Wake up, Labour MPs! The soaring cost of electricity is a looming crisis for industry and growth, and it's time to address this head-on. The boss of a major energy company recently predicted that British electricity prices in 2030 will surpass those of 2022, following Russia's invasion of Ukraine. This prediction carries significant implications for the re-election prospects of Labour MPs, potentially overshadowing any political turmoil surrounding the prime minister. But here's the catch: the rising prices aren't solely due to the energy transition. It's a complex issue with multiple factors at play.
Chris O'Shea, the CEO of Centrica, the company that owns British Gas, wasn't discussing net zero. Instead, he pointed out that the necessary upgrades to the country's energy infrastructure are expensive. The costs have been escalating, whether it's building new gas-fired power stations or wind farms. The energy secretary, Ed Miliband, celebrated a record-breaking auction for offshore wind last month, but the guaranteed prices for developers, while not as high as feared, still amount to £91 per megawatt hour for 20 years. This is a significant increase from the wholesale price of around £80 per megawatt hour in the past year.
The government, however, argues that the gas-fired route is expensive due to the rising cost of turbines. Additionally, the Hinkley Point C and Sizewell C nuclear plants, as well as the upcoming small modular reactors, are not cheap options either. Behind all this, there's the massive £80 billion upgrade of the transmission grid, which is required under all scenarios and includes some gas-related projects. O'Shea's prediction, while not controversial, highlights the stark reality of rising electricity prices.
The government has acknowledged the upward trend in prices and has abandoned its claim that its 2030 clean energy plan would reduce household bills by £300. Instead, they are shifting £150 of the costs into general taxation from April. This may be the future mechanism, as Miliband referred to the £150 as a 'downpayment' towards the £300 promise on household bills. However, this still leaves British businesses exposed to some of the highest industrial electricity prices globally.
While the government is providing discounts to 500 companies in the most energy-intensive industries through the 'supercharger' scheme, it's not a comprehensive strategy to address the growth and competitiveness challenges. A 'British industrial competitiveness scheme' for another 7,000 companies is set to launch in April, but the details, such as eligibility criteria and the potential 25% savings in electricity bills, remain vague. The mood in vital manufacturing sectors is one of despair, with the Chemical Industries Association predicting further closures due to the crippling energy costs.
The complaints extend beyond high electricity prices, encompassing carbon taxes, unsustainable decarbonization deadlines, and the decline of the North Sea. The net result is a loss of competitiveness in core industries, which are crucial for supplying the government's chosen 'high-growth' sectors, including life sciences, defense, and advanced manufacturing. While interventions like the rescue of Scunthorpe's steelworks and funding for Ineos' Grangemouth chemicals plant provide temporary relief, they don't constitute a long-term strategy for industry to cope with high electricity costs. If prices continue to rise, Labour must find answers to ensure economic growth remains a top priority.
