The UK government is facing the consequence of its own failed energy policies

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by Shaun Richards

In a way it is a surprise that the UK finds itself in an energy crisis right now. This is because the weather has been mild and mostly pleasant leading to this being the position around 9 am today.

GB Grid: #Wind is generating 1.92GW (6.53%) out of 29.45GW

UK electricity demand is as you can see reflecting this by being below 30 GW so in an alternative universe we should be exporting power from out wind farms via the interconnectors. That after all was the promised land for the “Saudi Arabia of wind”.

That was reflected as recently as last Tuesday by UK energy secretary Kwasi Kwarteng who seemed to echo comical Ali with this.

1. Our Energy White Paper sets out specific steps we will take to overwhelmingly decarbonise power generation in the 2030s A plan to support up to 220,000 jobs, and keep bills affordable as we transition to net zero by 2050

There were already signs of a coming storm for now as he focused on 30 years ahead. Whereas I had warned about exactly this on the 10th of August.

Governments have raised prices via green policies and hoped to get away with the consequences ( ie parking them on the next government). But reality is dawning as to what the real consequences are.

But wait there was more pie in the sky thinking from Kwasi.

2. Our Transport Plan sets out the specific steps we will take to decarbonise the entire transport system in the UK A plan to support tens of thousands of jobs worth up to £9.7 billion GVA in 2050.

Unfortunately for Kwasi the crisis meant that he ended up in an example of what a difference not even a week makes. Here he is from Saturday.

Today, I’ll be speaking to chief executives of the UK’s largest energy suppliers + operators to discuss the global gas situation Britain has a diverse range of gas supply sources, with sufficient capacity to more than meet demand We do not expect supply emergencies this winter.

Indeed the UK government found itself having to issue an explainer on the subject with one bit especially embarrassing and the emphasis is mine.

High gas wholesale prices have subsequently driven an increase in wholesale power prices this year.

In recent weeks, this trend has been exacerbated by the weatherand planned maintenance at some power stations.

The maintenance was supposed to be no issue because according to the rhetoric we are becoming the Saudi Arabia of wind except there has been plunges to even below 1GW from that source. So we have had to import lots of power.

So Kwasi had gone from expounding fantasies about the future to a rather painful present in very short order and on such a scale he was forced to deny “supply emergencies this winter” So serious was this that he was to be found at his desk on a Sunday as another problem emerged.

Today I have also met Tony Will in person, the global CEO of @CFIndustries

– our largest domestic supplier of CO2. We discussed the pressures the business is facing and explored possible ways forward to secure vital supplies, including to our food and energy industries.

Even Bloomberg are finding the mess here the subject of a little fun.

Who’d have thought @BorisJohnson  would be trying to secure bigger cuts to CO2 on one side of the Atlantic, while back home, a shortage of CO2 is causing problems to food supplies… ( Alex Morales)

The European Crisis

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The situation as ever was described by Javier Blas.

EUROPEAN ENERGY CRUNCH: Natural gas prices opening sharply up this morning (again). UK NBP up nearly 7%, approaching last week’s record. Dutch TTF up 8%. UK Prime Minister Boris Johnson said en route to New York that the problem was “temporary” | #CommodityInflation

Ah “temporary”! We know what that means. Perhaps the Prime Minister has been listening to the Bank of England or had early sight of its explanatory letter about above 3% CPI inflation.

The impact is being felt across Europe according to oilprice.com.

Surging energy prices in Europe are hurting more than just consumers. The price spikes have started to hit industrial activities, threatening to deal a blow to the post-COVID recovery in European economies with a triple whammy of reduced consumer purchasing power, lower industrial production, and higher operating costs.

Some businesses are closing already.

It’s not only consumers that struggle with the record energy prices. Industries are starting to feel the heat, too.

CF Industries, a manufacturer of hydrogen and nitrogen products, said this week it was halting operations at both its Billingham and Ince manufacturing complexes in the UK due to high natural gas prices.

“The Company does not have an estimate for when production will resume at the facilities,” CF Industries said.

Norway-based Yara, one of the world’s top ammonia producers, is curtailing production due to the record-high gas prices.

There is a sort of echo of 1984 here as we have the Vampire Squid itself getting ready for winter.

“Under such an outcome, the only balancing mechanism would be a significant further rally in European gas and power prices reflective of the need to destroy demand, with curtailed power demand in the industrial sector through blackouts,” Goldman’s analysts said in a note carried by Bloomberg.

So “destroy demand” is the new euphemism for power cuts is it?

Tucked away in all of this is another fail for economics 101.

Moreover, competition from Asia on the LNG market could mean that Europe may not get too much additional LNG supply. Spot prices in Asia are at record highs for this time of the year, but buyers are paying regardless, concerned that the natural gas shortage globally could worsen as the winter season approaches.

The higher prices do not seem set to produce much extra supply.

So we are left with “It’s a gas gas gas” of the Rolling Stones.

Bailouts

If you are in an industry where the establishment had made mistakes and faux-pas you have a good chance of this.

The government is considering offering emergency state-backed loans to energy companies as firms battle to stay afloat amid surging gas prices.

Business Secretary Kwasi Kwarteng will hold crisis talks with industry bosses including Centrica and E.On on Monday.

High demand for gas and reduced supply are behind a surge in wholesale prices. ( BBC)

Is it rude to point out that the BBC has been cheerleading for wind farms for years and now cannot get off that particular issue fast enough and if you blink you might miss what “reduced supply” actually means.

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Comment

Crises like this usually involve a list of mistakes rather than a single one and official claims that it is simply bad luck when it is bad decisions and bad planning. After all if we look at luck then with a type of Indian summer in September the UK is being lucky with the weather or things would be even worse. In themselves wind farms and solar power are not at fault. It is those who have not only promoted them but financed them on a scale way beyond their abilities and usefulness. When the wind does not blow it does not matter how many wind farms that you have. But we have ploughed ahead ignoring that. Also the truth is that there have been lies about the cost.

With a capital cost of £3.8 billion, and a prospective load factor in its first year of perhaps 47% (i.e. the same as Beatrice, the windfarm next door), we might optimistically expect Moray East to have a levelised cost of £130, which is pretty much typical of recent offshore units.

Which leaves us still with the mystery of why Moray East submitted a bid for a CfD at £57. It has been indexed up to £68 already, but even so, it’s hard to see how they make money in the short term. ( Andrew Montford )

Then there are the Smart Meter adverts which remind us that rather than saving money as claimed they have cost billions and have added to bills. If anybody but the establishment was behind this those adverts would have been banned long ago by the Advertising Standards Authority.

Much smaller sums of money than these may have made the coal power stations we have rushed to scrap less polluting. After all should people fire up diesel generators this winter they would have been cleaner than them anyway.

Also where has the regulator been as UK energy companies took a one-way punt on energy prices? Yes Ofgem I am looking at you.

Fortunately not everything is a disaster as a new interconnector ( 1.4GW ) with Norway will be in full operation soon and we can benefit at times like this from its hydropower resources. Later this week some wind is forecast although care is needed as relying on the weather forecast got me wet yesterday. But future power decisions need to be based on reality and not this.

Every man has a place, in his heart there’s a space
And the world can’t erase his fantasies
Take a ride in the sky, on our ship, Fantasii
All your dreams will come true, right away ( Earth Wind & Fire)

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