Thursday, 30 October 2014
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Technology sometimes needs a helping hand

It’s all the fault of wind farms. If we just stopped subsidising these green elephants then our energy bills would plummet. Never mind climate change: other richer countries can sort that out.

That seems to have been the message put out this week, by big energy firms, by climate change deniers, even by the Prime Minister, whose response to simultaneous 10 per cent energy price hikes across the industry was to say we should roll back so-called green levies.

Analysis of government data by the BBC shows these particular taxes account for 9 per cent of bills and are responsible for 15 per cent of price rises since 2007, while the wholesale cost of power makes up 47 per cent of bills and are responsible for 60 per cent of price rises. On this basis, it’s difficult to see how cuts could possibly provide a long-term solution. However, there’s a far more important point here.

Offshore wind energy is expensive. On a global average, it’s almost three times as expensive per MWh than energy from gas. Prices might be coming down (though even that’s debatable) but those who say offshore wind couldn’t compete on the free market without government support are right.

They also miss the bigger picture. There isn’t a free market when it comes to energy and there never has been. The amount of money the fossil fuel industry receives and has historically received in direct subsidies, tax breaks and other government support massively dwarfs that given to renewables.

Energy of any kind isn’t cheap when you take into account everything that’s needed to produce it on a large scale, and it has required the public and private sectors to work together over many years to build industries that can deliver power.

Green taxes might add a small amount to our bills now (although, as Nick Clegg has argued, the same money could be collected through general taxation) but in the long-run this should help the UK develop a relatively cheap, home-grown source of energy that won’t contribute to climate change – though, of course, not without it’s limitations.

In fact, it’s already happened. The global average cost of onshore wind energy is almost as low as that of gas, and solar PV isn’t far behind.

There’s a similar story to be told around nuclear, which this week came back on the UK agenda with the agreeing of the price of energy to be bought from the new Hinkley C reactors. It’s a big gamble to agree to pay twice the current wholesale cost of energy for the next 70 years and many questions hang over the government’s deal.

But the strike price is also a reflection of the fact that the UK let its nuclear industry dwindle (or sacrificed it for political reasons, depending on your point of view) and we now need to pay extra to in order to provide a necessary low-carbon base load of electricity.

Throughout the last century, many if not most of the major innovations that have transformed our lives have been heavily supported by government funds. Silicon Valley millionaires might be fond of espousing libertarian views but most of the big technologies that underpin their products – the internet, GPS, computers themselves – wouldn’t exist without the state to support the scientists and engineers who invented them.

Economist Mariana Mazzucato has made much of this point, highlighting that even Apple received crucial government finance in its early days and that state science funding enabled the Google founders to develop the company’s groundbreaking search algorithms.

Elon Musk might say he could have developed his now increasingly profitable electric sports car firm Tesla Motors without the huge government loan he received, but even he acknowledges the importance of consumer subsidies to help get the market started. He also thinks we should have a carbon tax.

Right now, UK government funds are providing crucial support to early-stage inventions that are too risky for the private sector to touch but that with the right support could become majorcontributors to the British economy.

Of course, companies, entrepreneurs and private investors have a major role to play as well. We need better supply chains, more competition and greater efficiency to make renewable energy a realistic long-term proposition. But let’s not kid ourselves that a magical solution to our energy problems will emerge if we simply get out of industry’s way.


Readers' comments (19)

  • The clue is in the phrase 'climate change deniers'. Obviously Mr Harris has all his views distorted by the fact if we don't instantly cover the planet with turbines we're all gonna die. This despite the fact that even with all those turbines there wouldn't be one Mw of base load generated.
    Yes, targeted support by all means(remember Sheffield Forgemasters support scrapped) but not to a useless low tech junk technology like wind power.

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  • Where does it say we should cover the world with turbines or that they provide baseload?

  • Has anyone drawn the comparison between the cost of renewable energy (for example offshore wind) and the recently agreed strike price for energy from Hinkley Point C (energy tomorrow), rather than the comparison with the price of energy from gas (energy today) ?

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  • The offshore wind strike price is currently £155/MWh. The Hinkley Point C strike price is £92.50 (£89.50 if we build Sizewell C as well).

  • The phrase "climate change deniers" has connotations of "holocaust deniers" as being something so far beyond normality as to be unacceptable in a civilised society, when in fact there is so much doubt and lack of serious data around climate change, and so much vested interested in promoting it, that one wonders if it exists at all outside normal climate cycles.

    As for government support for early stage inventions, this of course is how it should be, but wind farms do not fall into that category and yet are receiving support through guaranteed MWh prices far above that for Hinkley Point C. Just because they are acceptable to the BBC and Guardianistas?

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  • The oil and gas industry continues to receive government support today - well beyond early stage invention.

