Government accused of failing to prepare for winter energy crisis

Pylons

For ministers hoping to quell fears over a winter energy crisis, Sir Jim Ratcliffe’s comments on Wednesday evening would have made for uneasy reading. Britain, Sir Jim said, could run out of gas over the coming months. “In which case, what you would do is you'd shut down industry.”

It is a situation which is looking increasingly likely. This week, a major UK wholesale supplier said it would stop supplying domestic utility clients. The reason, reports said, was that CNG Group had been left with unpaid bills when some of its customers failed amid soaring wholesale gas prices - up by around 250pc on the start of the year.

"It's quite difficult to predict how long this sort of current situation is going to last,” Sir Jim said, “but I suppose if you were a betting man you'd assume it would probably run at least through the winter, because obviously our gas demand increases in the winter.”

The billionaire industrialist pulled no punches on who was to blame for the current state of play. “That's the Government.”

It is a claim ministers may find tough to swallow. Higher wholesale gas prices, they would argue, are something they cannot control. Retail energy prices are one thing - capped by regulator Ofgem to protect customers from bills deemed to be unfairly high - but ministers would say they have no control over wholesale market prices.

Instead, their responsibility is what happens after that. The Government could intervene if there was a security of supply issue in Britain - something, so far, the Department for Business, Energy and Industrial Strategy has said is yet to emerge.

If it did, ministers are poised to implement a National Emergency Plan, published in 2014.

“In the event of a major gas or electricity supply emergency, both industry and government have significant roles to play in managing the incident and its consequences,” the plan reads. Potential scenarios include damage to gas plants, cyber threats and, notably, the failure of a major electricity market participant.

The tools at the Government’s disposal cover everything from making a public appeal for people to practice “voluntary restraint” on how much energy they use, to restricting how much energy that industry is able to use, or shutting off the power in different parts of the country at different points.

Not everyone is convinced such planning has been adequate, though. Already the industry is in crisis. Gas prices are spiralling, slowly squeezing waves of energy providers out of the market. This scenario is absent from plans.

According to Sir Dieter Helm, a professor of economic policy at the University of Oxford, “one of the great mistakes the Secretary of State makes is to think that the physical security of supply is a separate issue from the price, and then the further mistake is to argue that because there are various sources of gas supply, therefore it is secure”.

Writing in a paper earlier this month titled "The gas and electricity crisis - causes and consequences", Sir Dieter says: “There is always a price that makes supply equal demand. But that price is not necessarily optimal, and currently we are discovering how seriously suboptimal it can turn out to be.”

Right now, a winter energy crisis is on the horizon. Ministers may be tempted with “brazening it out, pretending that the market will sort all this out”. But, Sir Dieter says, “sticking their heads in the sand will not work, because there are both immediate and fundamental problems with the current arrangements”.

He added: “They will come back to haunt the ministers and the regulators.”

The latest situation has piled pressure on the Government for a reform of the system. It is something Sir Dieter has been proposing for a while, having in 2017 carried out a Cost of Energy review, laying out a whole host of recommendations including “creating and developing serious independent system operators at the national and the regional levels, storage, sorting out the legacy renewables costs, and setting the price cap on the basis of margins”.

Storage is an issue which comes up time and time again - and one which critics argue the Government should have addressed earlier. Sir Jim earlier this week bemoaned the lack of gas storage in the UK compared to other nations. The UK, he said, had 10 days’ storage - something which is “a bit pathetic really for a nation as important as the UK, on the continent they’ve got 40 or 50 days’ storage”.

Clive Moffatt, a gas consultant and former adviser to the Government on energy security, says this was brought to the Government’s attention a long time ago. Around 10 years ago, he was speaking to ministers about what needed to be put in place to prepare for possible energy issues.

“We said you urgently need to encourage new investment in gas storage, and also we said we needed more flexible and reliable power stations on gas. We should have invested in those so, if the wind stopped blowing and the sun stopped shining, we had gas. Had they done that, we wouldn’t be here.”

To the contrary, the UK has been closing gas storage facilities - most notoriously, the Rough site off the Yorkshire coast, which the Government allowed to shut down in 2017.

And it is not the first time Britain has had a warning sign that reform was needed. “In 2018, we had a similar problem, and in 2013,” says Moffatt. “Successive governments over the years have just ignored this issue, especially since the decision was taken to decarbonise the electricity markets. Governments have ignored the importance of gas and how important it will be in the long-term transition to net zero.”

Now, having shrugged off such pressure for years, it seems the Government's apathy is coming back to bite it. Amid the current energy crisis, gas supply could soon start to tighten.

The risks are stark. “It could be back to the three-day week,” Moffatt says. “If we have that perfect storm situation, and there’s the threat that there will be no gas in the system, the Government would have to limit electricity consumption and limit gas consumption by industry.”

A Government spokesperson said: "We have been repeatedly clear that the current situation is not a question of security of gas supply, but of high prices set by international markets. We are confident that security of supply will be maintained this winter and beyond."

Yet, for experts, frustration is rife. Warnings have been falling on deaf ears for years, and planning has fallen short. “The decisions that should have been taken, should have been taken 10 years ago," says Moffatt. "Every year that they weren’t and nothing was done, and now we’ve ended up where we are now, which is completely at the mercy of the market.

“If you ask me, why wasn’t that done, well we should ask the Government.”