Wednesday, October 30, 2013
Green taxes cut 'would lower British energy bills within weeks’
Energy bills will fall within weeks if ministers make good on the Prime Minister’s promise to “roll back” green taxes, Britain’s biggest suppliers have pledged.
Giving evidence to MPs, executives from the “Big Six” firms on Tuesday all vowed to pass on cost reductions to consumers if ministers cut the levies.
William Morris, SSE’s managing director, said the price cut could happen “in a matter of weeks” from taxes being taken off bills and suggested regulator Ofgem should oversee the process.
Most of the Big Six companies argue the levies, which include the costs of wind farm subsidies and home insulation schemes, should be paid for through general taxation rather than household bills.
“If the Government responds to requests to put this in general taxation then pound for pound, penny for penny, that should come straight off the customer’s bill,” Mr Morris said.
Tony Cocker, chief executive of E.On, said that some of the so-called green schemes to help vulnerable customers were the “right thing to do” but that the funding method of “smearing it across everybody’s bill” was tantamount to a “poll tax”.
Mr Cocker also disclosed he had written to the Prime Minister to call for a full Competition Commission inquiry into the energy market to "dispel many of the myths and misinformation" surrounding it. The call echoes that of EDF Energy, which has long argued an investigation would help restore trust in the market.
E.On and EDF are the only two of the Big Six energy suppliers yet to announce price rises this year, with the other four – nPower, SSE, British Gas and ScottishPower – all announcing increases of more than £100 to a typical dual fuel bill in recent weeks.
EDF yesterday pledged a short-term price freeze, with Martin Lawrence, managing director of energy sourcing and customer supply, telling MPs: “We certainly hope to keep prices constant for the entire calendar year at the very minimum”.
E.On declined to give such assurances, with Mr Cocker saying only that the company planned to hold prices for “as long as possible” and had not yet taken a decision on an increase.
The major suppliers on Tuesday insisted that their price increases had been forced by rising wholesale costs, green levies and network and distribution costs.
But Labour MP John Robertson called the increases an “outrage” and an “abuse”. The Big Six’s justifications for price increases were challenged by Stephen Fitzpatrick, managing director of small supplier Ovo Energy, who said he was “confused” by the reasons and insisted wholesale prices were lower now than in 2011.
Another small supplier, the Co-operative Energy, gave some respite to the Big Six, with Ramsay Dunning, its general manager, saying that, while the industry “looks like a cartel”, he did not believe anyone was acting improperly.
In a speech on Tuesday night, Michael Fallon, the energy minister, said the Government was “looking hard at all the costs that make up energy bills to make sure consumers get a fairer deal”.
He vowed the review would go beyond green taxes to also consider network costs, which “are more than double those of the green taxes but have so far escaped public scrutiny”.
He called on Ofgem to “bear down harder” on the electricity distribution monopolies’ costs, which it is preparing to set for the eight years from 2015. All the electricity distribution companies’ business plans submitted to Ofgem already show a reduction in bill impact for consumers from 2015.
The Environmental Enemies of Energy
By Alan Caruba
While Americans grapple with the Obamacare debacle and 90 million are officially unemployed according to the Bureau of Labor Statistics, there is another threat to our future as environmental groups like the Sierra Club and Friends of the Earth continue their assault on the provision of electrical energy, the lifeblood of the nation’s economy and our ability to function at home and on the job.
Recently, Sierra Club members were told that they, “supporters, partners, and allies have worked tirelessly to retire 150 coal-fired power plants since January 2010—a significant number in the campaign to move the country beyond dirty and outdated fossil fuels.”
Coal, oil and natural gas are labeled “dirty” for propaganda purposes, but what the Sierra Club and others do not tell you and will never tell you is that they account for most of the electricity generated in America, along with nuclear and hydropower. Wind and solar power provide approximately 3% of the electricity and require government subsidies and mandates to exist. Their required use drives up the cost of electricity to consumers.
Among the many ongoing lawsuits that the Sierra Club is pursuing is one against Navajo coal mining, the Keystone XL pipeline, one seeking penalties for “ongoing violations” at Montana’s Colstrip power plant. They filed a suit against the power rate increase for Mississippi’s Kemper County coal plant.
In early October, The Wall Street Journal published an article, “Mississippi Plant Shows the Cost of ‘Clean Coal’.” It is testimony to the nonsense about “clean coal.” The plant, the reporters note, was meant to demonstrate that Mississippi Power Company’s Kemper County plant was “meant to showcase technology for generating clean energy from low-quality coal” but it “ranks as one of the most expensive U.S. fossil fuel projects ever—at $4.7 billion and rising.”
