Coffee House

An important intervention on energy policies, but will the Lib Dems pay attention?

6 February 2012

The economist Dieter Helm is one of the few policy thinkers respected on both sides of
the coalition. Oliver Letwin is a long-standing friend of his and Clegg’s office views him as one of the best economic brains in the country. All of which makes Helm’s attack on Chris Huhne’s energy policies in The Times today as interesting as the anti-wind farm letter signed by a 101 Tory MPs.

Helm argues that the policy of huge subsidies for renewables is a mistake and that shale gas is a game-changer. Helm writes that, while renewables have a role to play,

‘Coal burning is not going to go away because of wind. Gas is one transition option, a bridge to decarbonisation. If we concentrated on getting a proper carbon price in place —
including on all those carbon-intensive imports — then we would find out which way is quickest and cheapest to get emissions down. Carrying on as we are will probably end in tears. It
won’t do anything about climate change and it will put up bills.’

The question now is whether the coalition gets this and whether the Liberal Democrats are prepared to move away from ideological greenery and take a more pragmatic approach. I suspect
that Ed Davey might be prepared to but he’ll want to be careful of the feeling of his party, who’ll take any change of tack as evidence of caving into the Tories now that the combative Huhne
has gone.

Give the perfect gift this Christmas. Buy a subscription for a friend for just £75 and you’ll receive a free gift too. Buy now.

Show comments
  • David Ramsbotham

    Get behind this new initiative – please google “petitions 22958” follow the link and sign up to add your support. Get your friends to do the same.

  • Mark M

    You mean this government actually has an energy policy? And here I thought they were crossing their fingers and hoping that some kind of fairy dust would solve all our energy shortage problems.

  • El Sid

    @Dimoto (7:20) – you missed out option B, that UK gas prices rise until shale gas becomes economic. Otherwise I agree with you, I just wanted to warn people that shale gas is not the pile of magic beans that some people are hyping it to be. I don’t want to sound too down on it, along with underground coal gasification it has the potential to transform the geopolitics of energy – but only if the price is right. The best guess at the moment is the costs are such that it will be very significant for some countries, but it won’t be a panacea.

    It is vital to talk about costs – too often energy discussions on CH ignore them completely, on both sides of the argument. @Daniel Maris in particular, it’s not a question of whether something is possible, it’s about how much it costs.

  • El Sid

    The current price of US gas is the sort of artificial price that you get for short-term technical reasons. It’s a combination of us being at the end of a mild winter, where there’s a lot of gas still in storage which will need to be pumped out within weeks for contractual reasons, in combination with a lot of shale gas leases that were signed in 2008 and had to be drilled within 3 years. You can tell how sustainable the current price is from the fact that prices for next winter are 50% above the current spot price, and the fact that the active rig count has fallen off a cliff in response to current prices. The current spot price (in fact it’s more like 16p/therm) is utterly unsustainable.

  • El Sid

    @It doesn’t add up… (5:39) Wells on the Walker Ridge are certainly a lot more expensive – but then a typical well in deepwater GoM might produce up to $1000m-worth of oil, compared to the $15m-worth of gas from a shale well. The Walker Ridge is all about oil, the 5% associated gas is practically a waste product, and being a conventional reservoir you produce a lot more hydrocarbon per well. Oil is a lot more valuable than gas, and even then there were serious questions about the viability of the Walker Ridge developments until recently.

    It’s not me that thinks US shale gas costs 40 to 50p per therm, it’s people like John Richels, the boss of Devon Energy, who has claimed that a lot of it needs prices of $6-7 per mcf (ie 38-44p per therm) to be sustainable, others put it at over $8 per mcf.

  • El Sid

    And even with long-distance horizontal drilling it can be a problem in England finding suitable locations for drilling, even conventional drilling where there’s fewer issues with the fluids used downhole. I don’t envy the people trying to get planning permission for shale gas in England, I really don’t.

  • El Sid

    @DZ (4:31) – yep, you certainly can do horizontal wells – people do already. The catch is that it makes things a lot more expensive. In broad terms the cost of a well is proportional to the distance drilled, so if you have to go 3 miles sideways as well as 1 mile down to get to your reservoir, it costs you 3x as much as just drilling straight down. Plus when you’re drilling from a central point the geometry isn’t so good so you end up having to drill sidetracks to fill in the gaps, which all adds up to more complication and cost and more risk of things going wrong.

