The government does need to win the green argument about gas. Much as it wishes it were otherwise, households and industry are going to continue to burn large quantities of gas this decade. It is a slow transition to new forms of domestic heating and to new ways of fuelling industrial processes.  It will take time to replace all the domestic gas boilers and petrol cars.  The UK therefore has a simple choice. Should more of this gas and oil come from our own North Sea fields via a relatively short pipeline, or should we come to rely more and more on large tankers carrying LNG half way round the world? Surely the home production is both greener and better for UK jobs and prosperity. The government can stay focussed on leading a transition but it must ensure enough conventional fuel before it has developed more hydrogen or nuclear or battery power. It should ensure there are sufficient exploration, development and production licences for UK reserves, and a suitable tax regime to foster UK production.

The government should also wish to encourage more gas storage capacity at home. The business proposal would be that the owner of the store would fill it up during periods of low demand and soft prices, and make it available during periods of supply interruption and price spikes at prices which make them a profit but which support the market at lower prices than the  market price during the crisis. The government should call for owners of potential salt domes and old energy fields or large holders with suitable reservoirs to say on what terms they would be willing to make their stores available. They or others could bid for a role in management . The government could opt for a strongly interventionist model where it was effectively paying for a strategic reserve which it would entirely control and price when used, or for a less interventionist role where the private sector took more of the risk and kept and shaped more of the reward. The UK is an outlier with very little storage capacity compared to other advanced countries.

The government and Regulator need to procure more electrical power for the next few years. They need to cater for the retirement of substantial nuclear capacity as old plants are powered down. They need to cater for the likely increase in demand as their electric revolution progresses. They need to replace some of the vulnerable interconnector capacity and cut our import bill. They need to have a bigger buffer against days when the wind is not blowing.  They need to see what is the cheapest and best way to bridge the gaps and get new plant in place as quickly as possible. Nuclear and hydrogen may come to our assistance in the next decade but we need answers soon for the looming shortage. We should not retire any more fossil fuel plant before having reliable replacements, and may need more CCGT capacity.

The Business Secretary is not keen to bail out companies that cannot trade profitably at current gas price levels. The last few days we hear have been taken up by meetings with CF Fertiliser who have closed two of their plants and left us short of carbon dioxide as a result. There have also doubtless been plenty of talks with the gas industry itself, where smaller competitor companies seek relief from price controls so they can recharge the true costs of the gas supply, or seek government financial support to stay in business.

One well intentioned intervention often leads to another. Price controls designed to help customers can become too severe leading to the bankruptcy of the supplier facing them. Delays in getting price rises agreed to reflect the surge in the cost of the underlying gas comes with a price. If the cost of gas outstrips the price they are allowed to charge the customer they either need a state subsidy to underpin the price control, or need a relaxation of the price control. With neither the company goes bust and the Regulator has to find another company willing to take over the contracts and customers shed by the bankrupt business. There are doubts about how many loss making contracts another gas supplier is willing to pick up. If the eventual s0lution is to let the new supplier charge more, shouldn’t the original supplier have been given that freedom to stave off bankruptcy?

This is but one small example of what increasing regulation of the energy sector is doing. Time was when UK energy policy balanced on a three legged approach. The policy needed to deliver sufficient capacity for all future needs. It needed to keep the costs down for business and consumers. It needed to contribute to a greener policy. This century policy makers have tended to take national capacity for granted, or have revelled in the idea that we can import any amount of gas, oil and electricity we may need. The wish to push us more in the direction of zero carbon has led to a raft of green levies and advantages given to renewable generators. This has greatly boosted installed wind capacity, just in time to find out that if you experience a period of little or no wind the rated capacity is meaningless and you have a shortage. It has also meant substantial surcharges on bills to pay for the energy transition.

Such a policy leads on to further government interventions. Government finds itself forced to project a plan for everything, to launch a raft of subsidies and rules to pursue the plan, and maybe to use government contracts or investments to force the pace of change. This can lead to substantial misallocations of capital and to supply failures. The system needs reforming in a pro market direction, so price signals can come to play a more important role in allocating investment and in choosing  between competing methods of supply.

My Question to the Secretary of State on the issue of gas storage capacity:

Here is my interview today on talkRadio with Mike Graham about energy supply:

Part A

Part B

We read that Mr Kwarteng will be locked in more talks with the energy industries and Regulator today, after an intensive week  end of talks. With a chronic shortage of gas, little wind power and a dangerous dependence on imports he needs to change policy.

He needs to persuade the gas industry to open more gas storage. Germany has five times as much and France seven times  as much proportionate to demand.The government needs to build a strategic reserve if the industry cannot.