“Mississippi Power’s 186,000 customers, who live in one of the poorest region of the country, are reeling from double-digit rate increases,” adding that “the plant hasn’t generated a single kilowatt for customers…”
Seven power plants in Pennsylvania are under attack by the Sierra Club and EarthJustice which have filed a federal lawsuit. The U.S. Chamber of Commerce has exposed this common practice by environmental groups to “sue and settle.”
“It works like this. Environmental and consumer advocacy groups file a lawsuit claiming that the federal government has failed to meet a deadline or has not satisfied some regulatory requirement. The agency can then either choose to defend itself against the lawsuit or settle it. Often times, it settles by putting in place a ‘court-ordered’ regulation desired by the advocacy group, thus circumventing the proper rulemaking channels and basic transparency and accountability standards.”
High on the list of government agencies that engage in this is the Environmental Protection Agency, but others include Transportation, Agriculture, and Defense, along with the Fish & Wildlife Service, and the Army Corps of Engineers. One recent victory touted by Friends of the Earth is an EPA air pollution regulation is one that affects ships navigating along the coasts of the United States and Canada, out to 200 nautical miles, to “significantly reduce their emissions.”
Like the touted benefits of wind and solar power, “clean coal” is another environmental myth that is costing billions. Recently, the Global Warming Foundation reported that “The world invested almost a billion dollars a day in limiting global warming last year, but the total figure--$359 billion—was slightly down on last year, and barely half the $700 billion per year that the World Economic Forum has said is needed to tackle climate change.” The report cited was generated by the Climate Policy Initiative.
The problem with this is that there is NO global warming. The Earth is in a perfectly natural cooling cycle and has been for 15 to 16 years at this point. The notion of spending any money on “climate change” is insanity. The climate is largely determined by the Sun and other natural factors over which mankind has no control. The claim that carbon dioxide is a contributing factor to climate has been decisively debunked despite the years of lies emanating from the United Nations Intergovernmental Panel on Climate Change. Indeed, during the current cooling cycle, the amount of carbon dioxide in the atmosphere has risen!
For all their caterwauling about fossil fuels, environmental groups have resisted the expansion of the use of nuclear power that emits no so-called “greenhouse gas” emissions. The Friends of the Earth recently declared that “The quickest way to end our costly fossil fuel dependency is through energy efficiency and renewable power, not new (nuclear) reactors that will suck up precious investment and take years to complete.”
The Obama administration’s record of bad loans to companies providing renewable power—wind and solar—is testimony to the waste of billions of taxpayer dollars. In September, the Department of Energy made $66 million in green-energy subsidies to 33 companies, half of it to companies by a single venture capital firm with close ties to the White House.
The continued loss of coal-fired plants has reduced their provision of electricity from over 50% to around 47%. The resistance to the construction of nuclear facilities slows the replacement of their loss, but plants utilizing natural gas have benefitted greatly from the discovery of billions of cubic feet through the use of hydraulic fracking technology holds the promise of maintaining the nation’s needs. Need it be said that “fracking” has become a target of environmental organizations?
Environmental organizations are the enemies of energy in America and worldwide. Without its provision third world nations cannot develop and the ability to provide the energy America needs is put in jeopardy.
British Liberal leader starts to melt as Conservatives turn up the energy price heat
On Wednesday morning, David Cameron and his closest advisers met for their start-the-day meeting. With Sir John Major’s call for a windfall tax on the energy companies all over the front pages, they knew the issue would again be Ed Miliband’s weapon of choice at Prime Minister’s Questions.
They decided that they had to declare war on the green levies that are driving up bills. They were also acutely aware this would irritate Lib Dems. But Cameron had, in the words of a senior Tory, ‘decided to make public what was private’.
He was, in a dramatic break from his normal practice, quite deliberately displaying the Coalition’s dirty laundry.
Among those close to Nick Clegg (right) there has been irritation at David Cameron (left) and George Osborne’s keenness to cut green levies
Despite two meetings of decision-making body the Quad in the last few weeks to discuss energy prices, the Coalition had made little progress. Meanwhile, Miliband was still making headlines for his pledge to freeze prices for 20 months after the next Election.
Among those close to Nick Clegg there has been irritation at Cameron and George Osborne’s keenness to cut green levies. As one confidant complained: ‘It started the day after Miliband’s speech and we’re really fed up with it.’ None more so than Ed Davey, the Lib Dem Energy Secretary, who is hostile to any changes.
