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Rupert Darwall: The Night Britain’s Lights Went Out

Rupert Darwall, The Wall Street Journal

Green energy policies already are causing power shortages and the winter isn’t even at its coldest yet.

National Grid, the company responsible for keeping Britain’s lights on, declared last month that the margin between electricity supply and demand over the coming winter would be “tight but manageable.” Three weeks later, National Grid had to issue its first call in more than five years for emergency supplies to keep the grid stable. At midday on Nov. 4, it asked for an extra 500 megawatts for the 6:30 to 8.30 evening peak.

It was an unseasonably mild and windless day. A couple of coal plants nearing the end of their useful lives had gone offline due to the unreliability associated with age, some nuclear capacity was down for refueling, and Britain’s 13 gigawatts of wind capacity was producing only 0.6 gigawatts.

As prices spiked up to 40 times their normal level, 420 megawatts of electricity flowed into the grid from diesel and other small-scale generators. Large electricity users helped by reducing their demand by 40 megawatts under a prior arrangement, designed to help reduce peak loading when necessary—and were paid handsomely for slowing down their assembly lines and the like. If the temperature hadn’t been a balmy 14 degrees Celsius that day, an emergency might well have turned into a crisis.

On the face of it, there shouldn’t be a problem. At the end of last year, Britain had a registered capacity of 95 gigawatts, up from just more than 78 gigawatts in 2004. Over the same period, demand for electricity fell 17% due in part to milder winters, higher electricity prices and a large fall in industrial energy consumption.

But what this increase in registered capacity doesn’t show is the huge deterioration in the quality of Britain’s generating assets. Britain has been focusing in recent years on developing its wind and solar capacity, instead of the kind that could dependably replace its aging coal and nuclear power stations. Since 2010, 21 gigawatts of coal, gas and nuclear power have been shut down. Only six gigawatts have been built. Once the intermittency of wind and solar is taken into account, the 95 gigawatts of nominal capacity drops to 85 gigawatts. Actual output produced by wind and sun can be much less, depending on the weather. On that windless November day, wind was generating only 5% of its registered capacity.

The position was very different 10 years ago. After privatization in 1990, the electricity regulator encouraged a degree of vertical integration to spur competition between generators, sparking a “dash for gas.” As a result, nearly half of Britain’s current generating capacity came online in this period. By 2004 Britain had a modern, high quality, flexible generating mix able to respond efficiently to changes in relative prices of oil, coal, gas and uranium.

That’s no longer true. Rather than modernizing coal-fired power stations to meet EU emissions standards, their condition has been allowed to deteriorate. Meanwhile Sizewell B, Britain’s youngest nuclear power station, is already 20 years old. A large chunk of the even older nuclear plants will reach the end of their lives in eight years’ time.

At the same time, scaling up government-subsidized wind power has destroyed the incentive to invest private money in modern, highly efficient combined-cycle gas turbines, which are not only very reliable but also are a far cheaper way of cutting carbon-dioxide emissions compared to subsidizing renewables. Despite their reliability and low emissions, these modern generators are not attractive to investors when they compete with subsidized renewable sources whose marginal cost of output is near zero.

Britain is paying a steep price for degrading its electricity system. In addition to the heightened risk of power cuts, subsidizing renewables is forecast to cost electricity users £10 billion ($15.11 billion) a year by 2020. And that doesn’t include the cost of extra transmission infrastructure and the vast subsidies needed to induce investment in dependable generating capacity.

To make up for some of the lost capacity, Britain is turning to China to finance, design, build and operate a new range of Chinese nuclear reactors. At this point, financing new generating capacity would cost consumers less if the state funded the investment directly, since spiraling electricity prices increase the premium private investors demand to compensate for the political risk that government might introduce further market distortions. But as Chancellor of the Exchequer George Osborne said during a recent trip to China, not spending billions of pounds on nuclear power stations frees up government money for other priorities.

The massive distortions created by subsidizing wind and solar leave the government facing a dilemma. Policy makers can accept that the market no longer works and replace it with a 21st-century form of nationalization, perhaps by having the state fund construction of the capacity it prescribes while private operators run it. Or Britain can end all subsidies for renewables and restore market disciplines and incentives for investment in reliable generating capacity. The government recognizes now the scale of the problem, but hasn’t yet figured a way out of the mess.

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