Long-term energy cost predictions are close to meaningless – the government is right to keep its options open
Here's a question for you: who is going to win the Premier League in 2020? And while we're at it: who is going to win the FA Cup and the Champions' League as well?
You don't know, do you? There is no way for you to have the faintest idea. You could make an informed guess based on recent trends, probably featuring the names Manchester United, Manchester City and Barcelona, but there are far too many variables for anyone to have any confidence in these bets. In fact, judging by the precarious nature of football's finances and the perennial calls for a European super league, there are no guarantees certain clubs and competitions will even exist eight years hence.
No sane person would place a bet on something that is not going to happen for eight years, and only the truly insane would bet the farm on a result that they have no means of predicting with any accuracy.
And yet, that is precisely what those thinktanks and politicians calling for the UK to ditch its renewable energy targets and focus its future energy policy entirely on gas and nuclear are saying the government should do. Yesterday's deeply flawed report from AF Consult is just the latest in a long line of studies urging political and business leaders to bet billions of pounds and the UK's future energy security – solely based on their predictions that natural gas with carbon capture and storage (CCS) and nuclear will have won the Energy Cost Premier League by 2020.
Firstly, they argue that gas (the Man City of energy technologies: currently dominant and well-funded, but reliant on a Middle Eastern regime and facing serious questions about its long-term stability) will remain the most cost-effective energy option almost indefinitely, while shale gas exploration will address concerns about energy security and CCS will ensure emissions reductions can still be delivered. And secondly, they argue that nuclear (the Liverpool of energy technologies: big in the 1980s, but not done much since and with serious doubts about its foreign benefactors as well as its ability to deliver a return to the glory days) can deliver a fleet of new reactors within eight short years, while addressing concerns over long-term costs.
I don't want to get into the deeply contentious methodology used by AF Consult to make its case. This is partly because others have already highlighted the many dubious assumptions used to deliver the Sunday Times headline proclaiming renewables will add £45bn to the UK's energy costs, and partly because I do not have the energy – it is, as a DECC spokesman rightly put it, "so flawed the conclusions are near pointless".
As the ever informative Carbon Brief has pointed out, it is remarkably easy to produce a report on energy costs that delivers precisely the headline figure you want. You can do so simply by tweaking the cost assumptions that underpin the calculations.
Both sides of the energy debate are guilty of doing so, and of cherry-picking statistics and projections that help them make their case. So AF Consult assumes gas prices will remain low, that nuclear reactors can be built within eight years, and, crucially, that CCS will not only work but will also prove cost-effective. Meanwhile, it also assumes that renewable energy costs will not fall as drastically as hoped, that energy efficiency schemes will falter, and that domestic shale gas resources will be tapped. In contrast, green and renewable energy groups assume that gas prices will continue to rise, that CCS and nuclear will prove more technically challenging than its supporters claims, that renewable energy costs will fall fast, and that energy efficiency initiatives will work.
Based on recent history, I'd argue that the predictions put forward by the renewable energy industry and green groups are far more likely to prove accurate than those put forwards by AF Consult and its peers. But both sides are dealing with predictions and forecasts, risks and gambles. Like my metaphorical punter, they are trying to work out who will lift the Premier League trophy in 2021 and placing just one or two bets on their favoured clubs.
In contrast, the government and the energy industry are taking the only sensible approach when faced with decisions that will be informed by events a decade hence: they are hedging their bets.
The government has been understandably reluctant to admit that its energy policy boils down to an exercise in keeping its options open. This is done on the grounds that to do so could undermine investor confidence in some sectors, although it was encouraging yesterday to see DECC's director of strategy Ravi Gurumurthy explain the strategy more fully.
Ministers are trying to spread the risk across as many different low-carbon energy technologies as possible for as long as possible, allowing time for the evidence to emerge as to which provides the best long-term bet. So if the cost of wind and solar power continues to fall as hoped, we can ramp up the deployment of those technologies post-2020 (assuming the cuts to feed-in tariff incentives do not cripple the solar industry as feared). Equally, if gas prices stabilise at a relatively low level, shale gas provides reliable supplies, and CCS is proven to work effectively, we can scale back on more costly renewables and beef up our gas capacity.
To continue with my footballing metaphor, the government is spreading its bets across 10 to 15 different options, while also leaving the door open to place a stake on an, as yet, unheralded upstart if necessary. As any astute punter will tell you, this is the only sensible approach to take when you are dealing with such long time frames and unpredictable variables. Those calling for the UK to ditch its renewable energy plans are not just relying on deeply flawed forecasts; they are also advocating a truly reckless gamble that might pay off, but is far more likely to leave the UK facing higher energy costs, soaring carbon emissions and crippling energy insecurity.
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