Cameron’s decision to go public with this disagreement appears to have broken the log jam. As a senior No 10 figure says: ‘There’s lots of shouting and public posturing, but 12 hours later Clegg is signalling that he’s prepared to do business.’
I understand from one of those involved in the negotiations that ‘quite a lot is going to go’. Some green charges will be scrapped while others will be taken off bills and instead funded by Government directly. If extra public money is needed to pay for this, that will be provided by additional spending cuts.
The Tories are particularly pleased they have managed to steer Clegg away from Davey’s inflexible position. One Cameron ally declares: ‘Davey is losing ground week by week.’
Davey’s other problem is that in Michael Fallon, he now has one of the most competent and cost-conscious Tories in his department. No 10 sources say that Cameron and Osborne have insisted that Fallon attends Quad meetings which discuss energy to ‘balance out’ Davey’s views. So where does this leave the Energy Secretary? ‘Going ape,’ according to those involved – and isolated. Tories say things are being decided ‘way beyond Davey now’.
Clegg's willingness to talk is driven, No 10 calculates, by a desire to win concessions in other areas.
One Tory Minister predicts: ‘Clegg is going to say, “I know what you want, now what are you going to give me?” ’ Tories will concede what they have to. Pleased as they are by another quarter of robust economic growth, they know they have to draw the sting from Miliband’s charge that this is a recovery for the few.
They have to demonstrate they are doing what they can to help people with the cost of living. One Minister says the upturn in the economy has ‘accentuated George’s desire to do everything possible to be able to say to people, “You’re getting better off”.
Inside Downing Street, they believe that if they can strip some green levies from energy bills, they can turn up the heat on Miliband and go on the offensive.
They point out his support for ‘decarbonising’ the energy market by 2030 would push up prices further. As one senior source declares bullishly: ‘We’re going to leave Miliband holding the increasing-green-costs baby.’
Britain’s Energy Market Needs Perestroika
Since UK opposition leader Ed Miliband promised to freeze energy bills for 20 months, the Conservatives have vacillated between calling him a conman and peddling snake oil of their own. If Britain is to keep the lights on without incurring crippling costs, the country’s energy policy debate needs more substantial fuel.
Two revolutions are unfolding in the electricity market. The first involves building expensive renewables and nuclear plants, paid for through higher bills. Environmental levies have so far been modest, accounting for less than 10 per cent of the cost of electricity. By 2030 this will rise to 41 per cent. Britain has pledged to supply 15 per cent of its energy needs from renewable sources by 2020, and to halve emissions from 1990 levels by 2025. Some experts say that, given more time, the same targets could be achieved at lower cost.
Bold undertakings to reduce emissions were popular when they were announced at the height of the boom. Yet that moment of Malthusian anxiety was also one of economic cheer, and little attention was paid to the sacrifices that expensive energy entails. This burden now falls on shoulders that are slenderer than once thought.
If Britain never adequately reckoned with the cost of its carbon commitments, it may also have been too optimistic about the benefits. The country accounts for less than 2 per cent of world emissions. The heroic reductions that are planned will have a negligible effect on global temperatures.
This would be true even if the UK’s moderation were not offset by intemperance elsewhere. In fact, investment in energy-intensive industries is already being drawn to countries such as the US where costs are lower. Britain may end up exporting emissions – and jobs – to countries that have shunned such onerous environmental commitments. The halting progress towards a global carbon pact provides scant vindication for those who thought that where Britain led, others would follow.
Politicians portray these policies as the inevitable consequence of legally binding commitments. Such wilful naivety gives an unintended meaning to Prime Minister David Cameron’s pledge to lead the greenest government ever. If the UK’s environmental policy is defensible, it should be defended. If not, the government should repeal or renegotiate the laws and treaties in which these commitments are enshrined. Mr Cameron has pledged action to prevent Brussels from throttling UK companies with red tape. He should not pretend that crucial parameters of energy policy are out of his hands.
Alongside this revolution in the means of production is one of economic planning. Since privatisation the electricity industry has been run on market principles. Price controls were abolished and politicians placed their faith in competition to keep prices low and the grid adequately supplied. Now, the government is becoming the industry’s Gosplan. It decides what plants are built, sets their prices and guarantees financing for their construction.
Mr Miliband’s price freeze is an extension of this approach, which presents him as the solution to a problem that he helped to create as energy secretary. Despite fingering power companies for rising energy prices, Mr Miliband produced no evidence of profiteering.
