Electricity Prices: The long view

A random picture from the internet.

A random picture from the internet.

The BBC reports that the energy secretary has called for us all to switch electricity suppliers to optain cheaper electricity. His detailed statement reads:

There is an iceberg up ahead – we must act decisively to re-organise the deck chairs on this ship. Mr Miliband says he wants the chairs on the left of the ship and Mr Cameron says he wants them on the right. Only the liberal democrats will keep the deck chairs firmly in the middle of the ship.

The price that we pay for electricity can very roughly be divided into two parts. One part pays for fuel related costs, and the other part pays for the infrastructure – the power stations and the distribution system that brings the electricity to our homes and places of work.

The increasing number of humans on the planet is likely to lead to long term pressure on all sources of fuel – most of which is based on fossilised carbon. So in the long term, fuel prices are likely to rise relative to other costs. There is a genuinely global market in fuel.

The infrastructure cost is new to the UK . Prior to 1990, the power stations and the electricity grid were owned by the government i.e. us. In those ‘olden days’, investment was funded in part from electricity prices, but mainly from central government – i.e. taxation. Twenty years on from privatisation,we have collectively enjoyed the fruits of the sale of this infrastructure, but we have not recently invested in new generating or distribution capacity. Now we need to raise significant amounts of investment to build new power stations and grid facilities. These facilities are now privately owned and the investment has only one source: increased electricity prices.

We are now asking multinational companies to build facilities in the UK. These facilities will cost billions of pounds, take many years to construct, and the companies will receive pay back over decades. In the case of nuclear power stations – our only chance of keeping carbon emissions level – the cost is more than 10 billion pounds for each station! If these companies choose not to invest in the UK, then in the coming years, in the depths of winter when demand in highest, somebody will switch on their lights – and nothing will happen. And if these companies even suspect that after investing billions they will not be allowed to reap the profits of their investment for decades to come, then they will not build in the UK. There are other places to invest.

Honesty.  That is what I ask from Mr Huhne. Honesty in explaining that – to the extent that we can foresee future events at all – we expect electricity prices to continue to rise for years if not decades to come. If we want the cheapest, most polluting technology available, then our electricity prices will not rise quite so much. But if we choose to generate electricity from low carbon sources – renewably and from nuclear power – electricity prices will rise even more to pay for that investment.

One Response to “Electricity Prices: The long view”

  1. Energy Prices: Reality Bites « Protons for Breakfast Blog Says:

    […] Worldwide, governments are ‘in denial’ about the inevitability of higher energy prices. At least in public. Somehow – despite some intelligent policies – it has become impossible for politicians to speak honestly and with a longer term perspective. […]

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