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We need to prepare for a world where the energy crisis doesn't end
Not for a long time, anyway.
You may have seen this terrifying video of Martin Lewis, the “money saving expert” doing the rounds. In the clip, he paints a picture of how catastrophically high energy bills could be as the price cap rises later this year, and again at the start of next year. By his reckoning1, energy bills could rise by 77%, and ten million people could end up in “fuel poverty”. This winter, Britain could be in a pretty grim place. Again.
What I find particularly ominous about the cost of living crisis is that my partner and I are feeling it, and our circumstances are incredibly unsympathetic – we’re childless2, home-owning3, white-collar4 professionals5 with an above average household income.
For us, and probably you if you’ve got the time to read nerdy Substacks, the crisis means slightly fewer holidays, foregoing a phone upgrade or being slightly less trigger-happy with the Deliveroo order button. But for people who are less lucky than we are, it could be catastrophic.
Given that we can all see the storm ahead, it’s good that the government (or what is left of it) has announced at least some support for bills, and that energy bills will be a big, salient political fight that will take place as soon as the new Prime Minister takes office. I hope that the new government will be pushed to do dramatically more to help people in the short term.
It’s also good that earlier this year the current government announced a big new energy strategy, that attempts to explain how we’ll both improve our energy security and reach Net Zero by 2050.
But as far as I can tell, something is missing. The middle bit. The plan for what we’re going to do between the short term support and the long term fix.
October, and even January next year probably won’t be the end of the energy crisis. In fact, it strikes me as likely that we’re going to be experiencing this energy bill nightmare for years to come. So I want to know: What the hell are we going to do in the medium term?
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The missing middle
Since the strategy was announced in April, political pressure has pushed the government into doing slightly more to deal with the immediate problem of the October energy price hike. The plan now is that everyone will receive a £400 discount on their bills over six payments when the cap rise kicks in. (Which still isn’t enough given the estimated £1500 hit the average household will take, according to Lewis, but leave that aside for now.)
But let’s imagine October and January come and go, and the support payments are made, and they help people pay their bills. What happens next time? And what happens the time after that? And the time after that?
Perhaps events will prove me embarrassingly wrong, but I think it is dangerously optimistic to assume that energy prices are going to fall back to where they were at the end of last year. Maybe I lack the imagination, but I can’t envisage a chain of events that would lead to energy bills falling back. to what they once were, at least for years into the future.
The primary reason for this is the war in Ukraine. Does anyone really expect that situation to resolve itself any time soon? Will Ukraine defeat Russia? Will the two sign a peace deal, and the gas taps will be turned back on?
Even if we assume that the conflict might remain unresolved but becomes more-or-less frozen, as was the case between 2014 and 2022, and even if, with grim inevitability, Germany et al eventually soften their approach to Russia, it seems unlikely to me that engagement with Russia will ever return to how it once was, at least until Putin is replaced6.
The other obvious short-ish term factor that could change things is OPEC, the cartel of nasty regimes that produce oil7 and human rights abuses. Perhaps we (the west) could persuade them (some of the worst people on the planet) to produce more oil to reduce energy prices. In fact, despite the ugly politics, the arm twisting and fist-bumping has already begun8.
But this doesn’t seem like a recipe for lower prices either. By essentially cutting off Russia, the world’s second largest oil producer after Saudi Arabia, we’ve killed OPEC’s biggest competitor, and handed them much tighter control over our energy supplies9. Expecting OPEC to do us a favour would be like expecting McDonalds to reduce the price of a Big Mac after Burger King is sanctioned out of existence10.
In any case, the experts don’t seem to know what’s going to happen either. According to Fortune, Citigroup reckon oil could fall from the $90 it is now to $45 by the end of 2023, whereas JP Morgan estimate it will rise to $380. So worrying about what happens if the reality is closer to JP Morgan than Citigroup’s estimate definitely seems like something we should do.
The race to zero
What about the one actually good solution to the energy problem? The one where we build out renewables, expand nuclear power and do all the stuff I’ve been banging on about?
The good news is that it all appears to be part of the plan. The bad news is that it’ll take absolutely ages to actually happen11. Even by the government’s own energy strategy, the timeline for actually building stuff is extremely long. And this is the fundamental problem.
