Emergency 2022

A few years ago The Economist said, ‘Since World War II every recession has been caused by financial crises and oil shocks’. At the risk of making The Economist obsolete, it pretty much nailed the major root causes of our economic problems in one sentence. I was born in 1973, I’ve lived through four oil shocks in my lifetime, and now one gas panic. All were caused by factors completely beyond the control of the UK.
The 1973 shock was caused by the Yom Kippur War and, after many years of talk, OPEC finally managed to engineer a spike in the oil price. The 1979 oil shock was caused by the islamic revolution in Iran, as despite initial assurances, Iran decided not to sell into global markets in the same way as before. The 1990 oil shock was caused by Iraq’s invasion of Kuwait, and well-founded fears about destruction of oil wells in both countries. The 2008 oil shock was caused by a rise in demand from China, a booming economy at the time, something established oil producers had not planned for. Now gas prices are through the roof due to two reasons the UK can’t control – the war in Ukraine and the mass shutdown of nuclear power plants in France, which has reversed normal flows of electricity via interconnectors. France has hitherto been an exporter of electricity, but cross-channel connectors are now sending the best part of 3000 megawatts to France from the UK.

Little Cheyne Court – part of a UK electricity sector exporting to Europe

The fact that oscillations in fossil fuel prices can cripple the global economy is well-known, but we are closer to weaning ourselves off of fossil fuel dependency than ever before. Completely ditching gas for electricity production in the UK could take another 12 to 15 years. It’s possible at the current rate of renewables installation, however. It won’t be a quick or easy process, but aside from the environmental benefits the economic prize is huge – electricity from affordable sources at stable, predictable prices. It will amount to the difference between living at the foot of an active volcano and sitting pretty in the middle of a tectonic plate.
What of the current gas panic? The UK needs short-term intervention this winter, and beyond that an overhaul of the electricity market and how it’s priced up. There is much debate about the merits of interventionist schemes, the first proposal, from my party the Lib Dems, proposes a big windfall tax on oil and gas companies and repurposing of VAT receipts from petrol/diesel (which spike when the price of fuel is high) to provide support for bills. I’ve heard arguments against the fine details, but without a major intervention there will be a huge flow of money from households, businesses and public sector organisations to electricity and gas companies. People will get into debt, be evicted, get ill or die from cold-related illnesses if household bills rise to the £5000 – £6000 a year as is predicted. Businesses could be even worse off, all non-domestic users are not protected by a price cap, and some customers are being quoted future estimates that are 1000% price rises – that makes millions of SMEs unviable all of a sudden. An intervention on the scale of the furlough scheme is required to keep the lights affordable.

Wholesale changes?

As I mentioned before we’re on a road to Net Zero, dispensing with fossil fuels so why does the price of gas still matter so much? Many years ago I switched to a 100% renewables electricity supplier because I’m committed to the cause but also I believed, naively that I’d be paying a small premium at the time in exchange for a product decoupled from the snakes and ladders nature of oil and gas markets. The wholesale electricity market means no one can escape from the jeopardy of fossil fuel instability – wholesale prices are set at the level of the most expensive form of electricity at the time. Even if you want to buy just wind, solar, biomass and hydro, it will be priced up at the same level as gas, if gas is expensive. Looking at real time data for electricity generation on a sunny, windy day sometimes renewables top out at 70% market share, it used to give me an enormous sense of well-being. That was before I knew about the wholesale market pricing mechanisms – even with a few % of natural gas in the mix we’re saving nothing.
The market is clearly weighted in favour of producers, rather than consumers and consumers will continue to be gouged by price spikes until we get rid of fossil fuels altogether, or in the medium term reform the market radically. Changing the rules of the game comes with headaches, contracts have been signed, if we move to a new pricing mechanism electricity companies will almost certainly lose out and there will be legal challenges. I can’t claim to have the answer when it comes to a pathway for market reform but this has been explored by energy and sustainability expert Michael Liebreich. If you see his latest blog you can see it proposes splitting the market into component parts, and is an excellent explainer of how the market works:

https://www.linkedin.com/pulse/uk-energy-crisis-time-split-power-market-michael-liebreich/

If I were to deviate from his proposals of a low carbon (renewables/nuclear) and fossil fuels split, to would be to keep renewables separate from nuclear, nuclear has never been price competitive – the major forms of renewables no longer need subsidy and in the case of solar and wind, are sure to get cheaper. I would like to see an aggregate price for renewables, the UK could use all eight different forms of renewable – hydro, solar, wind, wave, tidal, geothermal, biomass and biogas – all have their strengths and weaknesses and are at different stages of development. The cheapest – wind, solar and biomass – could subsidise the introduction of new forms of renewable that have been on the verge of deployment but not seen yet – geothermal, wave, and tidal.

