New report: The true affordability of net zero – Special Guest Kathryn Porter
This is a massive story about the UK and the EU on the path to Net Zero. We recognize that many energy policies are written based on Net Zero policies, and subsequent patterns emerge. Deindustrialization and fiscal failure. Kathryn Porter is an author for Watt-Logic and has a fantastic report on “The true affordability of net zero.”
You will not want to miss this discussion, as the EU and the UK are following many of the same energy policies and are trying to persuade the USA to follow the same path to deindustrialization for the sake of the planet. Join David Blackmon, Tammy Nemeth, Irina Slav, and Stu Turley on this special edition of the Energy Realities Podcast.
Highlights of the Podcast
00:01 – Introductions
02:28 – Why Gas Isn’t the Main Culprit
04:37 – What the £17 Billion Includes
05:08 – Definitions: Marginal Pricing & Capacity Market
07:16 – Contracts for Difference (CFDs) Explained
11:14 – Solar Power’s Low Efficiency in the UK
13:20 – Can the UK Afford This Path?
17:39 – Pushback and “Debunking” the Report
19:50 – Is It Incompetence or Ideology?
23:16 – Public Understanding of Energy
24:42 – Net Zero and Deindustrialization
30:27 – Grid Interconnects and National Security
34:23 – Decentralized Grid Management?
38:27 – Aging Infrastructure Risk
41:20 – Conflicting Policy Priorities
43:57 – Fixing the System: 4 Recommendations
45:21 – Could the US Influence UK Policy?
47:15 – How Much Worse Before It Gets Better?
50:53 – Bureaucratic Capture Limits Reform
53:14 – Will Shell and BP Leave the UK?
56:36 – Polluter Pays Narrative Fails the Poor
58:34 – Closing Remarks
New report: The true affordability of net zero – Special Guest Kathryn Porter
Video Transcription edited for grammar. We disavow any errors unless they make us look better or smarter.
Tammy Nemeth [00:00:12] Hello everyone, welcome to the Energy Realities podcast. It’s a beautiful Monday day, morning in North America and afternoon over here in the UK and Europe. Today we have a special guest where we’re gonna be talking to Kathryn Porter and her about her New report: The True Affordability of Net Zero. So hello to Mr. David Blackmon, who I believe is in Texas. Hey David, how you doing?
David Blackmon [00:00:40] Oh, just wonderful. Happy to be here. It’s a beautiful day in Texas.
Tammy Nemeth [00:00:43] Yay! And we have Irina Slav who’s in Bulgaria. Hi Irina, how are you today?
Irina Slav [00:00:49] I’m great. Summer is starting here. It’s getting warmer and warmer.
Tammy Nemeth [00:00:54] Oh my gosh, must be climate change.
Tammy Nemeth [00:00:59] And we have the irrepressible Stu Turley, who is in a foxhole somewhere, either in Oklahoma or Texas. Hey, Stu, how you doing?
Stuart Turley [00:01:09] Absolutely wonderful sore from working on the backhoe on the weekend. You gotta love a good workout.
Tammy Nemeth [00:01:15] Nothing like blue collar work on a weekend, for sure. I feel like that in my garden. And today we have, as I said, Kathryn Porter. Hi Kathryn how are you today?
Kathryn Porter [00:01:27] Nice to see everyone.
Tammy Nemeth [00:01:29] Kathryn’s in the UK like me today, and she’s written this amazing report that we’ll put a link to it in the show notes. The title is True Affordability of Net Zero, and I wanted to really thank Kathryn for actually quantifying what the affordability is in the U.K. Because there are some real hard truths in that for those who don’t follow the podcast, those who follow the podcasts won’t be shocked by what’s in their report. But others who may have been hearing all the time in the UK or elsewhere that renewables are cheaper than ever. And the reason electricity prices are high is because of natural gas. And there’s all this misinformation there. But what I would really love about this report is how it counters those claims with hard data. And Kathryn, I’m wondering if you can just give us a really quick sort of high level summary of what you found.
Kathryn Porter [00:02:28] Oh, yeah. Well, thank you. I wasn’t surprised to find that gas wasn’t the reason our bills are so high. I think that if you take a step back and look at it from first principles, that’s fairly clear. The UK has the highest industrial electricity prices in the developed world, the fourth highest domestic gas prices, but only the 15th highest electricity gas, sorry, the fourth-highest domestic electricity prices and only the fifteen highest gas prices. There’s obviously immediately something wrong with that narrative that gas is to blame. The next narrative we hear a lot from our politicians here is that gas prices are set in the international markets. But of course, on that basis, all countries that are importing gas would be exposed to the same price pressures. It doesn’t explain why our prices are so high relative to everybody else’s. And so then when you actually dig into the data, yes, of course gas is driving the cell price of electricity. But that’s only about 40% of the end bill. And then when you look at what’s in the rest of the bill, you really get to the truth of how much renewables are impacting. Because the impact of renewables has actually spread across three different categories in the regulated tariff, which makes it quite hard for people to understand how much it costs. Most people just focus in on the policy component. But you have some policy costs embedded in the wholesale. Elements. You also have a lot of renewables based costs embedded within network pricing and it all adds up. Overall we’re spending 17 billion pounds a year just on subsidies and then you have to add all of the extra costs around the grid. The grid piece on top of that, the balancing implications, the connections, the curtailment, it’s all extremely expensive.
Tammy Nemeth [00:04:20] Wow, thank you for breaking that down. So the $17.2 billion a year, that’s just in the subsidies, that’s not in addition to the grid infrastructure costs, the parallel backup system cost, or is that all inclusive?
