Helm: EU must trade off energy ambitions

Leading economist Dieter Helm has slammed as “nonsense” the notion that low carbon energy can be secure and cheap. In a French government report Helm said a pan-Europe drive for renewables would increase energy bills and drive heavy industry out of the region.

In the report by the General Commission for Strategy and Forecasting Helm warned that the European Union will have to “trade off” the three common ambitions to make energy affordable, clean and secure and rank their priorities. “Many claim that there is no trade-off—asserting that only a low carbon energy sector can be secure and cheap. But this is self-serving nonsense,” he wrote.

“The problem with the (current) renewables-first approach is that it probably cannot be

afforded. Any energy policy must pass two tests: customers must be able to pay; and

if they can, they must vote for politicians who will force them to pay. The dash-for renewables is likely to fail both these tests,” Helm added.

He said Europe’s current high energy prices were “an inevitable consequence” of climate change policies as well as the impact of US shale gas on fossil fuel prices.

“The overall impact has been to render investments in almost anything—other than technologies supported by direct government-based feed in tariffs and contracts for differences—uneconomic, ” he said.

The 124-page report: The crisis of the European electricity system, concluded that the EU’s attempts to give equal policy weight to liberalizing energy markets and curbing climate change had led to power market failures. It pointed to a growing trend of state intervention in power markets across the bloc.

Another contributor to the report, Paris Dauphine energy professor Fabien Roques said the UK was pioneering a move toward a hybrid model with “no renationalisation but instead a market in which the state takes back its prerogative of coordinating investments.”

Roques warned that the power sector was “no longer investment grade” and that the EU’s energy utilities were not in a position to finance the €60 billion a year needed in generation.

Professor of economics and director at the institute of energy economy in Cologne, Marc Oliver Bettzüge said “actors in electricity markets face enormous challenges, most created by incoherent and inefficient policies and design choices.

He said, policymakers in EU member states had distorted markets by regulating retail prices and subsidising renewables. “Such a spiral of state intervention into the workings of the price process will ultimately pave the way to central planning,” he said.