White Knights

I can imagine, if I was a grown-up in 1973, feeling incredibly emasculated by the oil shock, which was followed by a two-year recession. The UK’s economy didn’t really recover until the late-80s, all of a sudden your quality of life, career and standard of living could be buffeted by things happening in countries thousands of miles away that were hard to understand the UK had nothing to do with. Could the gas panic be solved by an external intervention that could be as helpful as OPEC has been unhelpful to the West? I ask this question because both the US and Canada are major global producers of Natural Gas, and although many production contracts are signed off for years in advance, these countries could, if they really wanted to, turn on the taps for Europe, just like Russia can turn the taps off. On a scale of 1 to 10 how much does the US want to avoid a global recession, and avoid Europe feeling compromised by its opposition to Russia in Ukraine? At the moment no one is floating this as an option, just more piped gas from Norway and a few extra LNG tankers from Qatar and Algeria. Help from those lower volume producers isn’t going to cut it. North America has the power to help the rest of the industrial world – will it?

Those forever changes

One thing we learned in retrospect after the first oil shock is societies scouted around for alternative energy sources and energy saving measures – the shock might have precipitated permanent change but we were too lazy to bother. By the mid-80s aspirational energy changes fell by the wayside and we were back to bad habits because fossil fuels had become cheap and plentiful again – e.g. the average miles per gallon of new cars went down for about 10 years then regressed to pre-1973 levels. In the motor market, structural changes with the long-term phase out of combustion engines mean we’re set on a course of ditching oil no matter what. In the short term the Gov’t appears to be losing its nerve when it comes to electricity with Liz Truss saying she’ll ditch the green levy (this will hold up, but not eradicate investment in new renewables capacity) on bills – so that’s £150 off a £5000 bill – not a transformative difference to a household but a dent in our commitment to sustainability. The best we can hope for is Gov’t policy being a short term blip as the current administration will be voted out in 2024, and be replaced by one with one determined to make the 2022 gas panic the last fossil fuel shock we ever experience.

We’re on a road to Zero

Recently American magazine The Atlantic published a feature titled ‘How the U.S. Could Slash Climate Pollution by 2030’, it was an unusually unsatisfying piece for an otherwise high-brow publication, short on context or detail. It skirted over the when, the how, the why and the how much – the basic tenets of journalism. America has had one President after another that has been indifferent or hostile to the green agenda I guess it’s understandable their internal debate has not caught up with the rest of the industrial world yet. Joe Biden is the greenest President ever (by default), if the US ever wakes up it will probably own most low carbon intellectual property, until then the UK is ahead of the curve in terms of implementation and technology. Unlike America we’ve got a pretty good idea of how to decarbonise because we’ve been doing it for a decade or more. Let’s take a look at how we can push things forward.

Wind turbines in the North Sea – set to increase in capacity in the next decade

A Fossil Free future

Britain is on a path to net zero carbon emissions, there is a political consensus for that, the main debating points are how long it’s going to take us and how we’re going to do it. Sir Ed Davey recently stated that the Lib Dems policy is to have 80% of UK electricity generated by renewables by the year 2030. This is a stretch, but will be like moving from 4th gear to 5th gear in a car (I’ll get those combustion engine references in while people still understand them). Since 2010 renewables market share has moved from 6% to 40%, so the pace of change to get to 80% only has to increase slightly. It’s not quite as straightforward increasing the current forms of renewables to reach 80%, however, as the dominant form is wind – intermittent and unpredictable. As we phase out fossil fuels, all of which are ‘on demand’ and flexible, I.e. a thermal power plant can operate from 1% input to 100%, the reliance on electricity that is not constant – solar – or wind, which varies hugely, means we’ll have to deploy a lot of grid-balancing and storage infrastructure to keep the power flowing. Certain forms of renewable can be ‘on demand’ – biomass, biogas and geothermal, others such as wave and tidal can be constant – all of these are not deployed to scale in the UK yet but they all could be . . .

