Gloom and doom on energy cuts both ways
- 22 Feb 2012, 16:00
- Robin Webster
Following the many predictions of gloom and doom from parts of
the media about the future costs of green energy, renewable energy company RES
has got in on the act with their own version of the story in
Monday's Telegraph.
Unsurprisingly they're not warning about rising costs from green
taxes, but rather the potential costs of relying too heavily on
gas. The article on page 14 (but not online) says:
"Household energy bills could double
without a big increase in the use of wind farms and nuclear power,
an energy company has warned"
Growing British dependence on imported gas could cost the
country the equivalent of more than £1,200 for every household,
according to RES, one of the country's biggest renewable energy
firms."
The RES forecast, says the Telegraph, is
"....based on an assumption that Britain
will need rising gas imports as coal-fired generators are
decommissioned. The price of imported gas has trebled over the last
decade. RES calculated that if the trend continued, Britain would
need to spend an additional £32billion by 2025, equal to £1,261 per
household."
Over the last few years, experts agree that it's largely
rising gas prices which have driven energy bills up. This is an
important fact that has often been obscured in media coverage of
rising fuel bills over the past year. But does the argument that
gas prices will continue to rise at the same rate stack up?
Gas prices have gone up significantly over the last 10-15
years:
Of course, in that time
the UK stopped being a net exporter of gas in 2004, and became a
net importer, largely due to declining North Sea production.
This might raise some doubts about whether the trend will
continue.
The assumptions behind the figures is laid out in an internal
briefing note which the author, economist David Handley, shared
with us. It says that
"...if we don't achieve these government
objectives [for nuclear, renewables and energy efficiency] and
choose to replace everything with gas on the basis that it is the
quickest and cheapest power station to build … If we then carry on
with this gas 'business-as-usual', replacing the remaining coal
generation which will shut down by the mid 2020's with gas, then we
could be consuming 120bcm a year, of which 90% will need to be
imported."
The suggestion that we could be consuming 120bcm of gas a year
by the mid-2020s is right at the outer edges of predictions by the
National Grid, cited in DECC's
security of supply report, as shown in the graph below.
However, the National
Grid do not appear to have investigated any scenarios where no
effort at all is made to reach our climate change targets.
So it's a high estimate of gas usage - but then this is what RES
are warning about.
However, the figures from RES highlighted in the Telegraph are
also based on the assumption that gas prices will reach
172.5p/therm by 2025 (three times the current market price of
57.5p/therm).
This is well above other projections for future
gas prices given by DECC, Ofgem or any other international
energy agency. DECC see costs stabilising at 100p/therm under their
'high' scenario, while in one of Ofgem's 'dash for gas' scenarios
the price of gas briefly peaks at 108p/therm, before returning
below 100p/therm.
David Hanley argues that Government predictions for future prices
tend to vary only 20% from their current level, and have been
wildly wrong in the past. For example:
"A decade ago we were predicting gas
prices at 24p/therm and now they are at 54p/therm".
He also argues that gas prices have risen partially as a result
of China's growth - a factor which shows no sign of slowing, and
that gas prices are currently being impacted by the wider economic
situation - but that this effect might be temporary. Just a few
years ago confident predictions were being made that oil prices (to
which gas prices are often linked) would
rise to $200/barrel, and Hanley believes this could still
happen.
Finally, the RES briefing cites a report by the
energy consultancy Poyry for Ofgem as evidence that the impact
of shale gas on gas prices will be limited in this country, at
least in the short term.
Predicting the future
As with the costs of green policies, predicting the future costs
of gas is tricky. RES are not the first group to base future
predictions on past trends. Uswitch also tried it for fuel bills
(in figures cited in an edition of
Panorama) as did Friends
of the Earth in a report used to
claim that "the nation would face an additional bill of
£8billion a year by 2020 to generate electricity, costing the
average householder an extra £300" if the UK does not meet its
renewable targets. All of these seem somewhat speculative.
It seems clear that the RES assessment rests at one (high) end of
the spectrum. Given the many and varying factors impacting on gas
prices, it's probably not wise to take it as gospel.
None of this is to undermine the point that when it comes to
cutting greenhouse gas emissions,
gas is at a serious disadvantage to lower-carbon energy.
Whatever gas prices do in the future, the greenhouse gas emissions
from burning it are going to remain pretty constant.