Kwasi Kwarteng’s net zero boosterism

As world leaders used this year’s climate summit in Glasgow to commit to new promises to pivot away from fossil fuels, countries across the world were dealing with an energy crisis. The spike in gas prices, as suppliers struggle to cope with a surge in demand sparked by economic recovery after Covid-19, has reminded us that, for all the investment in renewables, we are still heavily reliant on fossil fuels.

To add to the problems, for several weeks Britain experienced low wind speeds, compromising the performance of wind farms. For some people, the crisis has made the case for moving towards renewables more quickly; others have interpreted it as a warning of how we are retreating from fossil fuels too hastily, by giving up coal and running down our gas storage reserves before renewables are in a state to replace dirtier forms of energy.

What are the lessons from the past few months – and can the government deliver on its commitment to reach net zero by 2050? That was the subject of debate over a Spectator dinner held at the Conservative party conference in Manchester, attended by COP26 President Alok Sharma and Business Secretary Kwasi Kwarteng.

The sponsor of the dinner, Scottish Power, has committed itself to the government’s cause as the first integrated energy company in Britain to generate 100 per cent of its power by renewable means. As well as being a leading operator of wind farms, Scottish Power specialises in the smart energy grids which will be needed to reconfigure Britain’s electricity system away from a few large power stations and towards many smaller sources of power in the shape of wind farms, solar farms and biomass plants.

Scottish Power’s chief executive Keith Anderson opened with the case that distributed energy networks will prove, in future, to be more resilient than a system dominated by a few large coal and gas plants. When a large power station breaks down, that’s when the real problems begin, he said. A system based on smaller generators, distributed more evenly around the country, is inherently more stable.

Mr Anderson rejected the suggestion that the present crisis could have been alleviated by retaining more gas storage facilities. ‘Gas storage would have helped for a few days but wouldn’t get us far over the next few months. If we are going to invest in storage it should be storage of electricity, not gas.’ Some people have misread the current crisis, he added. While wholesale prices have spiked, security of supply is not an issue. The lights will not go out; it is just that we may have to pay more to keep them on.

The cost of energy is a serious issue for many households – one which will inevitably come to be laid at the government’s door. So will it blow net zero plans off course? It shouldn’t do, said Mr Anderson. That said, UK energy markets were designed with the aim of bringing prices down, not to deal with volatility in markets. As we head towards net zero we will need more wind and solar but also more hydrogen production, helping to smooth peaks and troughs in the supply of renewable energy.

Scottish Power is not alone in its enthusiasm for green energy. According to Emma Pinchbeck, chief executive of industry body UK Energy, power providers are pushing the government to go faster. ‘Our members wouldn’t be doing this if they thought there was a threat to energy security,’ she said.

Mr Kwarteng does not believe that the shift to net zero needs to result in higher prices for consumers. ‘No one is suggesting now that coal would be a cheaper way of generating power.’ Mr Sharma pointed out that the cost of solar power has come down 90 per cent in the past ten years. Why has that happened? Contracts for difference – which guarantee generators of power a certain price – have been instrumental in increasing investment in wind and solar, achieving scale and thus helping to bring down prices. If you just invest in the form of energy which is cheapest at the moment, added Mr Sharma, you may fail to invest in sources of power which will be cheaper in the longer run.

The success of wind and solar, however, has compromised investment in tidal power – a form of renewable energy where the outputs are more predictable than wind or solar, and which could add resilience to electricity networks. The government was put off investing in tidal power because of initial estimated costs of up to £200 per MWh, said Mr Kwarteng. But then little more than a decade ago wind power cost £150 per MWh. It now costs more like £40 per MWh, thanks to economies of scale. ‘If you look at who’s investing in wind and solar now it is mostly pension funds,’ said Anderson. ‘It is now seen as a bog-standard investment.’

What, if not gas, will we use for our electricity baseload in future? The government’s recently published ten-point plan is supportive of nuclear power, said Mr Sharma. But that is not the way that Rebecca Newsom, head of politics at Greenpeace, would like to see policy move – and not just for environmental reasons. ‘Costs of nuclear are escalating all around the world,’ she argued. ‘They are on a different trajectory to renewables.’

The cost implications for individual households represents the biggest threat to the government’s net zero plans – not least because households may start asking: why are we having to make sacrifices when other countries, particularly China, are not? Britain accounts for only 1 per cent of global emissions: there is only so much it can do on its own.

Mr Kwarteng assured motorists that everyone who can afford a car now would be able to afford an electric vehicle in future. Costs would come down, he said. Former transport minister and Wealden MP Nusrat Ghani spotted another problem. It is all very well proposing to replace gas boilers with heat pumps, she said, but where are the thousands of skilled people to install them going to come from? As a transport minister she was involved in planning for HS2. One of the problems with projects that requires skilled professionals, she said, was that ‘we never factor in the shortage of skills and the real time it takes to get thousands of people skilled up and ready for work’.

We have seen it before with insulation programmes – big ideas collapsed as homeowners fell victim to shoddy work by cowboys who moved in to take advantage of public subsidy. Heat pumps – of which the government wants 600,000 installed every year by the end of this decade – are likely to be one of the most contentious issues of the net zero policy. At the moment, costs are widely quoted at £10,000 per heat pump – although that figure should come down as the industry scales up.

It emerged throughout the dinner that one of the big questions, still unanswered, is how the net zero target overlaps with outstanding issues of poverty in the UK, and who exactly bears the cost of going green. ‘As a sector we haven’t grasped that yet,’ said Mr Anderson. ‘If we do, that is what will stop net zero from failing.’