Thursday, 23 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)

  • Was it Mr Voltaire or Dr Johnson who opined that the prospect of 'death in the morning does indeed concentrate the mind wonderfully'. Presumably all these discussions, arguments, views and so on will continue until the lights go out!
    Best
    Mike B

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  • To answer the question posed by the headline. No. It's not renewable energy that is treated harshly, just the monstrously expensive, intrusive and largely useless so-called 'wind farms'. Renewable energy may well have a major part to play, but not yet. Not until we have a comprehensive, home produced, base generating capacity suitable to meet all predictable loadings.

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  • Editor,

    It may not be the cost per megawatt strike price that is important, but the quantitiy of electiricty at that price. These, possibly two, nuclear power station could amount to 14% of the nation's electricity, wind turbines will never reach that figure. Solar panels could be as cheap in the future compared to today, as computers are cheap today to what I had to pay for an Acorn Arm powered computer over twenty years ago. If we all have panels on our houses and other buildings, generating electricity at daylight peak demand, who's going to want nuclear power?

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  • Magnus,

    The real insurance perspective is to mitigate the effects of climate change by building sea defenses, moving vulnerable communities etc. This covers the two main problems:

    1) That it proves politically impossible to reduce global emissions.

    2) Man's influence on the climate is smaller than currently predicted and the natural warming as we come out of the current ice age is dominant.

    Best regards

    Roger

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  • In response to the editors last comment, we may or may not want nuclear but we will need a base load provision; PV doesn't work too well at night.

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  • The Technology Strategy Board is now acting as a white elephant.They are not helping any new ideas in technology level readiness level trl0 to trl3 where most of the new ideas generate .Often there innovation voucher scheme is also make inventors in trouble asking to start a company,business bank account,can't select your supplier according to our wish etc .They are behind big companies for giving them the whole government grant ,this are full conspiracies.they are making the laws according to help big companies and giving public money by hard rules for startups and new ideas .

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  • This is all about supplying enough energy to satisfy demand. What about trying to reduce demand? Domestically this is achieved by insulating and draught-proofing houses. Why then does the Government charge 20% tax on insulation and subsidise fuel use, pouring out of leaky houses, by only charging 5% tax instead of the full amount. Where is the incentive?

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  • The "bigger picture" is quite simply that wind energy is technically useless unless backed up by conventional power stations for the 75% of time wind turbines not generating rated capacity.
    This combination also negates any alleged carbon saving of wind energy

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  • With regards to the reality of climate change and the production of of greener forms of energy, which would be worse:

    To discover that climate change was a myth but you have a source of renewable energy, or to not mitigate the risk and find out you were wrong?

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