UK energy costs will stay high as government miscalculates prices

Wind energy
Source: DollarPhotoClub

UK energy consumers are likely to suffer high energy costs despite the predicted fall in natural gas prices due to a ‘miscalculation’ on behalf of the Department for Energy And Climate Change (DECC) – Chris Heaton Harris MP writing for the portal BreitBart argues.

According to Mr Heaton, the DECC’s U-turn on the gas prices predictions means that the guaranteed subsidies for expensive intermittent renewables will push energy prices upwards despite the fall in prices in real terms.

For years the DECC’s stance was – in line with the ‘peak oil’ theory – that the prices of fossil fuels are only likely to go up, as we run out of natural energy resources. As the result of the shortages, energy prices from ‘traditional’ sources will shoot up, making expensive renewable sources competitive in the global market.

However, this view has been challenged by the abundance of cheap fossil fuels resulting from the shale boom in the U.S., and finally, last week, the DECC decided to reverse its position on previously forecast energy prices.

In 2012, the DECC projected that the price of gas would be 71.9p per therm and the price of Oil would be $123.50 per barrel in 2020. Last week those projections were revised downwards to gas costing 60.3p per therm and Oil $96.20 per barrel in 2020.

The DECC’s old forecasts suggested the market price for electricity would rise from about £56 per megawatt-hour in 2015-16 to £64 in 2020-21. Its new forecast cuts that to £51 in 2015-16, rising to less than £54 in 2020-21.

A DECC spokesperson explained that the revised forecasts were the result of changing market conditions and the expectation of large amounts of liquefied natural gas (LNG) entering the market from North American shale operations.

The revised forecasts mean that despite earlier predictions renewables will not be price-competitive with fossil fuels for a long time to come. This would not be particularly important if the UK government did not lock itself in guaranteed high subsidiaries for renewable energy sources.

The so-called “Contracts for Difference” (Cfds) – Mr Heaton points out – offer low carbon generators a guaranteed “strike” price for the electricity they produce, which in 2018/19 will be £140 per mWh for offshore wind and £90 per mWh for onshore wind. This means, based on DECC’s new estimate of energy costs, an onshore wind generator would receive nearly £40 per mWh of subsidy and an offshore wind generator would receive nearly £90 per mWh of subsidy.

In his article, Chris Heaton Harris MP predicts that the government’s extravagance in “splashing out” on renewables will cost UK energy consumers a lot – despite the real energy prices going down – and increase the already significant problem of fuel poverty.

However, the DECC spokesperson denied that the forecast revision undermined the case for green energy.

“We have a legally binding target to reduce our carbon emissions by 80pc by 2050. It’s not possible to achieve that without a diverse energy mix that includes renewable sources like wind and solar, which work alongside new technologies like carbon capture and storage that ensure we can continue to use fossil fuels in a cleaner way,” he said.

“Home-grown energy produced by renewables is also not subject to volatile international events that disrupt global oil and gas markets and the transport networks that supports these fuels.”

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