These charts show electricity usage over different timeframes, the one on the far right shows how we’ve switched from coal to renewables since 2012

Lightning strikes twice

Many people I’ve spoken to who were hold outs against the transition to renewables I believe were instinctively clinging onto a raft – Britain has been incredibly lucky in having ample coal, oil and gas resources, which we’ve exploited hugely since the start of the Industrial Revolution. Why not just keep on drilling? Aside from the climate change aspect of fossil fuels, their supporters overlook the emasculating geo-politics of hydrocarbons – there’s been four oil shocks in my lifetime, and we’re currently suffering a gas hike, all of these are down to events far beyond the UK’s control – the Yom Kippur War, the Iranian Revolution, Iraq’s invasion of Kuwait and growth of demand in China. This winter’s gas bills will be painful, but we can make it our last hydrocarbon shock if we want to.
Renewables offer good news for the world and for the UK. Instead of countries being rich in hydrocarbons or totally deficient, every country around the world, even landlocked ones will be able to tap into at least one form of renewable power. Mongolia, for example could use solar PV, heat pumps and concentrated solar power. Hopefully this will blunt the scramble for energy resources and lead to a more equal and peaceful world in the future. The UK won the lottery with fossil fuels, we also strike lucky with renewables – we can tap into all the major ones. Two forms, we’re especially rich in – wind and tidal – we’re the windiest country in Europe and have some of the strongest tides in the world in places such as the Pentland Firth. The potential is huge, but nothing is inevitable so I’ve modelled a few scenarios for 2030:

Bad case
The UK only progresses to 60% renewables, it’s still dependent on significant nuclear and gas generation. There has been increases in deployment of wind, solar and biomass but the rate of installation has slowed compared to the 2012 – 2020 period.

Average case
The UK reaches 70% renewables, nuclear and gas are reduced but still in the mix. As wind is taking up a bigger share significant grid-balancing and storage is in operation, the UK has made tentative steps to tap into new forms of renewables – biogas, wave and tidal make up a few %.

Hitting target
We took some risks, we pioneered a load of technology but we made it to 80%! As imports make up 10%, nuclear and gas are reduced to a small rump of the electricity market. Wind has been capped at around 50% of the market and the remaining 30% is made up of already established solar and biomass, but the newest forms – biogas, wave, geothermal and tidal already feed several gigawatts into the National Grid.

Hydropower was almost the exclusive form of renewable generation until 2000

For those who have got this far who are sceptical that this is possible or it’s a disruptive and costly change I would point out the following. If we had a conversation about electricity back in 2000, if you championed the existing forms of electricity and dismissed renewables it would be no surprise, aside from hydro no renewable had been deployed to scale around the world, the
rest all had to prove their worth. The increased commitment to renewables under the coalition government means that we’ve decarbonised our electricity by 67% between 2012 and 2021. The past nine years have shown that renewables can move from fringe to mainstream, they can do so very quickly and that there’s no significant increase in electricity bills by doing so. Going from 40% to 80% will be more difficult, it will cost more money. However, if you’re conservative you have to recognise the financial advisory maxim: ‘past performance is a good indicator of future outcomes’ – we can turn on the renewables tap and we can make it work, we know what that looks like. All of the forms of renewable power mentioned here are either available to deploy (wind, solar, biomass), have been proven to work in other countries (geothermal, tidal), or proof-of-concept has been shown and could be scaled up (biogas, wave, tidal). We’re not talking about end-of-the-rainbow tech like nuclear fusion.

R & D and economies of scale have taken the cost of mainstream renewables below gas and nuclear

In conjunction with COP26, the Think Tank Onward published a report ‘Thin Ice?’ This looks at changing attitudes in Britain to climate change and net zero policies. In an ideal world the UK public should have ‘got’ global warming the 1980s, climate science took a quantum leap thanks to the analysis of 140,000 years of ice core data which documented the long term carbon cycle and showed how temperatures since the start of the Industrial Revolution have gone off at a tangent (funnily enough this work was done by Soviet scientists at their Antarctic base before their oil drilling programme really took off). During the last decade, however, as we can see by the graph, acceptance of climate change has become a cultural norm.

