Driven almost entirely by rocketing wholesale energy costs, the energy price cap will reach new heights in October. The next Prime Minister will need to intervene with a substantial package of targeted relief for the most vulnerable or millions will be plunged into fuel poverty. But even more worryingly, this is not a blip – and as the first Cabinet Minister to raise the threat of inflation back in 2020, I’ve never believed the challenges we face will be purely transitory. Energy prices will eventually begin to ease, if only as the global economy slows, but there are no signs of that yet.
Russia’s invasion of Ukraine is the proximate cause of our current crisis. A partial embargo on Russian energy and Putin’s weaponisation of the Nord Stream pipeline have reduced global supply and sent prices spiralling.
But even before the invasion prices were rising as the UK became caught in the confluence of two longer-term trends. On the one hand, an increase in gas demand in Asia, and particularly China, which has steadily increased its consumption since the mid-2010s. On the other, a major shortage of supply, caused by underinvestment in new energy sources, an end to the truly remarkable US shale oil boom, and instability in the Middle East resulting in OPEC states constricting supply. Together, they spell an end to the age of cheap energy that we have enjoyed since the 1990s, and require us to fundamentally rethink our politics.
First and foremost, we must recognise the relationship between energy, power and geopolitics as great Western leaders once did. Caught up in the illusions of the 1990s, our leaders became energy illiterate and neglected the material foundations of our prosperity and security. Instead of investing in our domestic supply of energy – a bold nuclear programme – the UK struck deals with Russia. Even more disastrously, an entire German political class became hooked on cheap Russian gas. But as we have seen with Ukraine, relying on adversaries has left the EU impotent at a moment of crisis. Here in the UK, we either urgently expand our domestic energy supply or accept structurally high prices that will cripple our economy and constrain our ability to act.
The scale of the crisis demands that we explore all available options to boost our domestic supply. This means pushing back against the dangerous but increasingly prevalent idea that there should be no new investment in fossil fuels. Government direction, the overzealous approach of the ESG industry and investor excitement in green tech have all led to a sustained reduction in investment in fossil fuel production.
Yet the speed of our transition to renewable energy is constrained by the pace of technological advancements, particularly on storage, so an immediate end to investment in North Sea oil and gas can only mean greater dependency on Russia, Venezuela and Iran for our hydrocarbons.
We must relearn the importance of domestic resilience. When as Local Government Secretary I was willing to let a local council decide whether to build a new coal mine producing coking coal for the UK steel industry, I was told the Business and Energy Department was “incandescent with rage”. The people supposed to be interested in supporting the domestic steel industry and guaranteeing our energy security were content for us to be dependent on imported supplies of coking coal. Such judgments are never easy, but we need to strike a more sensible balance between our climate obligations and our broader economic and security needs.
We have to overcome the short-term tendencies of our politics and build the energy infrastructure that will secure the prosperity of future generations. Symptomatic of this malaise, a recently resurfaced clip shows a young Nick Clegg objecting to building a nuclear power plant in 2010 because it wouldn’t come on-stream until 2021. And we saw this instinct in action again in the decision in 2017 to shut down our largest gas storage facility in order to make a quick saving. The solution to our current crisis can only be a coordinated, long-term energy strategy. Short-term policymaking will all but guarantee future blackouts.
We need to dismantle the powerful vetocracy that has impoverished the UK decades – and not just when it comes to energy infrastructure. The water crisis can be traced back to constant opposition to the construction of new reservoirs in the South East. We remain trapped with stagnant productivity as businesses cannot invest in capital projects.
Indeed, the government recently cancelled the initiative that sought to grow such capacity around Oxford and Cambridge, potentially adding huge value to UK Plc. And the vetocracy is just as destructive at blocking vital energy infrastructure – making it virtually impossible to construct new nuclear sites or wind farms. In government I established Project Speed, a team of capable civil servants whose task was to find ways of speeding up the delivery of critical infrastructure. It was complex and laborious work, but likely to pay dividends down the tracks. Project Speed, I am told, was deprioritised, then abandoned. The next PM would be wise to restart it if we are to bring new energy onto our grid sooner.
The best time to invest in our domestic energy supply was 10 years ago, when prices were low. But we kicked the can down the road – and we are now suffering the consequences. As Milton Friedman said, “only a crisis – actual or perceived – produces real change”. We have reached that moment. We now have no option but to place Whitehall on a war footing and radically and urgently increase our domestic energy capacity.
Robert Jenrick served as Secretary of State for Housing, Communities and Local Government