For example, the government wants to build eight new nuclear reactors, but based on the April strategy, it won’t even start the selection process for which nuclear projects to build until next year12. The ambition is to have only one complete nuclear investment decision made by the end of this Parliament, which is expected to be 202413. So goodness knows when the power-plant at the end of it will actually start pumping out electricity.
Even just continuing the solar and wind rollouts (which we’ve been incredibly good at over the last decade or so) is going to take a long time to chip away at energy demand, because you can’t just click a mouse and have tens of thousands of extra turbines appear on the back of a truck.
Basically, building the actual infrastructure we need is going to take years and in some cases well over a decade14.
The future is probably expensive
Time for some wild speculation (the best sort of speculation).
Let’s charitably assume that the impact of the new energy strategy will finally be felt around 2030. That gives us eight more years to build more wind farms and solar arrays. In 2027 Hinkley Point C will be coming online to give us some more, delicious, carbon-free nuclear energy. Maybe battery storage will be more common too, helping the grid reduce demand.
And hopefully by 2030, President Zelenskyy will be awarding President Navalny the Ukrainian medal of freedom in Sebastopol. And maybe we’ll all be queuing up outside cinemas to see Avatar 4 (stranger things have happened).
But most crucially, let’s imagine energy bills have returned to something approaching what we used to consider normal.
So this is what I’m wondering: What’s the plan for between now and then? What is the plan if energy prices stay as high as they are now for the next several years? Even if I am wrong and prices fall sooner, it would probably be wise for someone to start thinking about this problem, just in case.
To be clear, I absolutely could be completely, devastatingly wrong. I’m just some guy with a Substack. Perhaps I could be wrong about OPEC. Maybe the powers that be will decide that murdered journalists aren’t actually a big deal and Riyadh will turn the taps up to eleven. Or maybe a peace deal will be concluded in Ukraine quicker than we think and a re-elected President Trump will “reset” relations with Putin once again.
But for what it’s worth, people who actually seem to know what they’re talking about also appear to share my energy price pessimism. One estimate from Cornwall Insights reckons the price cap will remain at £3,400 in October 2023 - falling only slightly from a peak next April.
Similarly, as I was writing this I spotted that yesterday, Duncan Weldon, who unlike me absolutely does know what he is talking about, looked at the same forecasts and drew a similarly pessimistic conclusion:
“The rate of change in bills drops markedly over the course of 2023, compared to 2022, but the absolute level of bills remains terrifyingly high.”
I’m not sure if anyone has dared forecast any further into the future but even though the cap is expected to fall slowly, I’d be very surprised if it suddenly cratered back to what it was last year.
I realise this isn’t the most empirical political analysis, but I wonder if the problem is a little like the expectation management problem we had during the pandemic.
I think in March 2020, when we first locked down, most people set a mental benchmark in their head for when it would be over. I know some people thought we’d be working from home for maybe a two or three weeks, just waiting for it to blow over15.
Similarly, with energy bills, the initial response appears to be predicated on a bout of wishful thinking because just as it was unpleasant to imagine years of lockdowns and restrictions at the start of the pandemic, it’s much more stressful when you think of the war in Ukraine not as a blip but as a major geopolitical realignment that has fundamentally changed the structure of European politics and the energy market.
If my scaremongering is correct, then it necessarily implies the need for a more dramatic intervention. Perhaps something akin to the furlough scheme, where the government pays our bills, or otherwise offers us massive subsidies at enormous expense to the British treasury16.
Even if I am wrong, it feels like it would be prudent for the government to make plans in case prices remain high for a very long time. If I were in Downing Street, I’d announce whatever the assistance mechanism will be, and the threshold at which it will kick in, so the plan is in place ahead of time. This would both reassure businesses that their customers will have money to spend on products and services in the future, and reassure households that they won’t be completely and utterly fucked.
But given the limited action we’ve seen so far, it does seem a bit like whether stated explicitly or not, everyone is sort-of-maybe hoping that by the end of next year, the whole biggest war on the European continent since 1945 thing will be yesterday’s news, or at least someone else’s problem.
