The wholesale price of energy is driving inflation around the world, but why is wholesale energy so expensive all of a sudden? The simple fact is that western countries have been waging war on fossil fuels for many years. Net Zero is the culmination of that warfare which has already seen legislation enacted in the UK which will enforce carbon reducing targets by 2050. It is now 2022, leaving just 28 years for fossil fuel companies to wind down their businesses and shift into other, legislation friendly, profitable, business models.
The lockdowns across the world, in response to the pandemic, drastically reduced demand for fossil fuel energy. The reasonable response from the energy companies was to scale down production, and now, when the lockdowns have at last been lifted, energy production has not been ramped up to meet current demands. But, is it any surprise that fossil fuel energy companies are not raising output, or investing in exploration and exploitation of new oil and gas fields? Limiting supply has seen record profits at Centrica, BP, Shell and many other energy generators, and those profits will be used to transition those companies towards new business models that comply with enacted legislation.
So, I think it safe to say that we are not seeing a “blip” in energy prices, I think we’re seeing a new normal, that will mean fossil fuel prices rising above the rate of inflation as we tick down towards 2050. In fact, what we are seeing is the foreseeable result of Government policy over the last twenty years. For Governments to now wring their hands and blame energy companies for the mess that politicians of all colours have created is quite pathetic to say the least. Governments wanted net zero, and they will now have to step in to subsidise consumers who have no alternative, due to Government complacency, than to use fossil fuels to provide electricity and heat for their homes. It’s only fair that energy companies make sufficient profit to invest in transition, and it is grossly unfair for Governments to point the finger of blame away from themselves.
The UK Government has a choice, they can either denounce climate change as a big (unfunny) joke, or they can cough up the cash that is required to make it happen. Rishi Sunak recently announced a £10 billion bailout of the energy companies this winter. £400 will be paid to energy companies on behalf of every household in the UK. That is the absolute minimum response required, and I foresee regular yearly payments of £20 to £50 billion being made to energy companies over the next 28 years. Meanwhile, at least a trillion pounds will be required to shift the UK to net zero, probably two trillion pounds, if the truth be told. All homes in the UK will need to be equipped with insulation, solar panels, wind turbines and storage batteries, and. Additionally, our current stock of 11,000 offshore and onshore wind turbines will need to be increased ten fold, and solar “farms” will need to be built, msot times at the expense of good arable land. The scale of the problem is immense, so the UK Government had better get its act together and deal with the problems it has created. Playtime is over.