Kathryn Porter [00:04:37] So it includes the capacity market, which is paying for the backup. It includes carbon taxes, but it does not include the sort of implied subsidies that are contained within network charging. So it doesn’t include the extra balancing costs or the grid connection costs or the curtailment costs.
Tammy Nemeth [00:04:56] Okay, so maybe for the audience who isn’t quite familiar with how the UK system works, can you just provide a few definitions like what’s marginal pricing and what’s the capacity market?
Kathryn Porter [00:05:08] So marginal pricing isn’t specific to the UK, it’s the way that all deregulated electricity markets around the world price their electricity. So effectively you have a choice between regulated or deregulate markets. In a regulated market you tend to have a central authority that’s setting the prices and they use a range of different methods to do that and that’s what we had in UK prior to privatization, but… Now we have a system which is common across all deregulated markets where the marginal generation unit sets the price for the whole market. So essentially the last power station that you need to meet demand will set the price. But what’s interesting about that is obviously that’s only applying to very short-term prices pretty much at the point of delivery. And then while you’re at that point you have a lot of other things. Coming into play as well because the system operator will redispatch to take account of the physical constraints of the grid. So the market decides which power stations are profitable to run, but then the system operator might turn some of those off in favor of other ones to manage the physical limitations of the great. And so where you actually see. Pricing impacting bills, for example, that’s based on quarterly prices that are observed in a two month window before the quarter starts. So you can be as much as like five months ahead. And obviously five months ahead you have no idea which the marginal unit will be. And it’s all based on assumptions, estimates, forecasts and so on. So, but this is typical of, as I said all deregulated power markets is not funky or specific to Britain.
Tammy Nemeth [00:06:56] And just one last thing and then I’ll ask David to chime in here. Can you explain what the contracts for difference are? Because this is something that Canada wants to introduce now nationally, I guess, or something. I wonder if you can just explain what they are and if they’re helpful
Kathryn Porter [00:07:16] Yeah, so this is now the method of subsidizing new renewables projects. We have two former schemes that are still in operation for legacy projects where the contracts are still ongoing, but they close to new schemes. So those are the renewables obligation and the feed-in tariff. Now if a renewables project wants to have a subsidy, it has to take part in the auctions for the contracts for difference. So the way these work is that. The generator will be guaranteed a minimum price, basically, it’s called the strike price. And in fact, that is the price it’s guaranteed. If the market price is higher than that strike price, the generator reimburses. And in fat, this is to consumers because this goes directly onto the bill. It bypasses the wholesale market altogether. If the wholesale price is lower than the strike prize, then… Consumers then have to top that up and pay the difference. Now you get this misinformation that CFD prices have always gone down and that the renewables are nine times cheaper than gas and all this stuff. The fourth auction round saw a low point in prices although one of the projects from that round was canceled and the other four all rebid the maximum out and they could so cautioned their capacity into the sixth round. Which was much, much higher. The sixth round is the most recent round, and that sets the strike price for offshore wind at 83 pounds per megawatt hour in today’s money. And that compares to the average wholesale electricity price last year of 73 pounds per mega watt hour. So we’re seeing the subsidy level increase, an increase to a premium over the gas-based price of electricity. And then I should also add actually Since the introduction of the contracts for difference and also the price cap for households we’ve seen liquidity and the wholesale electricity market fall significantly because now the government is effectively providing a lot of the market hedge for generators which you know otherwise they would go to the market for and so that’s really reduced the the need that generators have to hedge themselves in the market.
Tammy Nemeth [00:09:44] David, did you want to ask some questions?
David Blackmon [00:09:48] Yes. Uh, well, so it’s hard to know where to begin. This is also, there’s so much data in this report. It’s, it’s truly a remarkable piece of work. I just, uh, I can’t tell you how impressive it is to me. I so the first thing that really leaps out to me is Mr. Milliband, the environment minister there is seems especially enamored of solar farms, you know, uh, all over the landscape, uh displacing beautiful scenery on the British countryside with solar arrays. And, um, you note at one point early in the, in the report that, uh solar operates at a capacity factor. Of 10% in the UK, which, you know, in the United States where the sun actually shines fairly often, it can operate as much as as high as 30% capacity. So how does the government justify continuing to pay these heavy subsidies for a generation source that is so incredibly inefficient, just mainly due to the weather. In the UK, I mean, is there no getting through to the folks running the country about how little sense this actually makes?
Kathryn Porter [00:11:14] Unfortunately not. Ed Miliband, whenever he’s questioned on these points, just rants on about there’s a climate emergency and we have to do something about it. The World Bank deems the UK to be the second worst place in the world for solar energy after Ireland. And not only is Milibande, I refer to him unapologetically now as mad Milibrand, because not only he’s using public money to build all of these solar farms. He also wants to use public money to dim the sun. And obviously if the sun is dimmer, then the capacity factor is gonna be less than 10%. So this is just completely insane. He does not quantify it. So the only quantification he gives is actually false. There’s a nine times cheaper thing is false. If you ask him to quantify the cost of the climate emergency, he can’t do it. If you asked him to. Quantify the benefits that you receive from all these renewables and the wind and solar subsidies, you can’t do it. And in fact, because these are effectively stealth taxes that are levied directly onto bills, they avoid the scrutiny that taxes normally have. When the treasury collects taxes, that’s a subject to quite a lot of scrutiny. People go away, people like the Institute for Fiscal Studies go away and analyze whether they represent value for money. There’s nothing of that happening with Miliband’s, you know, stealth taxes. They just go straight on the bill with really no scrutiny at all.
