Energy: Good news and less good news



Two energy stories caught my eye yesterday.  The first is remarkably good news.  Little Estonia, up there by the Baltic, has become the world’s first country to get all its power from shale. In my excitement I Tweeted the news, mistakenly saying “shale gas”.  I was corrected by “Ivar”, who replied “It’s not shale gas, it’s ex-situ kerogen liquefaction”. Thank you, Ivar.  I stand corrected.

But that doesn’t alter the main point: that Estonia, which was previously dependent on imports from Russia, has become energy independent.  That’s a massive step forward in terms of political and strategic independence too.  Not only that, but reportedly the cost of their domestic energy is 40%+ below the cost of Russian imports.  That’s a massive boost to competitiveness.

I was particularly struck by the comments of Estonia’s Economy Minister Juhan Parts: “We will not compromise our energy security.  We have a large neighbour”.  Indeed.  And later, “I am not a supporter of the war on fossil fuels…. I am sceptical about these climate issues”.  Me too, Juhan.

No sooner did I Tweet this good news, that we had the typical reaction from the monstrous regiment of eco-doom-mongers and nay-sayers.  Ignoring the obvious benefits to Estonia (and indirectly to Europe and the world) of these developments, we had Ian Parker-Joseph Tweeting ” I hope you’re not holding the Estonian shale industry up as a model for UK, as if land not devastated before it would be after”.  And then for good measure, he added ” Colossal diggers — each weighing 1500 tonnes the size of a house — hack trenches 80 feet deep in the wooded flatlands…”  (I’ve taken the liberty of correcting Ian’s spelling).

The message we need to take from the Estonian experience is that unconventional fossil fuels offer huge economic potential.  In Estonia, the resource they are using, and the relevant technology, does indeed require what amounts to open-cast mining, and therefore significant disruption of the landscape.  However they are dealing with very sparsely populated areas where the damage is minimal, and Ian may like to note that the Estonians are reportedly reinstating and replanting areas where work is completed.  That particular technology would be neither relevant nor acceptable in the densely-populated UK, so we are fortunate that the shale beds we are dealing with in Britain allow minimally intrusive recovery methods.  A fracking well may be only inches across – several orders of magnitude smaller than a mine-shaft, for example.

James Pickett added a comment which I hear all too often: “If that happened here, you can bet the difference would be clawed back in tax”.  Others often say “You can bet that even if shale gas is cheaper, consumers will never see the benefit”.  Or protectionism rears its head: “If we can access cheap gas, we should keep it at home, not send it abroad”.  This misses the point.  A new resource like shale gas creates wealth and value for Britain.  We can argue how to share out that new wealth (but let’s get on with developing it first).  However the key insight is this: that the British economy, and therefore every one of us, benefits if that new wealth goes into lower prices, or if it goes into the Treasury as tax, or if it is exported and earns foreign exchange.  It’s still worth it regardless of exports or taxes or prices (though my preference is for lower energy prices, more competitiveness and less fuel poverty).

And the second story?  On the face of it, “a Brit selling sunshine to the Californians” must surely be good news.  Andrew Birch has set up a successful solar energy business, “Sungevity”.  He argues that “Solar has to be smarter than digging stuff up and burning it”.  Perhaps he doesn’t like digging up iron ore and bauxite and building motor cars, either.  His analysis is simple.  The costs of solar (he says) are coming down 5% a year, while the costs of fossil fuels are going up by 5% a year.  Plain old arithmetic says that the two graphs must cross, and solar becomes cheaper.  Hey presto!

His wonderfully simplistic analysis misses a couple of points, however.  Has he considered that the falling price of solar panels has a lot to do with over-investment and over-supply of solar panel production in China, with consequent dumping?  Has he noticed that far from rising 5% a year, the cost of fossil fuels and especially gas is falling, at least in America, where gas is now a third of the European price (with alarming consequences for European competitiveness)?  Has he reflected that in a world threatened by fuel shortages, it is just downright irresponsible to cover good agricultural land with plastic?  (Just as irresponsible as burning cereal crops in the name of bio-fuels, but that’s another story).  Is he keeping up-to-date with radical new technologies like thin-film solar PV, which could be dramatically cheaper and could be applied e.g. to windows of office blocks – but would undermine his business model?

But there is a more fundamental problem.  Renewables companies like to take the cost of their operation, divide by the output, and claim that the result is the “cost per unit”.  It is on this basis that Sunergy hopes to claim grid parity sometime soon.  But this ignores the huge costs which unpredictable and intermittent renewables technologies impose on the rest of the grid.  These include the need for major grid up-grades, plus the massive inefficiencies which intermittency imposes on other generators.  These inefficiencies have forced the EU to develop “contingency payments” for operators of conventional fossil fuel back-up.  Otherwise the necessary back-up generation could not be operated, and could not even be financed and built.

In ignoring these costs, the renewables industry is living in a sort of cost-cuckoo-land.  In the wind industry, they describe the power intermittently taken out of the grid to power wind farms as “parasitic consumption”.  But the whole renewables industry is parasitic on traditional energy generation, and on the economy as a whole.  Our obsession with climate change (long after the climate has stopped changing) will cost us dear.

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5 Responses to Energy: Good news and less good news

  1. During the winter, solar contributed less than 0.1% of the UK’s electricity.It is utterly irrelevant.

  2. Mike Spilligan says:

    Re Sungevity / Andrew Birch: It’s been said elsewhere, but worth repeating I think: “He would say that, wouldn’t he?” – no attribution needed.

  3. neilfutureboy says:

    Another lesson is that Estonia, perhaps because of the example of living under Soviet communism, is an openly libertarian culture. The correlation of success and libertarianism is not accidental.

    The lack of correlation between the allegations that this has “devastated” Estonia and the truth is also non-accidental and evidence that no statement from the “environmental” movement should ever be treated as honest without overwhelming proof.

    On the other hand I think the 5% annual fall in solar panel costs is inherent in the improvement of electronic systems and likely to continue. This is not an argument for subsidy, it is an argument for allowing the free market to work, as per Estonia.

  4. We have a lot of Eastern Europeans here. Lithuanians, Latvians, Russians, Bulgarians – but just one Estonian.
    I wonder why…

  5. Me_Again says:

    “….This misses the point…”
    Maybe not. Maybe if we had a 49/51 state owned extraction company we could do more with the stuff we extract. Maybe if the company was mutualised and there were no shareholders at all, then the nation would benefit hugely. As it is and as with Wind power, it will be the rich kids that get all the benefits again.
    The government should not be in the business of benefiting other business before benefiting tis own people. A company formed and run as above would ensure competitiveness of the keenest kind unlike the so called energy privatisation which merely created an energy cartel of half a dozen companies.

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