  • daniel maris

    2trueblue –

    Why don’t you research what they are doing.

    They added 7.4 Gigawatts capacity of solar (Photovoltaic) alone in 2010.

    They’ll get there eventually.

    Let’s hope one of those French nuclear stations doesn’t do a Fukushima at Normandy. It will probably close down the whole of dairy farming in the West Country.

  • 2trueblue

    What exactly has Germany decided to do about energy? I thought they had shelved their nuclear program and were buying from the French. They are also continuing to use their own coal.
    The Danes have not found wind has solved their problems, they have not decommissioned one of their coal fired power stations in the 30 yrs they have been developing wind, because they still need a reliable source of energy.
    Says it all really. Is there anyone out there as mad as we are at leaving ourselves exposed to the lunatics?

  • daniel maris

    As for the idea that wind energy cannot be stored, well that’s ridiculous. Wind (and solar) can be used to make methane (aka natural gas) from air and water. Methane is about the best way of storing energy we have. Germany is working on a unit that will handle 6 megawatts of electricity – that’s 52 gigawatt hours per annum…a lot of storage. A few plants like that and the storage problem is pretty much solved if you add in hydropower storage.

  • daniel maris

    Why not take a step back. Think about the Fukushima disaster and the ongoing radiation probs in what has probably cost to date $20 billion.

    Think of the benefits of energy inpependence and dependable prices.

    Think of the employment generation that goes with an indigenous energy sector.

  • daniel maris

    Well here we go again, the same tired old arguments. Don’t any of you wonder how Germany – committed to proceeding to 100% renewable energy – can also be the best performing economy in Europe?

  • Jon Stack

    Since when has rational economic thinking had anything to do with UK energy policy? Renewables targets are set by the EU, and embraced by our government despite the fact that the EU has failed to create a proper functioning single market for energy, whilst at the same time our energy companies have been taken over by French and German companies still benefitting from state interference in their own energy industries. There is no chance of sense prevailing while the climate change doomsayers continue to hold sway. Meantime, millions suffer the cold at home, a situation which will only get worse.
    Come on, here’s a challenge for any politicians reading this, of whatever persuasion: stick up for the interests of your own people for once. All of them. Or, in this age of narrow self interest, is that too much to ask?

  • Dimoto

    El Sid;

    Your back-of-the-envelope numbers may be right.
    In which case, shale-gas won’t happen here.

    Nobody needs to “go” wind power or “go” shale gas.

    The economics will make the decision (given half a chance).

  • Axstane

    Rhoda Klapp
    February 6th, 2012 1:47pm

    You said it all. None of this is news to us but these days no line of thought has validity unless it is expressed by one of the Great and the Good. The rest of us are uneducated cranks.

  • Robin Guenier

    It would be tedious to list the many problems associated with wind energy. But an obvious one is this: if there’s no wind, it produces no power. For example, for most of today – quite cold in the UK – wind turbines have been contributing between 30 and 50 MW to a total supply of around 50 GW. That’s less than 0.01%. In reality, it’s probably negative as turbines use power to de-ice and keep bearings turning.

    BTW the Dieter article (behind a paywall) is available here:

  • ROJ

    Are we supposed to get excited because “one of the few policy thinkers respected on both sides of the coalition” has worked out that windfarms are just a pointless economic burden? Was that Ph.D. thesis or did it just come to him while he was shaving? Now if he were to tell Nick Clegg that he has realised that global warming and CO2 is not a problem – THAT would be news.

  • It doesn’t add up…

    Does EL Sid consider drilling out in the Walker Ridge area of the GoM in over 4,000ft of water to be cheaper than shale? Does he know anything about the relatively short production life of most GoM gas wells? How does he explain that US gas prices have fallen to 23p/therm if he thinks that shale costs 40-50p/therm?

  • Ruby Duck

    Publius 1.5
    I was going to say Hasn’t it always been ? but it wasn’t when the people running the show had a vested interest in the persistence of a prosperous, independent nation.

  • Peewit

    “Oliver Letwin is a long-standing friend of his and Clegg’s office views him as one of the best economic brains in the country.”

    This is not a great endorsement of an individual by the way.

    A pity because I’d follow anyone who would get us out of the eco-energy scam.

  • DZ

    el Sid 3.15

    How about a long horizontal well then frac the hell out of it? May flow very nicely indeed.

