Energy Prices Go Up, Miliband Doubles Down

BEN PILE

“Energy bills are set to rise again due to a spike in global gas markets,” Ed Miliband claimed this week. This rise, he claimed., means that the price cap administered by energy retail market regulator Ofgem will also rise this April. This will be the third price cap increase since the General Election, in which Miliband campaigned on a ticket of ‘lower bills’. “This will put up energy bills because of our reliance on global fossil fuel markets controlled by petrostates and dictators,” claimed the Secretary of State for Rising Energy Prices and Outright Falsehoods. There is trouble ahead, but rather than admit its causes and face up to them, Miliband merely gaslights the public.

There are many problems with Miliband’s claim. The first is that there is no “global” gas market – a fact that one might expect the most senior Minister with an energy brief to understand. This fact is easily demonstrated by a comparison or natural gas prices on different markets. At the time of writing, according to the Trading Economics platform, gas was selling for £0.117 per therm in Britain and $4 per MMMbtu in the USA – translated, this means gas is 4p per kWh in the UK and 1p per kWh in the USA. If there was a “global market” for the energy commodity, these prices would be much closer – within the order of a few per cent, as with oil, not one many times larger than the other. There is no more a “global market” for gas than there is a global market for haircuts.

The second problem for Miliband is that the volatility of the gas market does not explain high retail prices. By the time the gas has been turned into electricity, assuming 50% efficiency, the price of that energy is now 8p per kWh. But according to uSwitch, the average price of electricity paid by UK consumers is 24.86p per kWh – more than a 200% mark-up. It’s true that, over the last year, gas prices have doubled. But since 16.86p of that price is not the price of electricity, Miliband’s claim is clearly unreasonable. If the price of gas had not doubled, the price of electricity would be just 4p lower – 20.86p per kWh. Other countries, including the US, do not see such huge additional costs added between the generator and the wall socket.

One effect of the gas price rise that Miliband may be cheering, however, is that it seemingly makes some forms of renewable energy slightly cheaper than gas at wholesale cost of power. At the last Contracts for Difference auction round (AR6), the Government accepted offers of nearly 3.3 GW of solar PV capacity at strike price (in todays money) of £70. That’s 7p per kWh, but that doesn’t account for the system cost. 3.3 GW of solar power capacity might sound like a lot. But because of the Earth’s rotation, just 10% of that capacity is used over time. It might be producing at near 100% at lunchtime in June. But it will be 0% just a few hours later. And mitigating that variability costs money. And that begins to shed light – no pun intended – on how it is that electricity that cost 8p on the wholesale market ends up costing three times that.

The view from the Green Blob is that even though the solar farm is only pulling its weight at lunchtime, that means we need to burn less gas. Hurrah! The planet is saved! But from the point of view of the consumer, that system now has either a redundant solar farm or a redundant gas fired power station. Moreover, whereas one large plant, such as a nuclear power station like Hinkley Point C, requires just one connection to the rest of the grid, the 3.3 GW of capacity commissioned in AR5 spanned 93 developments – many connections, all variable, that the rest of the grid must be balanced against. According to one study of the Levelised Full System Costs of Electricity (LFSCE), when you add it all up the net cost of managing what initially seems to be one of the cheapest and greenest forms of power makes it one of the most expensive. According to this study, whereas gas-fired power stations could produce power for around $41 per MWh, solar farms produced power at $413 per MWh – 10 times as much. The study found an even more shocking disparity in Germany, where power from gas was produced at a similar price, but solar power cost a whopping $1,548 per MWh.

There are other renewable energy sources, of course. 3.3 GW of offshore wind capacity was also commissioned in AR6, at a strike price of £83.26 – that’s still higher than the cost of power from gas at today’s prices, which Ed Miliband claims have recently “spiked”, causing the price cap to rise. And such developments, like solar farms, need grid upgrades, balancing and backup, multiplying this cost. Even if we treat the LFSCE study with caution, Ed Miliband’s arithmetic is manifestly way off-beam. There is no way that his policy agenda of ‘Clean Power by 2030’ can produce lower prices.

Yet “lower prices” was a central claim of the Labour election campaign. Here is my collage of images posted by Labour to its social media accounts.

But why is gas in Britain four times as expensive as gas in the USA? The simple answer is, again, policy. Miliband likes to invoke the spectre of “petrostates” and “tyrants” manipulating “global markets”. But it was him who campaigned on the promise of issuing “no new oil and gas licences”. And that follows previous Governments’ hostility to North Sea developers. Though the late Sunak administration began to wobble on its commitments, the one-time Oil and Gas Authority was renamed The North Sea Transition Authority in 2022, with its objectives switched from maximising recovery to destroying the industry and leaving the plentiful and recoverable energy resource under the sea bed. In 2019, the new Johnson administration committed again to a prohibition on fracking – a move that was briefly undone by the Truss Government, and reversed yet again by Sunak. One of the last acts of Sunak’s Chancellor, Jeremy Hunt, was to discourage any possibility of North Sea investment by extending the energy windfall tax to 2029.

It is policy that has manipulated markets. Most other European governments mirrored UK Governments’ hostility to oil and gas production, also limiting their production. And so the net effect of so many green policies is to create scarcity, to increase prices, and to increase dependence on imports. It was therefore not petrostates that pushed the price of gas upwards, it was ecostates. But we can agree that these self-destructive policies were imposed on us by tyrants.

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This article (Energy Prices Go Up, Miliband Doubles Down) was created and published by The Daily Sceptic and is republished here under “Fair Use” with attribution to the author Ben Pile

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