A fairer criticism is that energy companies have invested too little in replacing the country’s ageing power stations. One explanation is that generators are restricting supply in the hope of driving up prices. Another is that they lack incentives to build capacity needed to meet peak demand, because current rules pay little to plants that usually sit idle.
Either way, urgent reforms are needed if the UK is to avoid a capacity crunch. The best solution would be to rewrite the market rules to spur the needed investment in the most efficient way. Alternatively, the power industry could be nationalised and financed with cheap government debt – although efficiency would suffer.
But politicians have chosen neither course, preferring to make private generators bow to government plans. This is capitalism with British characteristics. It combines the inefficiency of state planning with the expense of private capital, exacerbated by the fear that politicians will retrospectively change their minds.
The losers from this shambolic policy are more numerous than the struggling households that are rightly at the centre of political concern. The prosperity of a generation is at risk. Britain cannot afford to hobble itself with overly high energy costs as it embarks on the road to recovery.
European Economic Stability Threatened By Renewable Energy Subsidies
The stability of Europe’s electricity generation is at risk from the warped market structure caused by skyrocketing renewable energy subsidies that have swarmed across the continent over the last decade.
This sentiment was echoed a week ago by the CEOs of Europe’s largest energy companies, who produce almost half of Europe’s electricity. This group joined voices calling for an end to subsidies for wind and solar power, saying the subsidies have led to unacceptably high utility bills for residences and businesses, and even risk causing continent-wide blackouts
The group includes Germany’s E.ON AG, France’s GDF Suez SA and Italy’s Eni SpA, and they unanimously pointed the finger at European governments’ poorly thought-out decision at the turn of the millennium to promote renewable energy by any means.
The plan seemed like a good one in the late 1990s as a way to reverse Europe’s reliance on imported fossil fuels, particularly from Russia and the Middle East. But it seems the execution hasn’t matched the good intentions, and the authors of the legislations didn’t understand the markets.
“The importance of renewables has become a threat to the continent’s supply safety,” warned senior global energy analyst, Colette Lewiner, referring to a recent report by a Europe energy firm, Capgemini.
“We’ve failed on all accounts: Europe is threatened by a blackout like in New York a few years ago, prices are shooting up higher, and our carbon emissions keep increasing,” said GDF Suez CEO Gérard Mestrallet ahead of the news conference.
Under these subsidy programs, wind and solar power producers get priority access to the grid and are guaranteed high prices. In France, nuclear power wholesales for about €40/MWhr ($54/MWhr), but electricity generated from wind turbines is guaranteed at €83/MWhr ($112/MWhr), regardless of demand. Customers have to pick up the difference.
The subsidies enticed enough investors into wind and solar that Germany now has almost 60,000 MWs of wind and solar capacity, or about 25% of that nation’s total capacity. Sounds good for the Planet.
The problems began when the global economic meltdown occurred in 2008. Demand for electricity fell throughout Europe, as it did in America, which deflated wholesale electricity prices. However, investors kept plowing money into new wind and solar power because of the guaranteed prices for renewable energy.
Meanwhile, electricity prices have been rising in Europe since 2008, just under 20% for households and just over 20% for businesses, according to Eurostat.
Since renewable capacity kept rising and was forced to be taken, utilities across Europe began closing fossil-fuel power plants that were now less profitable because of the subsidies, including over 50 GWs of gas-fired plants, Mr. Mestrallet said.
I’m a little confused, isn’t gas supposed to be the savior along with renewables? You can’t have a lot of renewables without back-up gas to buffer the intermittency of renewables since gas is the only one you can turn on and off like a light switch.
I understand that Germany is building new coal plants that can ramp up and down faster than ever before, but the replacement of so much gas with renewables means Europe may not be able to respond to dramatic weather effects, like an unusually cold winter when wind and solar can’t produce much.
Exhaust rises from cooling towers at the new N...
Exhaust plumes rise from the new Neurath lignit coal-fired power station at Grevenbroich near Aachen, southern Germany. RWE, one of Germany's major energy provider, invested in new coal conducted power plants that will buffer wind energy as well as replace reliable base-load nuclear. The wisdom of this decision remains to be seen. (Image credit: AFP/Getty Images via @daylife)
In a warped parody of free market economics, some countries are building gas-fired plants along their borders to fill this void in rapid-ramping capacity, and that scares the markets even more, since gas is so expensive in Europe, that the price for electricity will climb even higher (EDEM/ESGM).
