Crippling new taxes proposed by Chris Huhne to subsidise green energy could force key employers out of business.
In the film Billy Elliot, a boy strives to be a dancer against the backdrop of the miners’ strike. Now, the place where they filmed it is the focus of another defining industrial struggle, with hundreds of thousands of jobs at stake.
It’s not workers versus management this time: they’re on the same side. It is workers versus wind farms. The enemy is no longer hard, Thatcherite Right-wingers. It is well-intentioned, impeccably progressive environmentalists: the very people, no doubt, shaking “Coal not Dole” collection tins in north London, circa 1984. The battleground now is not coal. It is electricity.
In the Billy Elliot village of Lynemouth, on the North East coast, all the pits have closed. But it is still home to the Rio Tinto Alcan aluminium plant. In the last few years, the price of aluminium has more than doubled, and there are plenty of customers. Your mountain bike, your drinks can and parts of your Nissan car could well have started out here.
The Lynemouth plant is profitable. It is fairly modern, only 35 years old. It is almost at full production. It is the biggest private employer left in the entire county of Northumberland, contributing £100 million to the local economy. Yet it is now at serious risk of closure, the first of dozens of potential victims of what one business spokesman calls Britain’s industrial “suicide”.
Last week, the Energy Secretary, Chris Huhne, announced further massive subsidies for wind farms, nuclear and other forms of low-carbon electricity – all part of Chancellor George Osborne’s ambition to make this the “greenest” country in Europe. There was already going to be a “carbon floor price”, effectively a tax on CO2 emissions, to subsidise wind and other renewables. Now Mr Huhne’s further subsidies will be funded by consumers, through much higher electricity bills.
Lynemouth’s problem is that it is probably the UK’s single largest user of electricity. Producing just one ton of aluminium uses more power than the average family does in 15 years.
The new wind farm taxes will cost Lynemouth £40 million a year, a third of its entire operating costs, effectively wiping out its annual profits. Last month, John McCabe, a spokesman for the company, said it was examining “how we cope with the huge cost implications of incoming legislation. A number of options are being discussed, one of which is the closure of the plant.”
Lynemouth’s 650 workers, and the hundreds of others it supports indirectly, are only the most exposed of the vast number at risk. Britain is still home to huge amounts of energy-intensive heavy industry, employing millions.
But Stan Higgins, chief executive of the North East Process Industry Cluster, which represents the region’s chemical and pharmaceutical companies, says current government energy policies are “suicidal” and could end up destroying entire sectors of manufacturing. “Four or five years ago [in pharmaceuticals], energy was the twelfth most expensive element of manufacturing a tablet,” he says. “Now it is second or third.
“We are trying to be the first country in Europe to introduce [a carbon floor price], but it’s crazy to do this independently. Our energy costs are six to seven per cent higher than the European average and that’s not sustainable. Most of our big companies are not UK-owned – they have no allegiance to the UK whatever. They will go where they get the best deal. We can compete with the world, but we just need a level playing field.”
Aluminium isn’t even the most energy-intensive manufacture. For the chlorine industry, electricity is up to 70 per cent of its costs. And if British chlorine-making collapses, it takes with it thousands of jobs in other sectors that are wholly dependent on chlorine production. Some people have started talking of a “domino effect”.
Jeremy Nicholson, of the Energy Intensive Users Group, says: “Employment in the sectors that are most directly affected by rising green taxes is 225,000. And if you look at the Government’s projections, their CO2 proposals will hit even firms that are less electro-intensive – paper, glass, ceramics – with a further 600,000 jobs. Factories may not close immediately, but investment won’t come here.
“The issue for us is the cost of electricity here compared with the rest of the world. Britain has the most ambitious targets for renewable energy growth in Europe and is introducing several measures which will only affect UK users.”
The new green taxes will fund several forms of low-carbon electricity, including nuclear. But it is ministers’ attachment to wind farms, increasingly offshore, that is causing industry the greatest pain. “We don’t take issue with the need to decarbonise energy,” says Mr Nicholson. “But, for goodness’ sake, let’s do it cost-effectively. Offshore wind is one of the most expensive ways of reducing our carbon emissions, and one of the least cost-effective ways of generating electricity.”
Last week, Mr Huhne scoffed at such claims. But, as is now widely known, wind farms’ biggest problem is that for about three-quarters of the time, the wind does not blow at the right speed to turn the turbines.
Electricity cannot be stored – you have to generate it at the moment you need it – and the wind might not oblige when 10 million viewers want to switch the kettle on at the end of Coronation Street. So, at the same time as building new wind farms, you must build new conventional power stations as backup.
The Government does not include the costs of building these backup stations in its figures for wind. Nor does it include the cost of the thousands of miles of extra powerlines needed to collect electricity from wind farms, much more widely scattered than conventional power plants.
The Renewable Energy Foundation (REF) and The Sunday Telegraph asked Colin Gibson, former power network director at the National Grid, for an estimate that takes into account these production costs. His figures suggest that across its whole life, onshore wind will cost as much as £178 per megawatt hour of electricity generated, three times nuclear (£60). Offshore wind, with its much higher construction cost, is more than four times dearer, at £254 per megawatt hour.
Mr Gibson stresses that, though most of his calculations are based on official data, some have to be based on his best judgment, and aren’t definitive. But the broad picture is clear. “If you take the costs of a mixture of on and offshore wind, it is very roughly £140 per megawatt hour higher than a mixture of nuclear and gas turbines,” he says. “Multiply that by the number of megawatt hours we use, and you get a figure in the order of maybe £11 billion a year, which is about £550 per customer per annum [extra] for wind power. That is quite frightening.”
Until now, the main controversy about electricity prices has been to do with consumers. Last week, new figures showed that rising bills have driven another 700,000 people into “fuel poverty”. But the impact on manufacturing could deliver a double whammy: not only costing you money, but also costing you your job.
John Constable, director of the REF, says: “The emphasis on expensive and uncontrollable renewables such as wind, when there are better and cheaper alternatives that could do the same job, is discrediting the green agenda. We are loading very heavy burdens onto viable industries in order to subsidise immature and costly energy technologies.”
“This is a major threat to the UK,” warns Nicholson. “I sometimes think that the Department for Climate Change doesn’t care if we de-industrialise Britain, so long as we meet our climate targets.”