For today’s generation a three day week seems difficult to imagine. But Edward Heath’s Conservative government introduced such a measure in 1974, in the context of the oil crisis and facing a strike by coal miners.
In the House of Commons, the business secretary was forced to calm “alarmist” fears that Britain would once again be forced into a three day week, with businesses shutting to conserve energy supplies.
The issue today is not coal or oil, but the soaring cost of gas. Gas prices have risen 250 per cent since January and 70 per cent since August. The rise has been driven by a cold winter in the northern hemisphere which has depleted gas storage levels, while increased demand in East Asia has seen liquified natural gas shipments delivered there, rather than to Europe. Geopolitics has also been at play, with reductions in gas supply from Russia to Europe reducing stores and increasing the price on the continent. The UK, though not directly reliant on Russia for energy supply, is vulnerable to indirect impacts from the European continent.
To make matters worse, a freak fire affected the main power interconnector between France and Britain, seven nuclear units are currently off grid and UK electricity generation has been hit by a period of very low wind.
Dependence on imports risks price volatility
There are no immediate concerns about UK energy supply, which comes domestically from the North Sea, as well as from countries like Norway. But dependence on imported gas and competition internationally for a volatile supply can cause significant price variations, as we have seen.
Politically, this is fast becoming a cost of living crisis. There was always going to be a pinch point this autumn, with the end of the furlough scheme, the planned removal of the £20 a week boost to Universal Credit, on top of inflationary pressures. The government needs quick fixes now, like keeping the Energy Price Cap in place, but it also needs medium and long term solutions. It is critical that this crisis catalyses action to create a more resilient energy system.
Perversely, while levies are applied to electricity bills to fund energy and climate policies, gas faces none of these charges. It is also subject to a reduced VAT rate, which acts as a subsidy. Research by Oxford University has found that the current levy structure provides an active disincentive to the adoption of cleaner alternatives, like heat pumps, slowing down the UK’s net zero transition.
Annual spending on energy efficiency has fallen
The forthcoming heat and building strategy and comprehensive spending review must be sufficiently ambitious to reflect the seriousness of the energy price crisis. Annual spending on energy efficiency has fallen short, following the scrapping of the Green Homes Grant earlier this year. The 2019 Conservative manifesto pledged £9.2 billion in energy efficiency schemes and the government should deploy this planned investment urgently. By ensuring homes are better insulated, the UK can quickly reduce the energy demand for heating (which currently mostly relies on gas). It would be popular too. People may not support the methods of Insulate Britain, but there is significant backing for insulation. According to polling by Public First, 76 per cent of people support government funding for energy efficient upgrades to homes, whilst just ten per cent oppose it.
The wrong response to this crisis would be to abandon investment in greener homes and further lock gas into the system, with more subsidy and investment. Fortunately, ministers have batted away calls from some MPs and incumbent industries for more shale gas, coal and other fossil fuels, and have instead doubled down on the need for the UK to invest in domestic renewables.
Ministers should listen to MPs like Anthony Browne and Bim Afolami, the chairs of environmental all-party parliamentary groups, both of whom are correct in saying last week that investing in low carbon technologies is the “best and most cost effective way” to ensure the recent gas crisis doesn’t happen again. They should also listen to a host of top businesses, including Nestlé, Thames Water and Co-Op, who came out to call for the phase-out of gas by 2035. The US and Canadian governments have made that commitment. Ahead of COP26, the UK should too.
Gas is three times more expensive than wind
The facts are clear. Generating electricity from existing gas plants is now three times as expensive as generation from new onshore wind, and almost twice as expensive as generation from solar. Again, British people want it. Polling by Ipsos Mori shows 71 per cent want greater investment in renewable energy in the UK, compared to just seven per cent who opposed it.
It was Harold Macmillan, not Edward Heath, who replied “events, dear boy, events”, when asked what the greatest challenge for a statesman was. After Brexit, the shock of the Covid-19 pandemic, and now a gas crisis which shows no sign of abating, our current prime minister would doubtless demur. But there is also the saying in politics: “never let a good crisis go to waste”. The government should use this gas price shock to boost investment in energy efficiency, provide better incentives for electric heating and increase the share of renewables in our power system. If Boris Johnson ever needed political cover to accelerate the drive away from fossil fuels and towards net zero, he has it now.