As the European Commission meets this week to discuss the issue, a parallel threat looms in America as a result of a similarly well-intentioned maze of mandates and subsidies over the last decade. It has been kept at bay only by our much larger energy production and our newly abundant cheap natural gas.
Americans may not be aware that natural gas is not cheap in Europe like it is in America. America’s gas boom has occurred in the absence of a natural gas liquefying infrastructure, which is needed for import/export of natural gas to the world markets. Thus, the more expensive global prices do not affect the price in the U.S.
But that will change. We’re building LNG infrastructure at an amazing pace to exploit the huge gas reserves laid bare by advances in fracking technologies. Within five years, the U.S. will be the major player in the world gas market. Of course, gas prices will double or triple in the U.S. because, like oil, the price will now be set by the global market, not by the U.S. market. And like oil, it doesn’t matter how much you produce in your own country, you pay the global price. Period. Just ask Norway.
So when natural gas prices double, what happens to the price of electricity since gas is so intimately married to renewables? State mandates and renewable production tax credits will still require us to buy renewable energy, even if it’s double the price. We’ve already seen this occur here in the Pacific Northwest in battle between expensive wind and inexpensive hydro (Hydro Takes A Dive For Wind). Hydro lost.
That’s fine when gas is cheap. It won’t be fine when gas is expensive.
Australia: Renewable energy target looking shaky
Festering just below the surface of the energy supply debate is the vexing question of the renewable energy target (RET).
While gas supply has grabbed headlines in recent weeks, the growing crisis around the RET cannot be ignored. Discussion around the problem got as least as much airplay as coal seam gas at energy conferences in Sydney this week.
The 2020 RET is almost unique in that it is a piece of energy legislation that has enjoyed bipartisan support for years. But the target is looking increasingly untenable in today’s climate of declining wholesale power demand, putting that broad political backing under strain.
The RET in its current form mandates 41,000 gigawatt hours of renewable energy supply by 2020.
When the policy was designed that fixed target was to account for 20 per cent of total electricity supply. It assumed continued growth in wholesale electricity demand, in parallel with economic growth, as had been the case for ever.
Fast forward to today and the picture is very different. Power demand on the National Electricity Market (NEM) hit a peak in 2008-09 and has been on the way down since.
On the current trend, the same 41,000 gigawatt hours is likely to be closer to 28 per cent of total supply.
Consultancy ACIL Allen calculates the decline of 6.7 per cent in NEM demand since the peak is the equivalent of taking an 1800-megawatt power plant running at 85 per cent capacity out of the market.
But no such plant has been removed. No plants closed under the Labor government’s failed “contracts for closure” scheme and meanwhile more renewable energy is being forced into the market when no new capacity is needed. Several plants have been mothballed, but none permanently closed.
The result is what Origin Energy’s head of energy markets Frank Calabria says is probably the worst case of surplus capacity the market has ever seen.
The consequences are being felt throughout the energy supply space. Wholesale prices, excluding carbon, are as low as they were 10 years ago. Natural gas demand, which only a few years ago was expected to enjoy a boost from increased use in power generation, is stalling as far as domestic use goes.
In 2010, ACIL Tasman, as it was then, was forecasting demand for gas for power generation in the eastern states could reach as high as 1000 petajoules by 2030, depending on policy settings, out of total demand for the region of 1800 petajoules. Now the firm reckons 650 petajoules is more likely for the whole eastern states market in 2030, leaving aside liquefied natural gas exports.
The Abbott government is set to review the RET next year. For many it can’t come too soon.
Arguments by the previous Labor government that modifying the target to a “real” 20 per cent of electricity demand would destabilise the industry seem to carry increasingly less weight when virtually the whole energy supply sector is suffering.
But the stakes are high should the target be modified. Numerous foreign investors, such as Spain’s Acciona and New Zealand’s Meridian Energy, are investing hundreds of millions of dollars in wind power projects that will help meet the target.
Local players such as Infigen Energy and Pacific Hydro are similarly exposed.
Even discussion around potential changes to the legislation are damaging when the heads of Australian project developers seek sanctions for funding from their boards.
AGL Energy’s Tim Nelson pointed out on Thursday that the 9000 megawatts oversupply currently calculated in the National Electricity Market matches up pretty well with the amount of generation capacity that has been built, thanks to subsidies such as the RET scheme over the past few years.
Remove it and the market would be back in balance.
No one is suggesting that is the answer, but it highlights the distortions in the market that have been created by such policy interventions, however worthwhile.
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Posted by JR at 9:29 PM