David Blackmon [00:12:49] Well, I mean, it’s a terrible situation. Of course we, we have dealt with the same thing here in the United States. Uh, you know, we had a good election outcome in November and, uh, a lot of this stuff is getting reversed over here. The damage that was done by the Jennifer grand homes and the, whoever was making decisions in the white house, obviously it wasn’t president Biden. Um, but in the UK, you’re just in the first year of this current regime. Um, it hasn’t been quite a year yet. Has it?
Kathryn Porter [00:13:20] No, the election was in early July.
David Blackmon [00:13:23] And so you have another four years plus before there’s a requirement for a new election, and I just wonder if, you know, at the same time, all this is going on, all this irrational misallocation of government resources to these green initiatives preferred by Miliband. You also, on the other hand, have the Starmer government talking about a massive beef up. In the UK’s military spending, which seems, you know, to be, unless there’s major tax increases on the populace, it’s hard to see how the country pays for all that. And I just wonder, what’s your view? I mean, is this sustainable, this path sustainable for another four years for the UK without hitting some sort of a financial wall?
Kathryn Porter [00:14:21] Well, it’s not, and we’re seeing signs of that financial wall approaching. Although we had some pretty surprising GDP figures recently, most people are still expecting that we’ll be in recession by the end of the year and that taxes will have to go up because the headroom that the Chancellor created herself was too low and has pretty much already been used up. And they keep making off the cuff unfunded promises. Just a few days ago, Stalmore was saying that they might reverse some of the cuts in the winter fuel payments. But that was just an off the cuff comment. There’s actually some talk starting to happen that there could be an election earlier than 2029. I don’t know to what extent I really believe that that’s true. But the government is behaving like an end of term government rather than a beginning of term governments. You know, Starmer did a whole press conference last week that was completely focused on Nigel Farage and trying to knock down reform, which is really bizarre behavior for a government that’s not even a year into its term. You don’t really start doing that sort of attack politics until you’re approaching an election. So people are really asking questions around why is this happening so early? And the labor, although it has a huge parliamentary majority. The sort of consensus within the party seems to be quite weak. You’ve got various, you know, Stammer’s sort of tracking to the right to try and counter the reform threat, but that’s obviously annoying people on the left. So it’s by no means clear that he’s going to be able to retain control of his party for four years. Whether that forces an early election or not, I don’t know. Obviously most of us hope that it would, but I think we’d have a lot of chaos to come before that happened.
David Blackmon [00:16:15] Yeah, and it wouldn’t necessarily have to force an election right to replace for the party to replace Stormer as the party’s head, right?
Kathryn Porter [00:16:23] No, that’s right. Labor has more stability in the sense that it doesn’t replace its leaders quite as easily as the Conservatives do. They have more hurdles to cross internally for that to happen. But you can easily actually see a scenario where he loses the ability to govern. There’s various legislation going through Parliament at the moment where you could see him failing to get legislation through. And one of the sort of points of tension is actually around some of the digital legislation and the use of, you know, creative IP in training AI. And that seems to be actually causing quite a lot of tension between different parts of the government within parliaments. So it’s entirely possible that if he stops being able to pursue his legislative program. Then at that point you could see things changing.
David Blackmon [00:17:26] Well, I’ve kind of gotten us off on a political tangent, but it’s also interrelated. It’s always the first thing pops into my mind. But maybe we should let Irina.
Irina Slav [00:17:39] I have a few questions. The first one is the shortest. Has your report already been called disinformation
Kathryn Porter [00:17:50] Yes, pretty much. It’s been, quote, debunked a couple of times. But I mean, it’s the debunking that people are doing is extremely superficial. And they go to things like Ofgem’s breakdown for the price cap. And then they say, oh, look, you know, the wholesale component is actually 44%. And the policy component is much smaller than you say, and therefore, it can’t be renewables. But then they ignore the fact that Ofgem puts the contracts for difference and the capacity market, which is renewables backup costs, into the wholesale component. And they ignore completely the impact of renewables on network costs. So they’re just very selective, and they cherry pick the data that suit them. I think in my report, if people trouble to read it, they’ll see that I’ve literally gone through every cost element and described what it is and how renewables are impacting that cost element. And I really don’t see how that can be described as misinformation. It’s data and that’s it really.
Irina Slav [00:18:52] Yeah, but that’s what they do. They do it for the levelized cost of electricity and everything else. Something related to David’s questions. Everything that’s happening right now, thanks to the current British government, how much of it do you think is incompetence? Because from what I constantly read about this government’s energy policies, everything just screams incompetence do they not have access to factual data or do they do you think refuse to see any factual data because they are already so biased in favor of wind and solar that they don’t want to see the data They don’t want to see the facts and they don’t know enough about it.
