Electricity Pylon at sunset in Cornwall. Photo: Howard Oates
Leaving Europe can only be bad news for energy bills, consumers and the battle to keep the lights on
In a referendum campaign marked by claim and counter claim with each seeking to outdo the other, I believe the recent statements from the Brexit camp that leaving Europe would lead to lower fuel bills have been some of the most brazen.
In fact looking at the industry and the many challenges it faces, a decision right now to exit the European Union is practically the worst thing that could happen. It’d be bad both for consumers and for the many energy firms who are all competing for billions of pounds in required investments to ensure the UK energy supply is met tomorrow and into the future.
If we look at the energy challenges the UK faces we can simply list them as follows; ensuring supply can meet demand, that this supply meets climate change obligations, and that it is delivered to consumers at an affordable price, one that ultimately eradicates fuel poverty.
It is hard to see how exiting the EU helps on any of these fronts and actually the potential exists for serious harm to arise as a result.
Let’s take a look why;
On the issue of supply meeting demand and doing so in a manner that reflects our international climate change obligations (being international and agreed by the UK government to address the very real threat of climate change) closer co-operation across Europe is frankly essential. The European energy roadmap sets out how integrating supply across Europe ensures that supply side risks are much better managed as you are balancing supply across a much wider area.
Already the UK is importing power that has been generated across Europe and plans for more interconnectors onto the continent are well advanced. This of course plugs the gap left by the UK government’s own inactivity on energy. As it stands the open market that exists (and which we are part of inside the EU) ensures that the UK benefits from lower prices and transactional rules that govern this. It also means that the use of renewable energy generation has greater potential to succeed.
The great challenge with the main renewable power sources like wind and solar is that you cannot guarantee when the wind will blow or the sun will shine. This challenge is less problematic when you have a geographical spread like the EU does; meaning somewhere the wind is blowing and the sun is shining. This when linked to developing new and existing storage methods plus developments in transmission, enables renewable power to be fully base-loaded into the energy mix in the UK, bringing down prices and helping us reach the carbon free generation targets we require.
In terms of investment into the UK to drive new generational capacity it is obvious that we are heavily reliant on European energy firms to deliver this. Just look at Hinkley Point C, a project led by the French company EDF which is looking to plough billions into one of the biggest capital projects in the UK. Without this French investment we are left suddenly short and in desperate straits. We also have other major investments planned or taking place delivered by EON, RWE-npower and Iberdrola-Scottish Power. These businesses employ many thousands of workers in the UK and while none have said that an exit changes any plans, it is difficult to see how it makes the UK a more attractive proposition for future investment and I’d go as far to suggest that some of the planned investments will not materialise if we leave the EU.
This of course leads onto the key issue of price and fundamentally whether prices could fall on the back of an exit from the EU. It is my (and many others’) view, that without new generational capacity or certainty of supply, prices are inevitably going to rise. We already face a future, in which the UK will import more of its energy supply, whether it is gas or electricity.
Without even looking at the problem area of security of supply, the ability to import energy at a price we can afford is very much a problem shared across Europe, or with an exit may be one we may end up facing alone. I see no prognosis that going it alone enhances our bargaining position.
It is also clear that without more direct government intervention (which this present government is choosing to resist at all costs) we remain vulnerable to price shocks and hikes. The lack of investment in generation and energy efficiency, compounded by a more uncertain future outside the EU and dwindling domestic resources like North Sea Gas, has the potential to cause real concern. It could drive domestic and business supply prices through the roof forcing many more families into fuel poverty, and UK industry into laying off workers.
One way to lower prices favoured by some Brexiteers is to forget about climate change and just burn coal to generate electricity. While coal is cheap it is also bad for the environment and UK production of coal is now so limited that in reality (as is the case today) we will need to import it from places like Columbia. This remedy is favoured by Brexiteers because they claim that the environmental safeguards are a product of the EU and so can be ripped up. These are international agreements and unless we are planning to become a pariah state, they would be binding on us in or out of the EU and rightly so.
It is true, that outside of the EU the present government could slash the present 5% VAT levy on energy bills and in doing so theoretically reduce bills. Even if the government did this (and remember it was a Tory government that tried to introduce this levy at 17.5% before being defeated in Westminster, and a Labour government that reduced it to 5%) any short term reduction would soon be swallowed up by the higher costs of supply, likely resulting from any exit from the EU.
So putting it bluntly, far from reducing prices, ensuring the lights are kept switched on and that we meet climate change obligations, leaving the EU will make all that much harder for us to achieve. It is already proving difficult enough and we have far too many families struggling with energy bills. The easy rhetoric on how leaving the EU could reduce energy prices is just another fantasy claim added to a long list of outlandish statements. My worry is that those making such statements won’t be the ones left picking up the tab.