making electricity cheaper at a stroke. Which laws? Why, the first and second laws of thermodynamics of course. The tweet read: ‘Did you know a heat pump is 3x more efficient than a gas boiler? Meaning it generates 3 times more energy than it consumes.’
Apart from the fact that the second sentence definitely does not mean the same as the first, it implies that you can conjure energy out of nothing, breaking the first law of thermodynamics, and that entropy-eating perpetual-motion machines are possible, breaking the second. Hooray!