Kathryn Porter [00:19:50] I think so they have one issue which is the civil service has become politicized and there’s been a lot of ideological capture within the energy ministry. So the information that civil servants are feeding to ministers is quite biased and the ministers aren’t really in a position to understand how biased the information is because ministers effectively have to do two jobs. They have to be… Constituency MP and do the job that all constituency MPs have to do and then they have their ministerial job on top of that. So it’s effectively two full-time jobs that they’re trying to juggle so they do rely on their officials to a large extent for information and typically officials will come along to ministers and say oh here we are minister you’ve got these three options that you could consider and then it’s very much down to the minister to say well actually I don’t think any of these options make sense, go away and create some more. The problem we have with Miliband is that he seems to be very much an ideologue when it comes to this issue of climate. If you watch his interviews, if you watch, he’s always putting these videos on social media. If you’re watching them with the sound off, he looks kind of deranged. He’s there sort of frothing at the mouth. He’s pointing his finger. He’s hugely passionate, but it’s in way too passionate because you actually need to. Have critical thinking and look at data. You can’t really drive policy with passion. You have to drive it with hard facts. And he is just not listening. He refuses to listen to anybody that tries to present an alternative narrative. And then he also misleads people. He has this policy to have clean power by 2030. And he says that he has independence advice from the system operator to say that it’s feasible. So first of all, the system operator. Did say it was feasible, but only if a whole range of really unlikely conditions are met. But secondly, it just wasn’t independent. The system operator, NISO, has one shareholder, which is the Secretary of State, Ed Miliband. And Freedom of Information requests have shown that Milibande and his department signed off on the so-called independent advice before it was published. So this whole thing is an echo chamber. Where they just refuse to pay any attention to people with abuse that aren’t aligned with theirs.
Irina Slav [00:22:22] But that also relates to the fact that the ordinary Brit doesn’t really know how energy works. Because what you’ve written in that report and what we’re talking about here is not something that is accessible to regular people without a specific interest in energy. Because they are being fed, to my perception, they’re being fed by the propaganda from the mainstream media repeatedly, copiously. And when you tell them that their electricity bills are higher because of gas prices, which I see at MiliPent repeating almost on a daily basis, and you rejecting this and saying why, and he keeps doing it, it’s not just him of course, but people believe what they’re being told.
Kathryn Porter [00:23:16] Yeah, unfortunately, that’s the case. And you’ve got people like me and other independent consultants out there trying to correct this narrative. I was invited a couple of weeks ago to go and address a public meeting in Wells, which is a small city in the west of England. And this this public meeting was on the subjects of energy so people had been invited to come and listen to me speak about energy and I gave them a speech which went actually into the physics of how the electricity market works because I think you can’t really understand the challenges that we’re facing without knowing some of that and I was a little bit apprehensive about this because most people you know they don’t think they’re going to understand or enjoy a bit of a physics lesson. But actually they were all sitting forwards in their seats. They were really actively listening. They asked really sensible questions afterwards. So the public absolutely can understand this stuff. We shouldn’t be patronizing them. We should be doing our best to explain things in a way that’s accessible to the public and using all of the levers that we can find across social media, having contacts in mainstream media to try and get that message out there.
Tammy Nemeth [00:24:36] Yeah, that’s a great point. Stu, do you want to ask some questions here?
Stuart Turley [00:24:42] Absolutely. I got two of them kind of teed up here from comments that I’m getting, but Kathryn, I’m seeing that net zero policies equal deindustrialization and deindustriallization means financial calamity, collapse and regimes change. So it’s kind of like a domino theory. Will the net zero policy forcing green energy and no coal for steel How can industrial military grade steel be made when coal is such a huge issue for the UK and the EU if they’re going to be re-industrializing their military machines, this is going to an absolute problem.
Kathryn Porter [00:25:32] Yeah, so it’s interesting that a couple of years ago, we nationalized a company called Sheffield Forgemasters. That’s now owned by the Ministry of Defense, and they produce military-grade steel with electric arc furnaces. And they’ve got some ladle furnaces and a whole load of ancillary equipment there. And the reason they’re able to do it is that they have very stringent quality control on their feedstock. So it is technically possible, although very challenging, to make military grade steel in an electric arc furnace. Now, obviously we’ve just had the huge fuss about Scunthorpe and with the muted closure of the blast furnaces there, people were talking about losing our last military grade virgin steel capacity. That was not actually true because Scunhthorpe never made military grade steel to begin with. What we should have done was keep Port Talbot open if we cared about that and But you know, I Jonathan Reynolds who’s the business secretary He wants to put in electric arc furnaces in Scunthorpe But NISO has said that they won’t get a grid connection for that until 2032 And they would face a reduction of about 30% of their product capability The main thing that’s made in Scunthorpe is actually rails for our railway lines. You wouldn’t be able to make those with an electric arc furnace unless you went down the route that they have at Sheffield with this hugely expensive and convoluted supply chain management and additional ancillary equipment, which is just unlikely really to happen. So what will happen then is that people like Network Rail will have to start buying their rails from producers outside of the UK. And that’s likely to be China. And then so not only do you have dirtier energy, and this is the whole problem with deindustrialization, is we’re offshoring our manufacturing to countries with dirtier and energy. And then you have to ship the stuff back, which also incurs emissions. So any emissions reductions that you gain from converting from your blast furnace to an electric arc furnace, at Scunthorpe in particular, you lose about a third of that benefit just because of. Than having to substitute your products with imports.
David Blackmon [00:27:54] Is it Scunthorpe that is importing coal from China that was imported to China from Australia where it was produced?
Kathryn Porter [00:28:01] Well, it was from Japan, and it was a one off cargo. And again,
Stuart Turley [00:28:06] But that shipment came from Australia through Japan
Kathryn Porter [00:28:14] Yeah, I mean, there was a lot of noise because people were saying, oh, Miliband denied a permit for a new mine in Whitehaven in Cumbria. And then people were like, yes, well, that was high sulfur coal. So you can use it in the blast furnace. So you could use it in the last furnace if you blended it with low sulfur coal, but that’s a red herring because we have two other working mines in the UK that produce low sulfur coking materials. There’s a mine in Scotland that produces low sulfur coal and there’s one in Wales that produces a low sulfur anthracite. Both of which could be used for steelmaking. So this whole discussion was really a red herring. We don’t have a problem with getting hold of low-sulfur coal for coking. We have a program with blast furnaces that actually work because the blast furnace in Scunthorpe are very old and need replacing. And my recommendation would be replace them with new blast furnances. Don’t put in electric.
