Rt Hon Lord Lilley

    Peter Lilley

    – "Even I did not forsee that it risked reducing the UK to a third world economy"

    NB: this article was written for Politics First December 2014

    With poetic justice, the National Grid issued its warning that generating capacity is now barely adequate to meet winter demand on the sixth anniversary of the passing of the Climate Change Act. That Act was passed with the enthusiastic support of both sides of the House -just five of us voted against it. Such was the quasi-religious fervour at the time that, throughout its passage, no consideration was given to its implications for either cost or security of our energy. The reality is now catching up with us.

    Most discussions of energy security assume the threats are geo-political: Russia cutting off gas, OPEC cutting oil output and the impact of conflicts in Iraq and Libya, for example. Those are important issues and, subsequently, good reasons to encourage exploration and development for conventional oil and gas reserves in the North Sea and for shale gas onshore.

    But the main threats to our energy security are environmental and technological. And they are self-inflicted, either through our failure to prepare for foreseeable loss of capacity or Climate Change Act induced investment in unreliable technologies. EU directives require us to close our coal fired power stations (mainly to prevent emissions of particulates rather than carbon dioxide). Our nuclear power stations are ageing and prone to develop faults. When closed for repairs, more problems are usually unearthed leading to prolonged periods offline.

    However, most British investment has been in wind and solar which are intrinsically insecure. Unfortunately, the wind does not always blow and the sun does not shine at night. So we need an almost equal amount of conventional capacity – preferable gas turbines – to provide back-up. But power companies have not been building gas power stations indeed, some have even been taken out of operation because it is uneconomic to run them just as back-up when wind or sun do not oblige. Moreover, existing gas plants are designed for sustained use. Ifthey are continually ramped up and down, their life expectancy will be much shortened. Consequently, the government now accepts that it will have to subsidise provision of appropriate back-up capacity and has invited offers to provide this in a capacity auction.

    So we have ended up in the bizarre situation where we not only subsidise costly renewables – onshore wind costs twice, and offshore three times, the cost of electricity from coal- but where we also have to subsidise the cheapest form of energy as well as paying large consumers not to use electricity. Moreover, those costs of renewables do not include the cost of providing matching back-up fossil fuel plants or payments for not using electricity. The advocates of renewables constantly tell us that their cost is rapidly falling to parity with fossil fuels. It would be wonderful if that were true – we could abolish subsidies for renewables, which constitute some £70 million out ofthe £no million investment scheduled for this decade. But mention such a possibility and it becomes clear that the advocates of renewables do not believe their own rhetoric.

    Both costs and insecurity of supply will rise inexorably if we remain legally bound by the Climate Change Act to reduce CO2 emissions by 80 per cent by 2050. Yet a modern economy cannot function without a secure, reliable and competitive supply of energy. A major factor hampering development in third world countries is the unpredictable power cuts that mean business cannot work unless firms install their own generators, which add hugely to their costs. Although it was obvious that the Climate Change Act was irrational, costly and unsustainable, even I, myself, did not foresee that it risked reducing the UK to a third world economy. While the cost of the Act has become apparent since its passage, so, too, are doubts about its scientific and economic foundations. Even taking the IPCC projections of warming as given, the Stern Review’s attempts to show the cost of inaction as far exceeding the cost of mitigation has been discredited as "policy-based evidence". But we have now seen no significant rise in the surface temperature for ~8 years which suggests that the greenhouse effect (which no one disputes) may be smaller than thought. It is time to set aside the fervour which leads us into that commitment and reassess the Climate Change Act in the cold light of reality.