Industry has always benefited from government support so why should renewable energy be treated more harshly?
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.