David Blackmon [00:29:10] Well, that makes entirely too much.
Stuart Turley [00:29:14] This brings up another piece of this question that I have for you, excellent information by the way. Thank you so much. And when we take a look at the grid interconnects as a follow on question to Norway and national security, when you have Russian or Japanese Chinese tankers dropping anchors and interconnects just are waiting an accident waiting to happen. How can national security be outsourced? You, you alluded to that of how do we outsource all of our manufacturing and I’m seeing trading blocks change around the world, president Trump’s visit to the middle East, we’re seeing all of the new trading blocks lining here. If Russia piece can happen, you’re going to see more trading going with India and the other trading blocks. You’re going to have the UK. The EU and Canada joining in a failed state trading bloc. Just an opinion, but how does the grid interconnect work in national security? I failed to see this.
Kathryn Porter [00:30:27] Yeah, I mean, it doesn’t. And it’s funny, because we have interconnectors participating in the capacity market, which is supposed to guarantee, you know, your backup to renewables. And their availability criteria is just that the interconnector is functioning. But it could be exporting, and there’s not really any way to prevent it from exporting unless you turn it off. That’s the first problem. The second problem is you’ve got countries saying that they’re not necessarily going to continue to export to us and primarily Norway. So it’s become a really hot button topic in Norway because in the south of the country they’ve seen their prices become very volatile and rise quite significantly since the interconnectors opened with Britain and Germany in 2021. Then they see Britain closing its coal power stations and Germany closing nuclear power stations. That creates much more volatility, price volatility in our markets. And that then gets transferred into Norway because of the cross-border trading. And the Norwegians are not happy about this at all. It’s a live election issue. It’s the topic that the man in the street has an opinion about. If you went and stopped somebody in London and said, what do you think about electricity interconnectors? They’d say, what are you talking about? You stop someone in Oslo and ask them the same question they would give you an opinion and they would say we’re very unhappy with them. So after the Norwegian parliamentary elections happening in September and there’s a reasonable chance that the parties that emerge victorious in that election will try and renegotiate the deals with Britain and Germany to try and reduce this impact, they’ve also got. Some of the cross-border capacity with Denmark, the cables are very old, Skagerrak, and they’re due to be retired in the next couple of years. Pretty much nobody now in the political scene in Norway is open to renewing those deals. So Norway cutting its cross-boarder capacity with Denmark by about a third, that’s seismic. That’s really big news. So if you’ve got countries starting to be unwilling to export, then obviously that makes the whole security of supply question harder. Then you have the issue that, except for Norway and France, the countries we’re connected with have both similar weather and similar transition strategies that rely on the weather to us. So if we’re short, then probably those countries are short as well. And then finally, you have the wider security question around, you know, are the cables going to be sabotaged or just damaged by accident, we had… Half the cables of I for one were out of action for a year after a ship’s anchor dragged over them and caused damage. And that was just a pure accident. That wasn’t sabotage. So accidents happen as well. It’s just a really, really bad strategy.
Tammy Nemeth [00:33:35] Good morning, Robert. Stu, I see you have one more question there.
Stuart Turley [00:33:43] Uh, are we seeing a more decentralized grid management appearing globally? Do the renewable energy being on the grid? I’m seeing trends. I always look for global trends and I want to get your opinion on, it seems like management of the grid, like we saw in Spain, when you lose, uh, the solar stuff for about three seconds and pow 55 million people go without power. That people are clamoring for more local management as opposed to centralized management. Is this a trend?
Kathryn Porter [00:34:23] So the clamoring might be a trend, but the actual management, no, we’ve been talking in Britain about changing distribution network operators into distribution system operators for years now, and actually it’s gone quiet in the last couple of years, people have stopped talking about it. There’s been some introduction of local flexibility markets but at a very local level and really for very small amounts of capacity and this has been more to optimize substation use and maybe to fair reinforcement work. What we’re really seeing across the western world is legacy grid infrastructures getting very old and at the same time we’re trying to shove in a generation that’s effectively contributing direct current onto alternating current grid. So you’re asking your aging decrepit infrastructure to do something it was never designed to do. And this is creating big problems. I don’t think that local network operators really possess the tools to manage the grid in the same way that transmission system operators do. And certainly here in the UK, the transmission system operator is relying on tools that were built in the 1980s. That are really not going to be up to the job going forward. So this is too much, if you like, and it’s too difficult. I don’t think we’re really going to see local managements in that way, however much people might be clamoring for it. And also, I don’t think it would have helped. I mean, the Iberia situation, it wouldn’t have been helped if they were controlling the grid locally, because they’re running with too little inertia. And there’s a point, if you run with too little inertia, you won’t be able to ride through faults. And that’s really what happens.
Stuart Turley [00:36:19] You mean physics? Sorry, you mean physics?
Irina Slav [00:36:20] But blackout is only a matter of time in Europe, anywhere in Europe.
Kathryn Porter [00:36:27] Well, so I think after Iberia, we’ve seen system operators tightening up. So in Iberian, they’ve been running more gas. In other places, they have been running more gas, they’re been increasing their grid inertia. And then it’s funny because you get commentators saying, oh, but we’ve we’ve seen grids running with low inertia with no trouble. It’s a lot like saying that I didn’t crash my car last year, so I don’t need car insurance. And the low inertia operation is fine if you don’t have a fault, but if you have a fault then you can’t ride through it if you don’t Have inertia and you’re going to have faults, you know, grids have faults. This is just a normal feature of grids. You get hit by lightning, you’ll have fires that reduce the insulation between the cables, your equipment breaks, you know, these things happen. And if you’re running in low inertia then at some point you’re going to get found out and that’s what happened in iberia and it was really interesting to see that the fault propagated into france but was very quickly contained and the french area that lost power was restored really quickly and that’s because the French have a very high inertia grid.