He needs to liberate new Uk production from existing fields and stimulate more exploration and development. The UK is going  to need a lot of gas for some years to come. It is cheaper, greener and safer to produce our own rather than import.

He needs to help the electricity industry boost its reliable generating capacity. Given the green driver of policy that may mean ensuring more biomass, hydro, battery and pump storage. There needs to be a bigger margin of capacity as we enjoyed in the last century.

He should work with the Agriculture department to deliver more UK wood and plant material for biomass, to cut import dependence we currently suffer.

He needs to review price controls. They cannot protect customers from major increases in the world price of oil and gas. They can help drive some businesses into bankruptcy. They can stand in the way of new investment in additional capacity.

The energy market is so rigged by regulation, tax and subsidy it will take government interventions to sort out the current shortages. Solutions which help restore market pricing would offer a better way forward.

I welcome the US/UK decision to share technology with Australia so they can build and operate a fleet of eight nuclear powered submarines. I understand there had been delays, cost escalations and disputes with the French over how much of the work on the prospective diesel submarines would be undertaken in Australia which led Australia to source better boats from alternative suppliers.

I also welcome the more global tilt to UK policy, recognising the growing importance of Asia to us and our US ally. The President of the USA turns to the quad of USA, India, Japan and Australia for his tilt to Asia. Both the UK and the USA are seeking to join the Trans Pacific trade partnership.

The UK and NATO are assisting in helping keep the shipping lanes open in the South China Sea against Chinese expansion. Taiwan is a crucial source of the most sophisticated and modern microprocessors. China regularly tests her defences and Western willingness to offer support to the island.

Global Britain has global trade and defence interests. A closer relationship with the Quad in Asia is a good idea, offering further business opportunities as well as cementing alliances. France is behaving badly after losing the potential contract. France has in the past sought to operate independently of NATO and more recently has been pushing a European EU defence idea. She has shown every wish to be more distant from the USA and UK, so she should not complain when we help her wish come true.

I read that the Treasury is getting round to reconsidering their fiscal rules. That is a  necessary and urgent task.

There are two key rules affecting the conduct of economic policy that are in place today that  I think should continue.

The first is the 2% inflation target that is meant to guide Bank of England interest rate decisions. It also needs to guide the Treasury as they make decisions on levels of money creation and bond buying with  the Bank of England, and as through fiscal policy  they  have a substantial  impact on inflation.

The second is the debt interest rule, that the interest charges on government debt should not exceed 6% of revenues. They are under half that at the moment, thanks to very low interest rates and to Quantitative easing. This is a sensible target to continue, and could be toughened to 5% of revenues.

There are two rules over the deficit. The first is it should be brought back to balance on current spending within a three year horizon. This is a bizarre target, as the government/OBR  hits it by forecasting favourable changes three years out which might never take place.  The second is capital spending in  the public sector should be limited to 3% of GDP. It has been running below this for some years. Capital spending levels should primarily be judged on prospective returns and ability to be self funding over time.  Add these two targets together and we return to the Treasury’s much loved Maastricht target of keeping the deficit down to 3%. The OBR/Treasury are also still wedded to the idea that state debt as a percentage of GDP should be brought down, so they encourage ministers to impose tax rises and spending cuts to get state debt as a proportion of GDP falling. This reflects the Maastricht requirement to get state debt down to 60% of GDP sometime.

It is high time we cancelled the Maastricht austerity targets. The Treasury still reports how we are doing against them as if we were still governed by the EU Treaty that made that necessary. Instead we should have a growth target. Like the Fed the Bank of England should have the twin targets of low inflation and faster growth. A growth target would stimulate more thought and action in government to raise living standards and follow policies that boost UK jobs, incomes and business. A suitable growth target would be to aim to return to 2.5% per annum growth from the more anaemic levels of this century under Maastricht austerity.

Dear Michael

Congratulations on your new Cabinet appointment. Levelling up and the defence of the Union are two huge topics of great importance.

Levelling up is sometimes seen through the narrow focus of place. Attention is given to the built environment and the public service fabric. Of course providing capital to allow replacement school buildings or better hospitals can be an important decision for a local community. These can be necessary to show commitment to high quality public services with good working conditions for valued staff.  Providing funds for a new community centre or a tram system will not in themselves transform the lives of the many people who live in the place though there may be a case for them.

What many voters want from levelling up is tangible improvement in their own lives. If there is a gap in public money between the more prosperous communities and the less so in our country, it is one where the lower income community receives more  per head for its school places or its health provision than the higher income area. It is true that the more prosperous south and London does attract substantial capital for additional facilities and especially for transport, but that is because there is rapid population growth in these areas. London and the south attracts a disproportionate amount of the new private sector housing investment and in turn needs the roads, schools and surgeries to service the new estates.

