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The £200 Billion Economic Bombshell Lurking In The Labour Party’s Manifesto

Ben Wright, The Daily Telegraph

Ed Miliband’s commitment to eliminate the vast majority of carbon from the UK power sector by 2030 could cost Britain more than £200bn, according to analysis conducted by The Telegraph.

The Labour Party’s manifesto promise to set “a legal target to remove carbon from our electricity supply by 2030” – referred to repeatedly by the Labour leader in speeches since September 2013 and during the election campaign – could result in a huge increase in energy costs for households and businesses. The findings also raise questions about Mr Miliband’s promises to tackle what he calls Britain’s “cost-of-living crisis” and freeze energy prices for two years.

The Telegraph’s figures have been reviewed by three energy experts on condition of anonymity as they wanted to remain politically impartial.

Two described them as “conservative”. A utilities analyst at a US investment bank said they almost exactly married with his own estimates for the cost of decarbonising the UK power sector.

A Labour spokesman said: “These figures are completely made up and similar attempts in the past have been comprehensively discredited.

“Investing in clean energy will lead to lower bills than the alternative high-carbon scenario and all the evidence shows that the benefits of strong and early action far outweigh the costs of not acting on climate change.”

All political parties (apart from Ukip) support the 2008 Climate Change Act which commits Britain to reduce emissions by at least 80pc from 1990 levels by 2050. Analysis by the Department of Energy and Climate Change has shown that, to hit those targets, there must be significant decarbonisation of the power sector by 2030. The Committee on Climate Change has set a target of reducing carbon intensity from 450g of carbon dioxide per kilowatt hour to 50g by 2030.

But only Labour wants to make this a statutory target, committing Britain to a huge overhaul of the power sector and reducing room for manoeuvre if environmental breakthroughs are achieved in other corners of the economy.

Labour is also the only party to commit to an energy price freeze until 2017. One energy expert said: “It is hard to see how a statutory commitment to decarbonise the power sector can be squared with an energy price freeze.”

Coal, oil and gas are all relatively cheap sources of energy compared with renewable energy – in the form of onshore wind, offshore wind and solar – and nuclear power, the only zero-carbon technologies that can be applied at scale and at a realistic cost. The government must therefore directly or indirectly subsidise the providers of renewable energy and nuclear power to encourage them to make the necessary investments.

Based on current strike prices (the difference between the price that the Government agrees to pay for electricity from a given source and the wholesale price), the cost of producing 50pc of the UK’s energy from renewable sources would be £97bn. The cost of building enough nuclear power stations to provide the other 50pc would be £114bn.

This gives a combined total of £211bn (see the calculations and assumptions used below).

The actual bill is likely to be much higher. The Telegraph’s analysis ignores inflation (the figures are mostly based on 2012 prices – the most recently available), cost overruns (European Union officials have recently said that Hinkley Point C could, in fact, cost £24.5bn to build rather than £16bn – the figure used in these calculations), and the cost of developing backup energy sources (likely to be gas-fired plants) to help nuclear power stations meet winter peak demand and manage the inconsistent output from solar and wind energy.

Nor does it take into account the subsidies for all existing renewable schemes, the costs of installing new lines to transfer renewable power generated in remote locations to customers, or the cost of updating the grid to cope with unpredictable renewable output.

The analysis assumes that the UK’s energy requirements remain flat. It is possible that greater efficiencies in usage could reduce the amount of energy consumed. Equally, one would expect a growing economy to use more energy.

The analysis is also based on power prices being 37.5pc higher than today. If prices rise by more than this, it will reduce the amount that the Government pays out in subsidies. But if they fall (or remain closer to their current levels), the bill will be higher.

A Labour spokesman said: “This bogus analysis completely ignores the potential for carbon capture and storage and the fact that the costs of renewable technologies, such as solar power, are continuing to fall.”

Carbon capture and storage (a technology that snares the carbon dioxide released when fossil fuels are burnt) has faced repeated setbacks and delays. One energy expert said: “You certainly can’t go about basing a major economy’s future on the hoped-for possibility of a technological breakthrough.”

How we got to a figure of £211bn

Government energy policy is notoriously complicated and opaque. This analysis attempts to cut through some of that complexity.

There are a number of different technologies that could help the UK power sector to eliminate all carbon emissions. Many are too expensive or have not yet proven to work on a large enough scale to be relied on at this point. It is highly likely that the UK would therefore have to rely on a combination of renewable sources and nuclear. The Telegraph’s calculations are based on a 50:50 mix.

In December 2013, the government released the latest strike prices for renewables. The strike price is what the government agrees to pay for energy produced by a particular means. The difference between the strike price and the UK’s baseload power prices amounts to a subsidy to encourage investment in a particular technology.

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