by Jerome a Paris
Thu Nov 23rd, 2006 at 04:18:45 AM EST
Via Logica, a UK consultancy, a "scaremongering" report (which the guys at the Oil Drum find serious and will comment upon in the near future):
The UK energy gap is much larger and closer than currently being reported, according to a new white paper issued by LogicaCMG (...). Within ten years the gap could cost UK businesses over £108 billion a year.
The Energy Review indicated that by 2025 energy demand in the UK may exceed the available supply by 30 per cent, but research by LogicaCMG suggests that a decade earlier the energy gap could already be 23 per cent at peak times. This shows that the gap is widening far quicker than anticipated, and will have a significant impact on UK business and households. The widening of the energy gap is a major issue as potential solutions like nuclear power simply can't be built in time to close it.
Promoted with minor edit from the diaries -- afew
Based on the research LogicaCMG has estimated that by 2015, the impact on GDP could be £108 billion, or £3,700 a year for every working adult in the country. In just four years time, 2010, the gap could potentially be five per cent. This could require energy intensive industries to shut down operations at peak usage periods with an immediate cost to businesses of £7.9 billion a year.
LogicaCMG has (...) found the average cost for each hour of a blackout is as follows:
- £2 - Residential
- £800 - Small Medium Enterprises (SMEs)
- £8,500 - Large Industrial and Commercial
"The energy supply industry is under great pressure. While nuclear, which some people hope will plug the gap, may be a viable solution for the 2020 period it is not going to be ready in time for 2015 so a range of actions need to be taken. We believe that the UK Government is taking the right steps to try and create open international markets in energy, but that planning laws around the storage of energy resources and the construction of new generation facilities will need to be changed as a matter of urgency. (...)
As I've commented many times, the solutions should be, in that order (i) energy conservation, (ii) renewable sources, (iii) nuclear, and (iv) gas or coal, but there will be tremendoud pressure to do the exact opposite. This report does exactly that, by focusing on coal and gas generation, occasionally mentioning energy efficiency, and totally ignoring renewables.
Which is my biggest worry: energy finally gets on the radar screen, but the solutions proposed and discussed are those that solve nothing and make things worse.
And in the meantime, we have to deal with this crap (from today's FT):
Workable way to protect electricity supply
The US and Europe have both received sharp warnings this autumn about the inadequacy of their electricity supply development. In October, the North American Electric Reliability Council (Nerc), designated overseer of the US and Canadian grids, announced that within two years, electricity supply margins would drop below minimum safe levels in much of the US. Nerc's report found: "The projected decline in margins reflects a short-term resource acquisition strategy that has been the norm for most of the past 10 years."
(...) It turns out that the US and Europe have been similarly neglectful and complacent about their inadequate policies on electricity.
In Europe, from 2000 to 2004, capital investment in electricity fell from about 18 per cent of utilities' sales to less than 10 per cent. While capital spending by utilities rose last year, to 33bn ($43.3bn), that is far below the level needed to maintain reliable service, estimated by the European Union at 1,000bn over the next 25 years.
Increasingly, European utilities have relied on cross-border transmission links to maintain reliable supplies, but transmission investment has not kept up with this increased dependence.
A market-based approach to electricity pricing and delivery requires an even more capable grid than the old command-economy model. Giving consumers a choice of electricity providers is a cruel joke if they cannot get access, directly or indirectly, to more distant generators.
However, the market-based pricing of energy charges to consumers can be used to induce more investment in generation. In the US and Europe, though, it will require changes in the regulatory framework for power pricing.
Surprisingly, it is California, famous for its dysfunctional power markets, that is probably furthest in coming up with a balance of market force and effective regulation. The Californian authorities are requiring "resource adequacy" plans from utilities that directly serve consumers, requiring the utilities to demonstrate that they can meet their load requirements for one year into the future, with the strong possibility that a four-year requirement will be put in place by the end of next year. It is up to the utility to come up with its own balance of self-generated and purchased power.
There are alternatives to the development of better market signals. Europe and the US could accept frequent blackouts and industrial and commercial users could instal myriad back-up generators. Or we could abandon the use of market signals for electricity investment. Then the grids could be overbuilt under a command-economic approach that would provide reliability, but cost consumers several hundred extra billions. Not the way to go.
While the idea proposed (to impose resource adequacy tests) is a step in the right direction, I fail to see how it would improve the grid (other than possibly locally), and I see it as an additional layer of regulation in what is already an astoundingly complex industry.
The fact is, each deregulation has unearthed unexpected consequences that have had unavoidable costs to the economy (not included in the electricity price, of course), and that have required new regulatory provisions. The argument that the "command economy" is more expensive is thus certainly not made, quite the contrary (as EDF's low prices in France demonstrate), while its reliability is acknowledged.
But that solution is unacceptable to our pundits, and thus we need to regulate again in order to save the principle of the market, despite repeated demonstrations of inefficiency in that sector.
An interesting item to note here is that the country which plays a fundamental role in stabilising the European electricity market and ensuring reliability of supply is Switzerland (see this presentation (pdf!) and more from the website of Dr Reichsteiner, a Member of the Swiss Parliament). How do we regulate the EU power market when it is so dependent technologically on a non-member country?
Add another layer of regulation?
We have overwhelming evidence that all power market liberalisations have led to underinvestment in all sectors, to brownouts or to outright fraud. The French example demonstrates, despite the fact that it supposedly overpays its workers, subsidizes heavily their communist unions and encourages wasteful overconsumption in France, that a centralised system, financed by the government, is more reliable, safer, and in the end cheaper than all alternatives.
But no, we have to save the markets, build more gas (hello Mr Putin) and coal (bye bye Bangladesh) plants and forget about demand.
Why don't we hear the French technocrats today to defend their model? Where are they?