THE provision and security of supply of energy is a key responsibility of any government. Keeping the lights on is up there with health, education, and law and order, but is, at times, not as well understood by the public, who demand a hot shower without always understanding the economics behind it.
But it is not just the general public to whom energy matters. The manufacturing industry requires a permanent supply to sustain production, production which support more than two million jobs.
Manufacturing has to remain competitive, and it needs to remain sufficiently competitive – by which I mean profitable – to promote investment. If not, industry will wither and die, as has happened to the bulk of the once proud British textile industry.
The same principle applies to manufacturing which relies upon competitive energy costs such as chemicals, steel, automotive, and many others.
If these sectors cannot remain competitive they will close and the jobs will disappear – as we have seen in the steel sector over the past 12 months.
Worse, this is already happening. Manufacturing has collapsed in the UK over the past 20 years. From a level close to Germany at about 23pc of gross domestic product (GDP) in the 1990s, UK manufacturing today stands at a paltry 9pc.
And what little manufacturing that we have left in the UK is saddled with some of the most expensive energy in the world.
Gas prices are 50pc higher than in America and electricity is twice what it costs in the US. Germany protects its manufacturing companies by exempting them from green taxes. Successive governments in the UK have instead ladled them on.
The present situation is exacerbated by the fact that the UK has had no coherent energy policy for decades.
As we see out the last days of coal-fired power stations which are simply too ‘dirty’ for modern environmental standards, we are well into the twilight years of North Sea gas and are sitting on an ageing fleet of nuclear power stations.
The Government has appeared to bet the bank in the past 20 years on windmills, despite the head of the renewables lobby recently admitting England just isn’t windy enough for them to work.
If we take the country’s total energy requirements, minus transport fuel, then we see that gas and nuclear completely dominate our supply at around 60pc.
Wind, which fluctuates widely from day to day, sits at only 3pc.
If we assume that coal will be phased out in the next few years then the burden on gas and nuclear only increases.
We are totally dependent today as a country on gas and nuclear. There are no viable alternatives on any sensible time horizon. But, and it’s a big but, we are fast running out of gas in the North Sea and our nuclear fleet is ageing.
North Sea gas production peaked in the 2000s, and is now running at less than 50pc of its peak. In ten years’ time it will be at less than 20pc.
So we must choose between Russian imports, expensive LNG imports, or develop a shale industry of our own, in which INEOS has a vested interest.
One shale in the US called Marcellus in Pennsylvania produces over two times the total UK consumption of gas, and drilling only started six years ago. Not only are there vast quantities of shale gas around, it is very cheap – it reduced the price of gas in the US by 75pc – and the UK would appear to be sitting on quite a lot of it.
The nuclear debate is more complex. Remarkably there are more than 400 nuclear power stations in the world and there are several technologies.
Technology designed by France’s Areva will go into Hinkley Point, despite there being none of these type of reactors in operation yet. Two are being built in Europe, the first in Finland is nine years late and the one in France is seven years late. Both are three times over budget. There are also two being built in China but again both are several years late. This is not an encouraging picture.
There are other options, including one type being built by Westinghouse and Toshiba which has satisfied the notoriously stringent US authorities. There eight in construction of which four are in the US. Again they are a few years late but nowhere near as late as their French counterparts. There is also a conventional technology reactor designed by GE and Hitachi, of which four have already been constructed.
Today the UK has eight operating nuclear power stations, all of which are ageing.
We clearly need to invest in new nuclear capacity, and although there a number of options for different reactors, one thing is clear: we cannot manage without nuclear as nothing can reliably fill the gap.
Rather than the current financing agreement in place with EDF and their Chinese counterparts, the Government should consider paying for it up front and put it on the UK’s balance sheet, because once the capital has been spent, the variable costs of producing electricity are very low and it can provide highly competitive power to manufacturing for many years to come.
For the foreseeable future, the UK is dependent on gas and nuclear for its primary energy needs to serve the general public and industry/commerce.
Our energy policy for the next ten years should give priority to exploiting shale gas safely and to building ‘tried and tested’ new nuclear. It really is not so complicated.