UK Capacity Auction – Blinded by the lights?

Blinded by the lights?

So, the presents have been opened and the over-eating survived. What now remains of your ‘spirit of Christmas’? For me, the answer is always the same – it’s the lights.

Since childhood, they have fascinated me. I would wander the streets, marvelling at efforts people made to light up their houses and neighbourhoods. It didn’t have to be much; just a symbolic willingness to do something that illuminated far more than it lit up. This has always been my ‘spirit of Christmas’.

Societies need their lights to be guided by, never more so than today.

I have been trying to find some of the same altruism or mysticism in the government’s own leap into ‘keeping the lights on’ politics. This has taken the form of the Dept of Energy and Climate Change’s (DECC’s) first round of ‘capacity market’ auctions.

An idiots guide to capacity markets would tell you they are essentially a game for idiots. You can’t auction the unknown. It becomes a game for gamblers not legislators.

So, predictably, in the first round of auctions Santa (ie the public) threw a £1bn (pre-Christmas) subsidy to big energy companies and they agreed to pocket it. The nominal deal also included Big Energy agreeing to keep Britain’s lights on. DECC breathed a sigh of relief and went back to writing its own letters to Santa.

For most people, keeping the lights on remains a pretty important test of government competence … and energy companies know this. That is why, a couple of years ago, they started mothballing existing gas power stations (and permissions to build new ones).

On the surface, the explanation was that power prices were too low for the stations to remain viable. But behind the scenes, energy companies were already preparing to ‘game’ the system.

Manufacturing insecurity

If you can manufacture the prospects of a shortfall, you can manufacture the case for a new subsidy system to avoid it. Big Energy invented the idea of capacity markets and sold it to civil servants in DECC. The embarrassment is that the government fell for such an obvious sucker punch. It wasn’t as though parliament lacked other/better choices.

In various sectors of a modern economy, maintaining reserve capacity is just a legal obligation. Major data centres – particularly those dealing in credit referencing and financial transactions – have to operate every second of every day. Heavy fines, market disqualification and/or imprisonment would follow a failure to ‘keep their own lights on’.

Similarly – until they were allowed to convert into casinos – all the major banks were obliged to maintain robust ‘reserve requirements’, sufficient to keep the banking ‘lights’ on too.

Moreover, I’m astonished at how quickly governments have forgotten the motivating effect that ‘the avoidance of going to prison’ can have in their discussions with corporate executives.

If this sounds too brutal, the government could just as easily have sequestrated the generating capacity that was being mothballed. If falling power prices (never passed on to the public) were making gas power stations uneconomic, the government could have bought them for a song.

Subsidies or safety nets?

The UK was never short of more coherent alternatives. The problems began with how we defined the problem.

In any economy, back up energy capacity is always difficult – if only because you never know how often, or how much, you will need it. The government’s most dubious assumption, however, was that this provision had to be marketised.

Once upon a time, such back-up generation power would have been referred to as Britain’s ‘strategic reserve’; a back-up, held and operated by the State, providing society with a safety net, not a market.

Today, a different version of the same thinking could have taken the form of building more interconnectors, particularly with Europe. These would have been much cheaper (and quicker) than an everlasting round of bribes and bungs.

Within a more imaginative mindset, the government could have financed measures promoting reduced energy consumption rather than increased energy production.

One of the minor/major tragedies of the UK’s first round of capacity market ‘auctions’ was that less than 1% of the contracts went into such ‘demand reduction’ measures. Politicians could easily have changed the nature of the auction by specifying that 50% of the contracts would go into an energy politics designed to consume less … but they didn’t.

No less boldly, they could have set a carbon ‘cap’ on where this energy came from,or a minimum proportion that had to come from renewable sources … but they didn’t do that either.

Britain’s capacity auctions were designed by and for energy producers; a point apparently lost on our political leaders, freshly returning from Lima discussions about cutting carbon emissions, rather than maintaining carbon subsidies.

Clean connections before dirty

Interconnectors could have offered Britain a much cleaner energy-balancing act than the capacity market auctions. Norway, Iceland and increasing parts of the EU can already offer renewable energy surpluses through the use of their interconnectors.

In the EU, what also matters is that retail electricity prices are 50% lower than in the UK. An increased use of interconnectors could keep Britain’s lights on and cut electricity costs at the same time. But none of this would have propped up the rewards to Britain’s Old Energy cartel.

To get out of the trap Britain is in, we have to start looking for a new source of ‘illumination’, and within a different mindset. The good news is that this is where many of today’s brightest ‘guiding lights’ are already working.

Seasonally, perhaps I should have gone looking for 3 Wise Men to offer you, but maybe two and two halves will suffice.

Following yonder stars

The two ‘halves’ are different organisational ‘stars’ Britain should be taking its bearings from.

The first is a collection of academics based around the Fraunhofer Institute in Germany. Fraunhofer has just completed its latest scientific audit about Germany’s transition plans towards a clean/green energy economy. The Audit’s conclusion is as stark as it is inspirational –

“It is economically to our [Germany’s] advantage to move as quickly as possible to a system of 80 percent renewable energy,” said Eicke Weber, the institute’s director and a professor of physics at Freiburg University.”