  • Stop using tax payers money to prop up methods of power generation that will always be inefficient and costly.
    Far better to invest this money, and a lot more, into developing a safe, cost effective method of recycling the waste from the cleanest, most efficient, long term low cost form of power generation - nuclear.
    That would be money well spent, projecting human-kind forward rather than proping up 'Windy Millers' inefficient and hence costly business. So last century don't you know.

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  • Someone asked if there has been a comparison of the nuclear strike price and renewables:

    For the 3.3GW Hinkley C project the subsidy in revenue (assuming the same base price of electricity as today and 80% load factor) over 35 years will actually be £36bn.

    In comparison by 2017 the equivalent offshore wind project (ie equivalent to produce the same electricity – I’m assuming a 6.6GW project) will receive a total of £30billion with a strike price set at £135/MWh

    – ie Nuclear will receive almost a fifth MORE subsidy than offshore wind - and that’s assuming no extra taxpayer support needed for decommissioning and waste storage….

    Indeed by the time Hinkley C is commissioned the cost of offshore wind is expected to have fallen to £100/MWh (from £135/MWh in 2017) – meaning that nuclear will get twice the subsidy over the electricity supply contract lengths!

    Not sure how anybody could see this as a competent deal, let alone one to be proud of. This is nothing about ideology, it is about contractual incompetence and listening to vested interests.

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  • I was very disappointed that David Cameron has now decided to attack the green levies on energy bills and I agree with the author that wind and solar should continue to be encouraged and are useful all the time they result in reductions in overall CO2. However these reductions depend to some extent on what type of generation replaces the renewables when they are not available.

    What is needed is more investment in research and prototyping of new types and variants of renewables. I believe that what we need is more tidal and wave power (predictable athough variable) and, more importantly, storage of renewably generated power.

    With renewables, subsidy has so far resulted in an amazing reduction in cost but their greatest success will come only when we have economical and efficient means of storage. Maybe what we should be investing in is a means of converting sunlight energy to something like oil or gas so that it can be stored. The use of algae to carry out this conversion is one possibility.

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  • In response to Steve : 'Climate change deniers' is exactly the right term for those who oppose the necessity of clean energy.
    For those who are unsure of climate change - perhaps yourself who 'wonders' and speaks of 'much doubt' - the rational behaviour is to take an insurance perspective, spending a large but ultimately affordable sum in order to avoid an uncertain but possibly unaffordable disaster.
    Only a true denier who is 'certain beyond reasonable doubt' that humans cannot cause dangerous climate change would rationally oppose greener energy.
    As for vested interests, there are also many powerful people and organisations that have vested interests in fossil fuel.
    One of their tricks is to try and make the case that unsure people should support the status quo - but, as I just explained, that's a false argument.

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  • For too many years Governments have delayed and delayed making a decision on how to replace the electricity generating capacity that is being shut.
    Now we are advised we have a choice between power cuts, or available power, so to get things moving a price has to be paid, we have also delayed things for so long that a lot of the old skill sets have been lost
    Higher energy prices will make us generate our own power with the ever more efficient PV and other technologies, while insulating our homes and making our businesses more energy efficient. New innovations with PV are likely to make more building materials PV so we can have PV walls and roofs, without today’s panel add-ons, that I expect to look so dated in a few years time
    The more people generate their own electricity the less demand there will be on the National Grid and the more its costs will have to be paid for by a smaller number of people. If this in turn encourages further final consumer investment, it is no wonder that investors in massive very long term facilities will require a higher strike price.
    Have I not read that there are other forms of nuclear that do not have the toxic waste that our stations produce?
    Have I not heard that China is looking to use such Nuclear and therefore their investment may encourage us to look at those forms, that were rejected years ago, because that failed to provide the ingredients for nuclear bombs.
    I live not far from Sizewell and was surprised to learn that the massive great ball is not full of machinery. Unfortunately our visit to the station was curtailed for security reasons but I was surprised how relatively small the nuclear part at Sizewell actually is

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  • Private investment has never dealt very well with un-quantified risk. Apple will make the next iPhone but they wont develop the next post silicon processor it'll be based on.

    The most successful nations have always cash to foster tech & (more importantly) networks to foster expertise so that when developments are made it is their private sector that pounces on it & makes the next fortune.

    On the aside issue of climate change I think it says a great deal that the overwhelming majority of scientists agree with the paradigm while those critical of it are giving what might be termed their unqualified opinion.

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  • How clean is the energy,when,like 90% of windfarms they are built on upland peat land. Literally 100's of thousands of tons is dug up and therefore dried out releasing all the stored up co2. Our peaty uplands have been described as Europe's rain forest so much co2 does it contain. Can someone tell me what is wrong with the massive and predictable power of tidal barriers

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