IF Britain's Energy Minister was a poker player, he would look tired, worn out and increasingly desperate. His hand of cards would be dismal and though his excuse would be that he had been dealt a very bad hand, much of the blame would undoubtedly be his for not paying more attention to the game and being better prepared.
Britain's energy predicament is certainly not a game, but potentially a national disaster with far-reaching consequences which could have been avoided with sufficient forward planning and investment years ago.
This coming winter is likely to wit
ness a human tragedy for Britain's poorer families and the elderly as many will struggle like never before to pay soaring gas and electricity bills. It will also see many energy intensive industries either lay off staff or close as they simply cannot afford to pay such high energy prices. But why are we in this position? And why does the Government and the energy watchdog Ofgem, which published its report on prices yesterday, skirt around the real issues when attempting to explain and investigate rising prices? Shouldn't Ofgem now have the remit to fully examine energy policy and its failures on behalf of consumers?
For years, we have been told that we must better insulate our homes, become energy efficient and introduce better metering systems to help conserve and better utilise household energy. All of this is good but it does not address the big issue; why is our energy so expensive, why don't we have much cheaper bills like neighbouring France and why have we reached this desperate situation?
One of the most revealing and important developments this summer was an admission from one of Britain's biggest energy companies, EDF Energy, which generates and sells electricity in both France and Britain.
EDF's chief executive, Vincent de Rivaz, responded to newspaper reports on the cost of energy in Britain. He said that British consumers were paying over £100 a year more for electricity than their French counterparts because the British Government had failed to invest in new power stations, particularly nuclear plants. In France, electricity prices are lower because 80 per cent is generated by nuclear power. By contrast, 75 per cent of electricity in the UK is from older coal or gas fired-plants. So for electricity generation, Britain is hugely exposed to volatile fossil fuel prices as gas, particularly, is now increasingly imported at high cost, while France is largely insulated through its indigenous nuclear fleet. EDF plans to build most of Britain's new fleet of nuclear stations but they will not be operating before 2018 at the earliest.
Because the Government has not invested to diversify, enlarge and modernise our energy supplies and network over the last decade, wholesale electricity prices will surge this winter and we could face a supply shortfall or "gap" this winter. The forward price of electricity for November hit highs of £133 per megawatt hour, up more than £10 in a week when the same contract was trading at about £122.75. In France, the price is £31 per megawatt hour.
More alarmingly, the price of power has risen sharply since National Grid recently published figures predicting an unusually thin margin between electricity supply and demand, making this winter potentially very tight for generators. It is this squeeze which will help push prices to new highs.
Coupled with this is our ever-increasing dependency on gas for electricity which last year reached 43 per cent of the grid. This winter we will need to import record amounts of gas, at high cost, to get us through. Coal is cheaper and essential with huge potential for the future, but we are still awaiting a green light for Britain's first clean coal power station for a generation at Kingsnorth. Its go-ahead, hopefully with others to follow, will help us to diversify our energy supplies and help get prices down.
Importantly, domestic coal is now cheaper than imports which should help ongoing pits to invest in new reserves.
Ofgem have rightly called for greater competitiveness among energy companies but, though essential, this is not the silver bullet for hard-pressed consumers. New modern infrastructure harnessing cheaper and less volatile fuels will ultimately stabilise and reduce bills and this is the undoubted challenge for the new Energy Secretary and Doncaster North MP, Ed Miliband. The challenge for the tired poker player couldn't be bigger; sadly for all of us his hand of cards will get worse before it gets better.
Tony Lodge is a Research Fellow at the Centre for Policy Studies.