Every age group now shows a strong majority concerned about climate change, finally!

Opinion varies slightly across the UK towards the concept of net zero, with heavily industrialised areas still less keen. What does this mean for the Lib Dems politically – pushing a strong green agenda in London and the South East is no problem, but what of our historic heartlands the South West and mid-Wales? If a selling job is possible then the potential for offshore wind, geothermal and tidal needs to be established for Cornwall and Devon, and biomass/biogas for mid-Wales. Overall I think the public has given the green light to clean energy and hope that future governments match the Lib Dems aspiration.

This map documents relative levels of support for net zero, green showing the most, purple the least

Liberals in the UK have made a huge contribution to the global environmental narrative – Lib Dems President Des Wilson’s push for cleaner air in the 1980s has prompted the worldwide eradication of lead from petrol. Sir Ed Davey’s policies in coalition have set a global template for decarbonisation in a major economy which is now being followed by the US, China and Japan, who have all set net zero policies in the last year. When the Chinese needed an expert to show them how to clean up their polluted cities they asked Sir Ed to appear on their version of Question Time – they know his work is globally significant. We are not the Green Party but we are part of the Green movement, and long may that continue.

Des Wilson – a hero to all Green Liberals

We’re on a road to zero

Recently American magazine The Atlantic published a feature titled ‘How the U.S. Could Slash Climate Pollution by 2030’, it was an unusually unsatisfying piece for an otherwise high-brow publication, short on context or detail. It skirted over the when, the how, the why and the how much – the basic tenets of journalism. America has had one President after another that has been indifferent or hostile to the green agenda I guess it’s understandable their internal debate has not caught up with the rest of the industrial world yet. Joe Biden is the greenest President ever (by default), if the US ever wakes up it will probably own most low carbon intellectual property, until then the UK is ahead of the curve in terms of implementation and technology. Unlike America we’ve got a pretty good idea of how to decarbonise because we’ve been doing it for a decade or more. Let’s take a look at how we can push things forward.

• 

Wind turbines in the North Sea – set to increase in capacity in the next decade

A fossil free future

Britain is on a path to net zero carbon emissions, there is a political consensus for that, the main debating points are how long it’s going to take us and how we’re going to do it. Sir Ed Davey recently stated that the Lib Dems policy is to have 80% of UK electricity generated by renewables by the year 2030. This is a stretch, but will be like moving from 4th gear to 5th gear in a car (I’ll get those combustion engine references in while people still understand them). Since 2010 renewables market share has moved from 6% to 40%, so the pace of change to get to 80% only has to increase slightly. It’s not quite as straightforward increasing the current forms of renewables to reach 80%, however, as the dominant form is wind – intermittent and unpredictable. As we phase out fossil fuels, all of which are ‘on demand’ and flexible, I.e. a thermal power plant can operate from 1% input to 100%, the reliance on electricity that is not constant – solar – or wind, which varies hugely, means we’ll have to deploy a lot of grid-balancing and storage infrastructure to keep the power flowing. Certain forms of renewable can be ‘on demand’ – biomass, biogas and geothermal, others such as wave and tidal can be constant – all of these are not deployed to scale in the UK yet but they all could be . . .

These charts show electricity usage over different timeframes, the one on the far right shows how we’ve switched from coal to renewables since 2012

Lightning strikes twice

Many people I’ve spoken to who were hold outs against the transition to renewables I believe were instinctively clinging onto a raft – Britain has been incredibly lucky in having ample coal, oil and gas resources, which we’ve exploited hugely since the start of the Industrial Revolution. Why not just keep on drilling? Aside from the climate change aspect of fossil fuels, their supporters overlook the emasculating geo-politics of hydrocarbons – there’s been four oil shocks in my lifetime, and we’re currently suffering a gas hike, all of these are down to events far beyond the UK’s control – the Yom Kippur War, the Iranian Revolution, Iraq’s invasion of Kuwait and growth of demand in China. This winter’s gas bills will be painful, but we can make it our last hydrocarbon shock if we want to.
Renewables offer good news for the world and for the UK. Instead of countries being rich in hydrocarbons or totally deficient, every country around the world, even landlocked ones will be able to tap into at least one form of renewable power. Mongolia, for example could use solar PV, heat pumps and concentrated solar power. Hopefully this will blunt the scramble for energy resources and lead to a more equal and peaceful world in the future. The UK won the lottery with fossil fuels, we also strike lucky with renewables – we can tap into all the major ones. Two forms, we’re especially rich in – wind and tidal – we’re the windiest country in Europe and have some of the strongest tides in the world in places such as the Pentland Firth. The potential is huge, but nothing is inevitable so I’ve modelled a few scenarios for 2030:

Bad case
The UK only progresses to 60% renewables, it’s still dependent on significant nuclear and gas generation. There has been increases in deployment of wind, solar and biomass but the rate of installation has slowed compared to the 2012 – 2020 period.