Tammy Nemeth [00:37:44] You know, one of the really important points you made in your report was the aging infrastructure and that all of the sort of new wind and solar installations are being prioritized over improving the stuff that’s aging. Like you pointed out that some of the natural gas power plants in the UK are nearing their end of life by 2030. You know they’ve been around for a time. And you know, is it going to be the case like the transformer at Heathrow? That was, you know, from the 60s, that they’re going to try and extend the life of the natural gas power plants rather than upgrade. I mean, what’s your sense there on what’s gonna happen with this aging infrastructure?
Kathryn Porter [00:38:27] Yeah, so I was looking at the numbers at this over the weekend. We’ve got about 32 gigawatts of CCGTs on the system and over 10 gigawattes were built in the 1990s and then just under 10 were built in the 2000s. So I would say we have a high level of retirement risk on 10 gigawatte and a medium level of retirement risk on a further 10 gigawatt coming up within the next five years. There is absolutely no way that our grid can cope with this. We can’t cope with five gigawatts coming off. We’ve just seen the biomass subsidies extended because we can’t afford to lose those units off the grid. So what’s going to happen? It’s going be really challenging because I’m hearing that it’s a five-year lead time for a new gas turbine. While these 1990s units have largely gone through major refurbishments, there’s a limit to how far you can take that. And CCTTs don’t typically live longer than 25 to 30 years. So these assets are going to start breaking and it’s not going to be economic to repair them unless they’re paid large amounts of money. Now, my understanding is that the system operator believes that that money will come through the capacity market. It’s certainly talking about funding the gas reserve that it wants to have through the Capacity Market. That market is paid as cleared. So all the technologies in the market would then have the same uplift that would be needed to keep the gas running which will be extremely expensive. But whether it’s even feasible to do it with those supply chain constraints is anybody’s guess. So this morning I actually submitted a freedom of information request to NISO on this topic among others to try and get more of a sense of their thinking and what planning they’re doing around this retirement risk. And we’ll just have to see whether they answer the question or whether they try and hide behind confidentiality or some other nonsense.
Tammy Nemeth [00:40:20] I’ll say it’s energy security. They can’t release the information. I have one last question, and then maybe we’ll just do another round of one question each sort of thing. To me, it seems like the UK is facing a policy dilemma where they have these conflicting priorities. So they want to be net zero. They want to have wind and solar everywhere with maybe batteries and maybe nuclear, but everything takes forever to build here. But then today, Starmer announced this huge defense commitment to build up defense production. But that’s industrialized, you know, you need an industry to be able to do it, but things are really, really expensive. And then they’re also talking about building out all being a leader in AI data centers with what energy. And so there’s all these conflicting priorities and I’m wondering what’s your sense of how to overcome that policy dilemma?
Kathryn Porter [00:41:20] Well, I mean, the first thing they need to do is repeal the Climate Change Act because that legally binds the government to reducing carbon emissions. And pretty much any large infrastructure projects that’s now being proposed is getting challenged in the courts on the basis of non-compliance with the Climate change Act. So if they want, if they’re serious about building stuff, that act is going to have to go or at the very least be amended. They also need to. Legislate to change the powers of regulators. So Labor’s already been complaining about the way that the environmental regulators block infrastructure. But it’s not just the environmental regulators that are responsible for this, it’s all the regulators. The nuclear regulator ONR is awful at this as well. I mean between all of the regulators they required 6,000 design changes at Hinkley Point. Versus the design that was approved in France and Finland, and they’re not exactly cowboy regulators. So we have this huge regulatory issue. So number one, repeal the Climate Change Act. Number two, legislate to curtail the powers of the regulators. Number three would be to legislate to reduce the amenability of infrastructure projects to judicial review, because it’s fear of judicial review that’s driving a lot of the regulatory overreach. And we had 40,000 pages of environmental statements for size well C, which is an identical design to Hinkley point C and exactly adjacent to size well B. So why you couldn’t have just written on two pages what the differences between these two sites were, you know, adjacent sites rather than 40,00 pages. And that obviously adds cost in it and it creates delays. And so those are three fundamental things that need to be changed. Then the fourth thing is to address the cost of energy. The carbon taxes need to be abolished. And the energy levies and subsidies and so on, they all have to be recovered through taxation and not through bills. And this will be helpful both for industry and also for households. Now, I’m seeing zero appetite for that to happen. They’re talking about moving the levies from electricity to gas, which would be extremely regressive. A lot of people would be harmed by that. And I really hope they don’t do it because it’s like the fuel poverty statistics will just go through the roof. And so we’ll have to see but those levies really should be appropriately recovered through taxation and not through bills.
Tammy Nemeth [00:43:57] Good points. David, last question.