80% ?!… Britain’s current political leaders would have palpitations about Committing to half this amount … in their political lifetimes! Yet what the Germans seem to grasp is that this is as do-able as it is desirable. But it involves a fundamental shift in mindset about what ‘keeping our lights on’ actually means.

Aiding and abetting this collectivity of German scientists and engineers is the Twitter-site of their Energy Transition movement – @EnergiewendeGER. The site offers a constant stream of energy insights that are tragically missing from the UK energy debate.

But it is to the smaller ‘lights’ that we might want to direct the most heartfelt Seasonal blessings to. They are the equivalent of the individual houses whose Christmas lights I gazed at as a child, and whose lights seemed to capture the sense of vision and hope that politics often lacks.

An American abroad

The first of these ‘lights’ is Craig Morris (a refugee Americam living in Germany). Against all odds, Morris has maintained a broadsheet that many in the Environmental movement have come to rely on. Operating beneath the banner of ‘Petite Planete’ ( his Renewables International internet platform constantly analysed (and corrected) all the garbage, misinformation and ‘dark light’ put out by climate-denying lobby organisations.

His has been a David and Goliath endeavour – buttons versus billions – that defied the might of money and power. Yet even Renewables International has its limits. Faced with a dwindling supply even of buttons, the continued existence of RI itself is now in question. If there was ever a case for crowd-funding something that consistently ‘keeps the lights on’ about brighter choices, this is it.

Re-writing Aladdin

No less ‘illuminating’ is the work of my second wise man – Jeremy Leggett, the founder of Solar Century and now SolarAid. Leggett came back from Lima with a plan to replace every oil-burning lamp in Africa with a solar lamp, by 2020.

Into the darkness of continued global oil and coal subsidies, Leggett wants us to shine the light of renewable energy into the lives of those least able to do so for themselves. Re-writing Aladdin, he promises to swap new lamps for old, clean for dirty.

Whilst global leaders continue to throw money at an unsustainable past, Leggett (and others) want us to ‘light up’ a different future <> .

New lights for old

My guess (and hope) Is that society Is looking for new lights to follow. And these lights will be sustainable, accountable, open and equitable: with new voices leading where today’s Leaders fear to go.

These are ‘lights’ that would have us invest in a future we can survive in, dis-invests in the one that is destroying us, and which remembers that this ‘Petite Planete’ of ours is the only one we’ve got.

I guess that, as a child, this was the ‘illumination’ I began looking for as I gazed in over garden gates.

As the year ends, yet another report* details the way that consumers, across the EU, could see their electricity bills cut by 37% (and more) if government’s shifted support from nuclear to renewables. It is unlikely even to register in a British debate that remains trapped in backward looking, ‘Dim vs Dimmer’, energy politics.

For brighter choices, we need to get out more; taking greater notice of the ‘lights’ outside, and less of the lobbying inside. Have a brave New Year.

Alan Simpson


2 comments on “UK Capacity Auction – Blinded by the lights?

  1. At present, Iceland and Norway are not connected to the UK by TENS power interconnectors.
    It is planned to have an interconnector on line between Scotland and Norway in 2020, whilst having a link between Iceland and Scotland is just a tentative proposal see table 2.
    Currently, there are more advanced plans to create new interconnectors linking the UK with France and Belgium. For further infor see ENTSOE Ten Year Development Plan. Also, it is not only a matter of the type of energy used. It is also an issue of cost, the trouble is Europe needs to invest billions of Euros more in upgrading its power grid so that it is much easier to trade electricity across Europe. At present there are many capacity congestion issues at many cross border locations e.g. between Spain and France and Italy and Germany.

  2. (David)

    This is a disgraceful piece of journalism and reflects and increasingly strange, even incomprehensible, editorial policy of the FT. It is giving its readers a deeply distorted view of Britain’s energy policy which simply not supported either by the record or by the evidence. The record on approach to energy policy p1997 is clear. The Prime Minister out his own government’s 2003 White Paper because did not support nuclear. It did intervene selectively but not to support renewables but to support nuclear. The FT is confused about Labour’s support for renewables which was largely accidental as a result of Blair not understanding that 15% of primary energy meant 30+% renewables for Britain. The idea that the falling supply margin is putting Britain’s recovery at ris hyperbole of the kind more noto be found in the Daily Mail. And just exactly which energy intensive industries are likely to invest anywhere in Europe, let alone the EU – certainly not steel already suffering from massive overcapacity. The bizarrely phrased proposal to ‘loosen the environmental corset’ means allowing the fossil fuel industries and its allies to transfer ever more costs onto the rest of the British business community – in other words the FT believes that government should intervene to prop up a group of failing industries at the cost of undermining our more successful businesses. This sounds to me like the FT advocating a return to Labour’s policies of the 1970s.

    The really interesting question is why has the FT los the plot so comprehensively. I have some thoughts this which I shall share on another occasion.

    Tom Burke

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