Average case
The UK reaches 70% renewables, nuclear and gas are reduced but still in the mix. As wind is taking up a bigger share significant grid-balancing and storage is in operation, the UK has made tentative steps to tap into new forms of renewables – biogas, wave and tidal make up a few %.

Hitting target
We took some risks, we pioneered a load of technology but we made it to 80%! As imports make up 10%, nuclear and gas are reduced to a small rump of the electricity market. Wind has been capped at around 50% of the market and the remaining 30% is made up of already established solar and biomass, but the newest forms – biogas, wave, geothermal and tidal already feed several gigawatts into the National Grid.

Hydropower was almost the exclusive form of renewable generation until 2000

For those who have got this far who are sceptical that this is possible or it’s a disruptive and costly change I would point out the following. If we had a conversation about electricity back in 2000, if you championed the existing forms of electricity and dismissed renewables it would be no surprise, aside from hydro no renewable had been deployed to scale around the world, the rest all had to prove their worth. The increased commitment to renewables under the coalition government means that we’ve decarbonised our electricity by 67% between 2012 and 2021. The past nine years have shown that renewables can move from fringe to mainstream, they can do so very quickly and that there’s no significant increase in electricity bills by doing so. Going from 40% to 80% will be more difficult, it will cost more money. However, if you’re conservative you have to recognise the financial advisory maxim: ‘past performance is a good indicator of future outcomes’ – we can turn on the renewables tap and we can make it work, we know what that looks like. All of the forms of renewable power mentioned here are either available to deploy (wind, solar, biomass), have been proven to work in other countries (geothermal, tidal), or proof-of-concept has been shown and could be scaled up (biogas, wave, tidal). We’re not talking about end-of-the-rainbow tech like nuclear fusion.

R & D and economies of scale have taken the cost of mainstream renewables below gas and nuclear

Public opinion latest

In conjunction with COP26, the Think Tank Onward published a report ‘Thin Ice?’ This looks at changing attitudes in Britain to climate change and net zero policies. In an ideal world the UK public should have ‘got’ global warming the 1980s, climate science took a quantum leap thanks to the analysis of 140,000 years of ice core data which documented the long term carbon cycle and showed how temperatures since the start of the Industrial Revolution have gone off at a tangent (funnily enough this work was done by Soviet scientists at their Antarctic base before their oil drilling programme really took off). During the last decade, however, as we can see by the graph, acceptance of climate change has become a cultural norm.

Every age group now shows a strong majority concerned about climate change, finally!

Opinion varies slightly across the UK towards the concept of net zero, with heavily industrialised areas still less keen. What does this mean for the Lib Dems politically – pushing a strong green agenda in London and the South East is no problem, but what of our historic heartlands the South West and mid-Wales? If a selling job is possible then the potential for offshore wind, geothermal and tidal needs to be established for Cornwall and Devon, and biomass/biogas for mid-Wales. Overall I think the public has given the green light to clean energy and hope that future governments match the Lib Dems aspiration.

This map documents relative levels of support for net zero, green showing the most, purple the least

Liberals in the UK have made a huge contribution to the global environmental narrative – Lib Dems President Des Wilson’s push for cleaner air in the 1980s has prompted the worldwide eradication of lead from petrol. Sir Ed Davey’s policies in coalition have set a global template for decarbonisation in a major economy which is now being followed by the US, China and Japan, who have all set net zero policies in the last year. When the Chinese needed an expert to show them how to clean up their polluted cities they asked Sir Ed to appear on their version of Question Time – they know his work is globally significant. We are not the Green Party but we are part of the Green movement, and long may that continue.

Des Wilson – a hero to all Green Liberals