Why the UK can’t get a grip of its energy crisis
A months-long cost-of-living crisis, state bailouts of consumer energy bills, endless planning rows, judicial interventions and now the near-collapse of Britain’s only manufacturer of virgin steel all show different sides to the UK’s ongoing energy crisis.
Its dependency on foreign imports, poor planning of infrastructure and lack of control over soaring bills means the extent of the problems facing the UK cannot be understated. Industrial electricity prices are four times those in the US and significantly higher than the likes of Canada and France, according to data by the International Energy Agency in 2023.
The impact on the wider economy was put in blunt terms by the think tank Resolution Foundation last week after it found an alarming gap between US and UK productivity growth levels since the pandemic. It attributed the US’ rise largely to a “continued boom in oil and gas extraction”.
Britain, meanwhile, is still years away from fixing its costly issues.
Energy giant Centrica warned in January it had “concerningly low” storage levels of gas, while Norway, on which the UK is dependent for oil, is likely to wind down its overall production. Parliament’s spending watchdog said in March the country was exposed to another energy crisis.
The ensuing issues have called into question the Labour government’s commitment to reaching net zero by 2050 and a carbon-free electricity system by 2030.
Petrochemicals company INEOS owner Sir Jim Ratcliffe accused the government two weeks ago of “squeezing the life out of the UK’s oil and gas sector, and piling pressure on the country’s strained power grid” in a letter to the Daily Telegraph.
He pointed the finger at the UK’s windfall tax on energy profits, which was first introduced by the previous Conservative government.
“As a tax-raising mechanism, the windfall tax is a failure. Capital is migrating abroad, resulting in lower investment, lower production and lower UK tax receipts, offsetting the short-term EPL [Energy Profits Levy] tax gains.”
Labour increased taxes on North Sea oil producers at the last Autumn Budget but said it would end the tax in 2030 following a consultation on what it should be replaced with.
The question of what the UK should do with oil available in the North Sea reflects much of the wider energy conundrum the country faces.
The industry body Offshore Energies UK recently warned that oil and gas supplies in the seas north of Scotland would allow the UK to meet only half its projected needs for the next quarter of a century.
Hamstrung by Net Zero?
But successive government efforts to drive up production have been hamstrung by legal challenges from the likes of Greenpeace. Approvals for two new oil and gas fields were overturned by a Scottish court in January and environmental groups have warned that more appeals will come.
For as long as reaching net zero is at the heart of Labour policy, the government looks reluctant to fight tooth and nail to get projects over the line.
Instead, Prime Minister Keir Starmer has put all his hopes on onshore and offshore wind farms, as well as more nuclear generators. The opening of the Sizewell C nuclear power station, scheduled for 2032, now depends on extra financing. Starmer is also rushing to approve mini nuclear reactors to boost regional energy capacity.
The Labour government appears to be taking inspiration from France, which derives some 70 per cent of its electricity from nuclear power. Better late than never, the logic seems to run.
This drive for more power is coming at a crossroads moment for the UK.
If it wishes to be a leading player in artificial intelligence, for example, then a lot more electricity will be needed. Data centres will use more than twice as much electricity by 2030 as they do today, according to IEA projections.
It appears uncertain that renewable energy will be enough to boost the UK’s national grid and narrow the gap between Britain and the rest of the developed world. The problems with the UK’s energy market can be traced back decades, but the consequences of these policy choices are hurtling towards us.