I suggest that we need to pull together current and prospective policies around the theme of improving people’s personal journeys through life. There need to be better pathways to owning your own home, to gaining a good education, to acquiring necessary qualifications, to working your way up to a better paid job, to setting up your own business, and to expanding a business to take on others as staff. The places that want to level up need to attract more housing investment to attract people with high qualifications or established entrepreneurial skills to help lead the local  economic recovery. Policies to raise school standards for all, to expand vocational qualifications that enhance a person’s earning power, to make it easier to set up and expand a business and which encourage buying British and buying local are all crucial to this task.

The vision of everyone an owner, with the chance to own a home, own their own business, own a share in a  bigger business, have some savings for a rainy day should be our vision. It is still too hard for many people to get that better job, to get that qualification, to get that  mortgage to get on the property ladder. I look forward to an opportunity to discuss these matters with you, and wish you well with this great task.

Yours

John Redwood

When I woke up yesterday two thirds of the electrical power we needed was coming from fossil fuels. The wind was light so windfarms were producing little, and photovoltaic was also well down. In common with recent days some electricity was being generated from coal power stations, brought back into use to keep the lights on. The gas stations were much  in demand. As I was penning this I learned that our foolish dependence on imports has been adversely affected by damage to the French interconnector leaving us even more short of power.

Over the last  week as a whole fossil fuels provided more than half our electrical power, and over the last month 47%. Renewables have been down to 13-14% and coal has had to contribute. Low winds are very disruptive to our current and planned mix of energy. Gas continued to keep most of us warm at home when we needed heating.

We now have the official figures for the first quarter of 2021 compared to the same quarter the previous year. This shows a similar pattern to more recent events. We came to rely more on gas when as the official document states “due to colder weather and poor renewable output” demand for gas driven power surged. Electricity generation needed 17% more gas than in the prior year. We came to rely more on imports as a result, with Norway accounting for around half and LNG around one quarter. Lower wind speeds led to a 16% reduction in renewable generation in thee first quarter of the year.

It is a good thing that a unit at Drax, at West Burton and Ratcliffe on Soar are still available to supply electricity from coal in emergencies, though it would be better to make provision to avoid this. Unfortunately this entails importing coal, much of it from Russia, which is neither environmentally good nor strategically sound. It is a better thing that we still have good combined cycle gas stations with decent capacity as we rely crucially on them. It is a pity we rely more and more on imported gas, when maybe we should prospect for more in our own territory to cut down transport costs and reduce the strain on our balance of payments. It would also be the greener option. It is a pity the industry has got rid of the Rough Field which was an important gas store. We now operate with very levels of stocks, so our security of supply is poor.

The truth is we do not have enough domestic energy for our needs and are becoming far too dependent on imports. If we want an electric revolution the first task must be to put in a large increase in electrical capacity so the power will be there as and when the electric cars and heating systems take off as consumer items. If we want to be sure we can keep the lights on and the boilers keeping us warm it would also be a good idea to put in some additional generating capacity anyway, and to look at increasing domestic output of gas. It would also help to put in more gas storage against more cold winter days when the wind does not blow. The government needs to review all this, as the energy market is now complex mixture of subsidies, arranged prices and managed contracts where the regulator and government have a major role.

The first duty of government energy policy is to keep the lights on.

I am pleased to report some progress with the idea that more can be done to extract air and to use UV filters to clean air to reduce the risk of infection transmission. The following has appeared in the latest government Covid 19 Plan:

“Ventilation

Due to the importance of fresh air in limiting the spread of COVID-19, the Government will set out in guidance the practical steps everyone can take to maximise fresh air in order to reduce the risk of airborne transmission, taking into account the colder months when more activities take place indoors.

The Government will support improved ventilation in key settings by:

• a. Providing further advice and support to businesses to help them check their ventilation levels and introduce Carbon Dioxide (CO₂) monitoring where appropriate.
• b. Conducting further scientific research to assess ventilation levels in a range of business settings.
• c. Investing £25 million in c.300,000 CO₂ monitors for schools.
• d. Improving the management of ventilation across the public sector estate alongside bespoke guidance to maximise the effectiveness of existing mechanical and natural ventilation. This has included deploying CO₂ monitors in courts as well as targeted rollouts and trials of these monitors in other settings.
• e. Continuing to support and promote pilots of how to limit transmission through ventilation or air purification, such as the trials of high-efficiency particulate absorbing filters and ultraviolet-C air cleaners in 30 Bradford schools, as well as working with stakeholders such as the Rail Delivery Group and Rail Safety and Standards Board to trial the use of upgraded air filtration devices on passenger rail stock.”