David Blackmon [00:44:01] Yeah. Oh, the climate change act, uh, that was, uh enacted, I think like in 2008, right during the, the kind of the initial round of all this climate alarm hysteria was around the same time, shortly thereafter that the EPA here in the United States made its endangerment finding on carbon dioxide and has since, and that has driven the regulatory structure in the United States since essentially the same time 2009. We’re about to rethink that. In fact, the EPA now is, is going about figuring out the best way to rescind that endangerment finding in the Trump administration. Were that to happen, were that to take place? I wonder if you think it would have any influence over what’s happening in the UK and other parts of Europe, because, you know, we do tend to kind of. Follow each other down these, these kinds of public policy trends. Yeah. Or would they just, would starboard just say, well, that’s Trump and he’s temporary and they’ll go back whenever we elect a different president. Just wonder if you think there’s any influence from what’s happening in the U S on what might happen in the future in the UK.
Kathryn Porter [00:45:21] Yeah, I mean, I think unfortunately, Europe likes to dismiss Trump as some sort of an idiot and lunatic. And so they don’t want to follow where he leads. What might be more persuasive is if Trump’s ideas around achieving cheap energy and having that as a driver of economic growth, if that is realized and not derailed by the tariffs, then that will become a very compelling argument that people in Europe struggle to overcome, because you’ll see businesses moving with their feet. They’ll go to the places where you have cheap energy. Right now, they’re going to China and to Southeast Asia. If people start relocating to the US, I think that would send a very different message, because it will show that you can go from having relatively more expensive energy and in the case of the US being a net Porter. To completely changing that around. Now, obviously, we might not have the same hydrocarbon resources. But we do have some, and we should be optimizing them. And currently, we’re doing the opposite, in fact. So that’s what I think might be more compelling rather than just the initial political momentum in the US.
Tammy Nemeth [00:46:38] Irina, your last question.
Irina Slav [00:46:42] Yeah, how much worse do you think things must become before they start getting better, as in how much more are people ready to India don’t love? I’ve been wondering, I keep wondering about this for Europe, for Bulgaria, for the UK where things are really worse than they are in Bulgaria. I mean, come on people, we were trying to be like you and you’re worse than us right now. So how much worse can people take before they have had enough, do you think?
Kathryn Porter [00:47:15] Well, I mean, so I was asked this question or a version of it in the public meeting that I mentioned and the questioner there was really suggesting that the answer lay in anarchy.
Irina Slav [00:47:27] No, but really any sort of response is really not that much, you know.
Kathryn Porter [00:47:30] Well, so in our parliamentary system it’s very difficult to overthrow a government that has a huge majority the way that Labor currently does. So there’s potentially no limit to the amount of pain that we have to endure until the government is replaced because it’s very difficult one seat a government with a large majority. Now, you know, large amounts of public unrest could potentially trigger that because even Labor politicians might realize that an election needs to be called. If there are sort of uncontrollable riots. But clearly we don’t want to end up in that situation. It’s too extreme. So unfortunately, a feature of the way our democracy works is that when you have a government with such a large majority, it’s almost impossible to get rid of them without something very undesirable and very dramatic happening, which has a low likelihood. And as I said, it’s very undesirable. So in that sense there’s really no limit to the pain. We could go through a horrific recession, we could have large numbers of people dying from fuel poverty, all our manufacturing could close, and you know unless people were willing to go and take to the streets in sort of violent ways, it would be very difficult to change that.
Irina Slav [00:48:48] But would the government not realize they’re doing something wrong, perhaps, if what you’ve described just now starts happening?
Kathryn Porter [00:48:59] Yeah I mean they already realize they’ve been doing something wrong. I mean the budget that Rachel Reeves delivered last year was a total disaster and the trouble is they don’t know how to correct it because none of them have any experience of business. They’re all either lawyers or trade unionists or political activists, they’re not. They don’t know what they’re doing, they are very out of their depth and so yes they can say oh that’s not working let’s try something else. But their answer to everything seems to be tax the rich. And then we’ve just had data released recently that show that our capital gains receipts have fallen because the richest people are just moving out of the country. Our share of millionaires has dropped significantly. And so their answer is, oh, we’ll just tax the super rich some more. And then, oh no, that doesn’t work because the super-rich are highly mobile. And so then you’ll have to endure another year of pain and then also let’s try something else and then they’ll probably increase borrowing and you know, so each, they will try and do things but they’re not going to do the right thing so they won’t be effective. And we won’t get out of this mess and until this labor government is replaced because they just don’t have any clue what they’re doing.
David Blackmon [00:50:14] It also sounds much like California, doesn’t it?
Tammy Nemeth [00:50:17] But you had said that part of the problem is the capture of the bureaucracy. So I mean, even if the government changes, and let’s say that reform somehow forms the next government, they would be a bunch of neophytes who would also be beholden to the bureaucracy. And so, you know, if the bureaucracy is the one providing these options, and the options aren’t working, but they’re ideologically captured or captured by the whole net zero frame of thinking. Then that would limit, don’t you think, how a subsequent government would be able to deal with the problem.
Kathryn Porter [00:50:53] Well, it would if they didn’t do anything about it. But what I would encourage both the Conservatives and Reform to look at is changing the legislation around civil service, independence, and also legislating to bring quangos back under direct ministerial control. And if parties put that in their manifesto, then when they enter office they will have capability to remove. The heads of the civil service, so I think that you would need to get rid of all of the permanent secretaries and the directors general and then replace them and yes you’re then sort of politicizing the civil servants but I think the horse has already bolted, the civil service is already politicized, so you need to recognize it, accept it and make sure that you then make political appointments of people who are aligned with your mission. And the things that you put in your manifesto on which you were elected rather than blocking it, which is effectively what the civil service did to the last conservative government. So any incoming government that’s conservative or reform, I think they need to, and I think they need to start doing this now. I think this needs to start educating the public that the civil service is acting as a barrier. And that it needs to be reformed, that it needs to become accountable to ministers. Ministers have to be able to fire civil servants who are not doing their job properly, or not doing the job in the way they want it to be done. Because right now when a minister tries to get a civil servant to do something that that civil servant doesn’t want to do, they just get accused of bullying. Kind of like Doge. Well, yes, exactly. You’d never be able to call it that here. But we definitely need to do that and also dramatically cut the size of the civil service.
