ERC Research Papers

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The Cost of Preventing Blackouts
How to Check the Health of the UK Electricity Supply Sector
John Constable

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The Economic Research Council has commissioned this report from John Constable (Director of the Renewable Energy Foundation), which highlights the key issues surrounding the UK’s current electricity policy. Although there has been a chronic neglect of base load supply for many years, John’s report rightly points out that talk of blackouts across the UK is misleading. Since 2013, the government has put in place a set of expensive stopgap measures to ensure that this doesn’t happen:

  • To pay power stations that would otherwise close to produce energy only at specified times to help boost supply, and starting in 2018/19, to pay a guaranteed income to any power station (new or old), irrespective of the energy it generates, in return for an obligation to supply capacity on request;
  • To pay large energy users (namely, industry) to reduce demand (in effect, paying factories to stop producing); and
  • Many hundreds of stand-by generators, mostly diesel, are being put in place to keep the national grid loan balanced.
Together, these measures may reduce demand and increase supply in order to plug the gap in the short-term, but at a substantial price. It is cost that is the correct measure of policy success or failure, not a blackout, and the costs are large:
  • The first two measures cost £31.3m in 2014/15 and £34.7m in 2015/16, and these costs are estimated to increase significantly to £1.3bn by 2020. This is in addition to the costs of pre-existing systems that were put in place to cover shortfalls.
  • Combined with subsidies paid for renewables (and the extra grid and system operation costs associated with them), approximately £14bn per year may be added to the UK electricity bill by 2020.
  • The long-term economic effects might be even more costly: by paying industry to reduce their output, we are further limiting our struggling manufacturing sector (despite talk of trying to rebalance our economy).

Although these measures may help to cover the gap in electricity generation in the short-term, they are not only in themselves very expensive and potentially crippling to industrial competitiveness, but they will create yet more problematic distortions in the UK energy market; problems that will require further expensive emergency measures in the future.

The UK’s energy policy over the last two decades has been a disaster, and recent developments have only papered over the cracks. The only long-term solution is to remove market distortions so that private capital is free to supply the sustainable and reliable electricity generation that the country requires.

Damon de Laszlo
Economic Research Council Chairman

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Other Publications

The full list to purchase research papers from the archives, and their paper and electronic availabilities, is below.

Research Paper Name Paper Electronic
Energy Policy: Which Way for the UK? Y Y
Aqua Britannia! Y Y
The Essential Guide to EU Quangos 2009 N Y
The Digest of Energy Statistics 2008 Y Y
New Nuclear Build in the UK - The Criteria for Delivery Y Y
Playing with Monetary Fire Y Y
The Spectre at the Economic Feast N N
Cracks in the Foundations? N Y
Creative Destruction in the Music Industry - The Way Ahead Y Y
Cost Effective Defence Y Y
The New Economics of Energy Security Y Y
The Essential Guide to British Quangos 2005 N N
Electrifying Britain - forward with Coal, Gas or Nuclear? N Y
Family Structure and Economic Outcomes Y N
Recharging The Nation Y Y
Identity and Development N Y
Forward with the Euro and the Pound N Y
The Deadweight State N Y
VAT: The Unacceptable Face of Taxation? N Y

For older publications, please see our Historical Archive.