Towards energy abundance
Finally, rather than conclude on a bit of a downer, I want to instead point towards a vision of what the future could be if we were suitably ambitious. One of the most mind-expanding essays I’ve read in the last year few years is Matt Yglesias making the case for energy abundance, and if you click one link today, make it that one17.
The argument is basically summed up by this paragraph:
“In the “energy is a necessary evil” frame, we look at our current electricity needs and then ask, “How can we generate all that from zero-carbon sources?” In the alternate framing, you say that to the extent we can develop affordable, zero-carbon sources of electricity, we want to generate tons and tons of electricity. Ideally, we would want to replace much more than 100% of current gas, coal, and oil with zero-carbon sources of electricity and use that to literally power a bold new era of rapid economic growth.”
In other words: We should be more ambitious than simply building enough nuclear power and wind turbines to meet our energy needs. If we had a massive excess of electricity, generated emission free, we could throw this spare, ultra-cheap electricity at much harder problems that we can’t presently solve.
The obvious one, which Yglesias points out, is direct air capture of CO2. At the moment, it doesn’t make economic sense as removing CO2 from the atmosphere with current technology requires a lot of energy. But if we had tonnes of excess energy to spend on the problem, it’s conceivable that we could mitigate the costs of, say, air travel, by having direct air capture systems humming away, sucking CO2 out of the air as we fly guilt-free.
And to bring it around to where we started, the downstream consequences of energy abundance would also be huge: The costs of heating our homes or driving our cars would be virtually nil. Households wouldn’t have to fear energy bills, as they’d have more clean energy than they know what to do with18. As Yglesias points out, under the most utopian vision of energy abundance, energy would be so cheap that it wouldn’t be worth even metering its usage.
Obviously this will never happen, but I would love to see this sort of shift in our thinking about energy. It would transform fighting climate change from some bleak, existential thing that feels like homework you don’t want to do, into an exciting opportunity to actually make our lives better. And all it needs to happen is more of the technology - particularly nuclear - than we have or will need.
So while I don’t know how to solve the problem of the missing middle to our energy crisis, I at least know what future we should be aiming for.
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We have cats, but they are generally happy with food, water, and a cardboard box.
I mean, the bank technically still owns around 94% of our home, but you know what I mean.
Or at least we would have been if we were doing our jobs in an era where you had to change out of pyjamas.
You can hire me to write things for you if you like.
Depressingly Putin is only 69 years old, so could be causing trouble for another couple of decades yet.
I realise I’m using oil and gas a bit interchangeably here, but functionally both are similar when it comes to domestic energy prices: Both directly impact energy bills (as petrol or the gas in your boiler), and both impact the supply chain and affect the cost of everything else. And both are at the whims of similar constellations of Russia and other authoritarian states.
The EU has also just signed a deal with Azerbaijan, which isn’t an OPEC member but is a pretty nasty regime, for similar reasons.
Thank goodness there are no historical examples of why this might be a bad idea!
Yet another absolute monarchy disappearing people again. Why won’t The Burger King tell us what he did with Kid Vid and the rest of the Kids Club?
And this assumes that whoever takes over from Boris doesn’t want to scrap the plan and do something mad like crack down on solar farms.
Nuclear is particularly important for supplying our baseload of electricity, which can only otherwise be done by fossil fuels. A good example of why is to look at last year, where according to BEIS, the proportion of renewable energy usage actually fell compared to 2020, because the weather conditions were less favourable.
This feels like exactly the sort of boring but important thing that could be scuppered by Parliamentary shenanigans.
And this is before you factor in the woefully inadequate planning system, a NIMBY campaign against every brick laid, and the ruling party’s electoral coalition essentially being the core demographics that don’t want to build anything, ever.
Because I’m a more sophisticated information consumer than those fools, I remember telling myself in the March that we’d probably be back to normal by the September of 2020.
Or perhaps given the political stripes of the two potential next Prime Ministers, maybe the solution is to just make us all much poorer for the long term. Though this doesn’t seem like a particularly great election-winning strategy.
For some reason Matt Yglesias gets a completely inexplicable amount of hate, but I think he’s brilliant, and I am unashamedly a massive fan of his work.
A bitcoin rig in every pot!