Tammy Nemeth [00:52:42] Yes.
Kathryn Porter [00:52:45] An incoming conservative or reformed government, I think, would have to have this in their manifesto that they’re going to retake control of the civil service and then be able to do that once they come in, repeal the legislation that Gordon Brown brought in that gave the civil service its independence, then start firing people, replacing them with their own appointments and then you will have a better alignment.
Tammy Nemeth [00:53:12] Okay, Stu, last question.
Stuart Turley [00:53:14] I got one last question, and with the lousy business environment in the UK, how soon is it do you feel that they’re going to be running Shell and BP out and that they move to the US? And that is going to really hamper energy security for the UK. Just a question.
Kathryn Porter [00:53:38] Well so Shell and BP, they’re not really that bothered about the windfall tax because only a really small proportion of their global revenues are from the UK and therefore subject to that tax. Really the question you’re asking about is whether they’ve moved their listing, which is an entirely separate question. Shell and and BP are not the main producers in the North Sea Basin. Harbor Energy is actually the biggest producer in the north sea, which most people I’ve never heard of. So the windfall tax never was an issue for the majors at all. It’s the independence, the biggest layers in the North Sea that have been harmed the most. And so people like Harbor and Cerica, they’ve been moving their operations into a more international footing and looking at basins elsewhere. Now, again, they probably won’t move their listing, but they will move their operations.
Stuart Turley [00:54:34] Um, that’s pretty interesting. Uh, and I, if you lose your North Sea oil production and then Norway cuts your grid interconnection and your pipeline, there’s a lot of not so energy security going on in the UK policy.
Kathryn Porter [00:54:53] I mean it is actually ridiculous that Ed Miliband rants on about not being beholden to dictators, although I think the idea that Norwegians are dictators is something of a niche view. But we have gas, we have oil and gas, we have it in the North Sea and we have that underneath the land as well. And you know everyone gets very worked up about fracking but you don’t have to. Engage in fracking. Now, obviously, I know that conventional drilling involves a certain degree of fracking, but you could exploit a lot of these resources just using conventional approaches and with minimal levels of fricking. But they’re not doing this. They’re banned fracking altogether. They are restricting production from the North Sea. There seems to be no interest in even investigating any any further onshore development and what are we doing instead? We’re just importing more because our consumption isn’t falling. And this is what makes this whole approach by Ed Miliband so ridiculous and so harmful is that our consumption is not falling. So we’re having to import more whether that’s import more oil and gas where we lose control of production emissions and incur additional transportation emissions. Whether it’s offshoring of manufacturing where the emissions are then higher for manufacturing and we get the shipping emissions, whether we’re trying to rely on electricity cables that may or may not deliver when we need them to, it’s all extremely counterproductive and many of us are banging our heads against the wall thinking how is it that he doesn’t realize this.
Tammy Nemeth [00:56:36] You make an interesting point there about the consumption, because my understanding is that some of these levies are designed to make it more expensive to try and discourage consumption and then there’s all of these new things they want to do that’s embedded in the energy bill that will sort of monitor how people use their electricity or energy and try to prioritize things and all this different kinds of stuff. But if you keep increasing the number of people coming into the country and settling in the U.K. So you have a population increase. Why is there an assumption that those people aren’t gonna be using energy? Because if population’s increasing, that means your consumption is increasing as a total for the nation. And you’re still gonna need it. You’re gonna need that energy in whatever form it happens to take.
Kathryn Porter [00:57:28] Yeah, so they’ve got this whole polluter pays narrative, which is supposed to reduce consumption through efficiency gains and moving towards green energy. But that’s not what’s happening in practice. What’s happening in practices deindustrialization. So the demand destruction that we’ve seen has been negative demand destruction, it’s been harming the economy. And the huge flaw in that polluter pays narrative is that the people who there are large numbers of people who simply can’t afford it. They can’t afford to change their consumption levels. If you live in a rented home, you can’t go and install insulation or put in change the windows or whatever. You don’t you’re not allowed because you don’t own the building. And even if you did own the building, maybe you hadn’t you don’t have the money for it. So it’s extremely regressive. And it just doesn’t deliver what they think it will deliver. And they really need to have a rethink on this, because it makes no sense, and all it’s doing is harming the economy and harming households.
Tammy Nemeth [00:58:34] Well, that’s a great place, I think, to wind up this conversation. I just want to thank you so much for taking the time to speak with us today about this amazing report. And once again, it’ll be in the show notes with the link. So people who are watching this, whether now or later, please click on the link, download Katherine’s report, and see the data for yourself. Because you can’t just rely on what people are tweeting. It’s important to take a look at it. And Kathryn’s done an amazing job to put all of that complex data into a format that is easy to understand. And my hat off to you, Kathryn, for doing that excellent job.
Stuart Turley [00:59:20] Outstanding job. I’d love to have you on my podcast to go into a few more of these kinds of things when you get time. I know you’re just on a whirlwind tour here, but I’d like to thank Ed Miliband for stopping by the show. Holy smokes, one of my favorite, uh, I mean, oh, that’s Wallace and Gromit. I thought that was.
Irina Slav [00:59:43] Thank you.
Tammy Nemeth [00:59:43] Thank you, thank you, Kathryn.
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