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How the Government will push your energy bills even higher

Andrew Montford

It’s not often that I find myself in agreement with the Green Blob, but it’s fair to say that everyone agrees that the proximal cause of the energy price crisis is the surge in natural gas prices that has resulted from post-pandemic demand outstripping supply.

For the supply of natural gas to dry up is, of course, exactly what environmentalists wanted – witness their marathon campaigns against fossil fuel investment in general and fracking in particular. The pandemic brought these efforts to fruition earlier than they expected, but be in no doubt that a surge in fossil fuel prices was exactly what they wanted to bring about “behaviour change”.

The knock-on effects on electricity prices were inevitable. That’s because we don’t have enough wind power to meet demand, even on the windiest days. So after the market has used up the (heavily subsidised) output of the wind fleet, it is always going to have to buy some power from gas-fired power stations, and possibly a great deal of power.

That means the market price will rise to the price commanded by gas-fired power stations: anyone who isn’t tied down by a long-term contract will be trying to sell at that price too.

So if the market price for electricity is set by gas turbines, and that price has been driven sky-high by a lack of natural gas supply, most sane people would conclude that the way out of our current predicament would be to get drilling for gas.

Disturbingly, however, the Green Blob – including Kwasi Kwarteng, the minister responsible – is arguing that the answer is more renewables. This case doesn’t stand up to even a moment’s scrutiny. The important point to understand is that if you add more renewables, the wholesale price for electricity will still be set by gas turbines – we are years away from renewables being able to meet all demand (and at that point the grid will be in real trouble, but that’s another story).

That being the case, all that will happen is that the gas-fired power stations will run a bit less often than they do now, so will have to raise their prices even further to get a return. This means that adding renewables will simply increase the market price!

The only tenable conclusion is that Kwasi Kwarteng is going to push up your energy bills even higher. This might indeed bring about behaviour change, but it might not be the kind of behaviour change that he and Mr Johnson were hoping for.