  • Heartless Curmudgeon

    Rhoda, Mark, and others have already pointed out that advice on energy in general and windmills in particular has been freely available in this (and Guido’s) blog for ages.

    So please will the remnants of the True Conservative Party, such as it is, continue to hold the feet of the H2B (Fraser’s ‘Brilliant Leader’) to the fire until a sensible energy policy is formulated and put in place, the windmill scam is banished and the money reclaimed from the EUSSR.


    He can’t be that bright if he chose to write his article for The Times … nobody reads the paper copy any more unless it’s free on the train, and since you can’t link to the article on the internet (as it’s behind Murdoch’s pay wall) it might as well not exist.

    Telegraph would have been a far more savvy option (or failing that the Grauniad though if’s far from sane on environmental matters).

    Even the FT allows for a number of reads every day before the dreaded ‘pay up’ screen pops up.

    Anyway he’s scuppered his chances of a decent debate.

  • El Sid

    That’s not to say no tight gas will ever happen in Eastern Europe, it will be an important source of the stuff, but it’s not looking like the superabundance of cheap gas that has been hyped.

  • El Sid

    The other thing to note is that tight gas is not easy, and in particular you should be wary about some of the claims being made for Eastern Europe. You only have to look at Exxon’s expensive failure in Hungary, and their recent failed wells targetting shale gas in Poland.

  • El Sid

    Even in the US where it’s fairly easy (most of the fields are in uninhabited desert) the breakeven cost is probably about 40 to 50p per therm, and in the UK costs could be double that due to technical factors and planning issues. That compares with about 25 to 30p to extract gas from the North Sea, and a wholesale price averaging about 55p per therm in the UK.

    So if you go shale gas, you see gas prices rise. In turn that brings gas-generated electricity to a similar price as electricity generated from the cheaper sort of renewables like methane from waste, onshore wind, maybe even inshore wind. That’s OK, gas generation and wind complement each other quite well. The real impact of tight gas will be on the expensive sorts of renewables like wave and tidal, most of which are currently forecast to cost over £200 per MWh for decades to come – compared to a current wholesale price of about £50 per MWh.

    One political consequence is that it rather messes up Salmond’s plan to base the Scottish economy on wave and tidal energy after the oil runs out.

  • El Sid

    It’s good that mainstream economists are taking notice of things like shale gas. However they do tend to get only one half of the story – the large potential volumes. They either ignore or don’t understand the other side of the equation, which is that tight gas (including shale gas) is not cheap.

  • Mark, Edinburgh

    Surely this article misses the point?

    The reason we build windmills is because the EU has set mandatory RENEWABLE, as opposed to CARBON targets for the power generation sector.

    Of course windmills are neither the cheapest or most effective way to reduce carbon, but they are much cheaper than most of the other renewable technologies such as tidal and solar.

  • DZ

    Publius 1.15
    The answer to your question is “No”. The real answer is that scientific and engineering decisions are being made by committees of people with Arts degrees (if at all). Science? No.

  • Ctesibius

    Two points if I may:

    1. If the balance of scientific evidence, such as it is, points to significant global cooling over the next, say, 50 years, will we continue to be taxed to reduce co2 and chill the world still further?

    2. If an energy source like wind is only viable when subsidised by gas or coal burning, is correct to call it a ‘renewable’?

  • Fergus Pickering

    If you are a Liberal Democrat it has always been that, and always will be. Any Tory government is preferable to any thing with the Lid Dems in it, and of course a Labour Government is quite unthinkable.

  • PayDirt

    Just remember that extracting Shale gas is nothing like conventional gas in the North Sea, reserves estimates are just that, estimates, see for instance
    “U.S. shale gas reserve estimates plummet”
    last week, at

    Also for anyone interested, go to page 42 of this:

  • Rhoda Klapp

    Publius, you know that question is rhetorical, don’t you?

    See what I did there?

  • Rhoda Klapp

    Do you know you could have read the same things here in the comments any time this last several years? You didn’t need some economist to validate the facts. You see, the idea of journalism is that you tell us things we don’t know, not discover stuff we have known for ages and present it to us as new.

  • In2minds

    Perhaps it’s not so much the will the Lib Dems pay attention but will Cameron? On so many things that are important he appears to be insular and distant.

  • Publius

    “of caving into the Tories”

    Is national policy no more now than a testosterone-driven pissing contest?

Can't find your Web ID? Click here