EU: carbon policy could leave UK in the dark

Britain's old coal-fired power plants have only six more years to live at the most. Their death sentence has been passed by the European Union, which decreed that the most polluting stations must be retired after a fixed number of hours.

Rowena Mason Published: 7:30AM BST 25 Sep 2009
Britain's old coal-fired power plants have only six more years to live at the most. Their death sentence has been passed by the European Union, which decreed that the most polluting stations must be retired after a fixed number of hours. But experts predict that the phasing out of these reliable but dirty old beasts will leave the UK facing a catastrophic shortage of energy that may lead to power cuts and vastly inflated bills.
New nuclear plants will not arrive until 2017 at the very earliest and Britain will be reliant on gas at a time when North Sea reserves are depleting and supplies must come from unstable regions, such as Russia and the Middle East.

When it comes to energy issues, the EU's priorities are firmly on the side of tackling climate change. Some experts are privately beginning to question whether the UK needs to prioritise its own expensive energy security needs over the rising cost of meeting the EU's objectives on climate change.
"If it came down to a choice, and I believe in the short term that it does, then fulfilling our obligations to the EU under Kyoto ought to be second priority to the issue of national energy security," says Rupert Soames, chief executive of the FTSE-250 emergency power supplier Aggreko.
Many power generators and heavy users of electricity are supportive of the EU's carbon trading emissions scheme – a market-based incentive to invest in clean energy – but sceptical about directives that place additional pressures on industry. In order to meet the EU's targets, the Government has added on "green taxes" that now make up 9 per cent of customer bills, a proportion likely to rise to 20 per cent by 2020, according to Ofgem, the energy regulator.
"The sometimes surprising steps that the EU takes are anything but market orientated," says David Porter, chief executive of the Association of Electricity Producers. "A great example of the market is the EU carbon emissions trading scheme. But there is also the directive that says the UK must have 15 per cent of our energy from renewables by 2020. Left to its own devices, the market would probably have delivered a good amount of this. But trying to enforce it has left the market in turmoil and uncertainty."
Others are not so positive about carbon trading, the EU's grand plan to encourage investment by which major polluters are given a permit to emit each tonne of carbon. They can use these permits or sell them on the carbon exchange. If they need more, they will have to buy them on the open market or face hefty fines for excessive emissions.
This works in theory, but City analysts worry that too many free permits have been handed out to big power companies and heavy industry.
Compounding this problem, the recession has reduced industrial output, meaning companies can hoard permits because they need fewer. This has pushed down the price of traded permits, meaning there is little incentive for power companies to start reducing emissions – stifling investment in renewables such as wind farms, solar plants and biomass fuel.
UK fuel bills, though they have soared in the past few years, are some of the lowest in Europe, after the gas and electricity markets were opened up to competition in the 1980s. But under-investment in the network and power plants means this could be a short-term benefit for UK consumers
Analysts are quick to point out that the country has an embarrassing dearth of gas storage plants. Even after a new super-terminal opened this year, the UK still has approximately 26 days of storage, compared to more than 112 days in France and over 99 days in Germany.
When the EU turned its attention to Europe-wide energy policy in 2007, it was forced to admit that "meaningful competition does not exist in many member states and often customers do not have any real possibility of opting for an alternative supplier." France and Spain have given the political equivalent of a shrug when faced with the idea of opening up their impenetrable electricity and gas markets.
The EU's third directive on market liberalisation is due to come into force. This latest rule demands more disclosure on trading gas and reserves, but provides little assurance that countries like France will be forced to share their customers with international power companies.
Eluned Morgan, a UK MEP, has been instrumental in fighting for European energy companies to be restricted from owning both the electricity network and the retail businesses that sell this power. But last March, the EU backed down on including this limitation on electricity "unbundling".
So faced with better-prepared European neighbours and a seriously under-invested energy sector, what can Britain do now?
"The Government needs to take control and formulate a national energy policy," says one senior industry source. "We are running out of power fast and the only way to stop the lights going off is taking some decisions in the national, rather than European interest for once."