So, Rachel Reeves has decided that her ‘Green Prosperity Plan’ isn’t such a guaranteed way of enriching the nation, after all.
When the Shadow Chancellor announced it in 2021 the plan was to spend £28bn a year throughout the next Parliament, on solar, wind and nuclear, as well as insulating homes and subsidising industries such as car battery production. Now she has changed her mind. A Labour government will now be spending £28bn a year on such things by the end of the next Parliament, but it will begin with a lower figure.
Naturally, this is all the Government’s fault. Reeves says she has had to revisit the scheme because high interest rates caused by the government’s mishandling of the economy. We can take that with a pinch of salt – it was always foolish to think that rates of 0.25% would last indefinitely – and indeed, they have risen around the world. Ultra-low interest rates lasted longer almost anyone could have imagined when the Bank of England took the base rate to a 400-year low in 2009, but in recent months markets have made it quite clear that they no longer trust the UK government – or any other government – to manage its debts, and are demanding a much higher reward for investing in government debt. Bond yields are back to the level they were during last September’s panic, following Kwasi Kwarteng’s mini-budget; an extra £28bn a year of borrowing really would throw another spanner in the monetary works.
But the problem with Labour’s Green Prosperity Plan isn’t just that it would lead to higher rates and higher mortgage repayments. It is misconceived from the start.
Let’s start with the plan to invest in more wind and solar. Given that the green energy lobby keeps telling us that wind and solar are now the cheapest forms of energy, you may wonder why we need subsidies at all. But if you are going to have a grid based on intermittent forms of energy which regularly fall away to near zero, and whose ability to produce is extremely hard to predict, you need to do one of three things. Either you need backup, to fill in the gaps when the wind isn’t blowing or the sun isn’t shining. Or you need energy storage. Or you need to go for ‘super-abundance’, where you build so many wind and solar farms that, even in the most adverse meteorological conditions there is just about enough power in the system to get by.
At present, the national grid relies on the first solution: we have gas plants primed to be turn on when power is needed, then turn off again when wind and solar recovers. But Labour wants to close gas stations by 2030 so as fully to decarbonise the grid. It is promising nuclear in their place, but nuclear plants do not work well in tandem with wind and solar because they can’t quickly be turned up and down – they are a reliable baseload, but inflexible.
We have little storage, and for good reason: it is horribly expensive. If it costs $50 per kilowatt-hour generating wind power, but $300 per kilowatt-hour to store it in a battery. ‘Super-abundance’ has become a favourite buzzword of the green energy business, but there is a very big problem: if you build so many wind and solar plants that there is always sufficient energy in the system, for much of the time you are going to be generating vast excesses of energy.
While it could be possible to use it, say, to manufacture hydrogen from electrolysis, this, too, promises to be extremely expensive – and the technology is not progressing as many hoped. If you can’t use the surplus energy from super-abundant wind and solar plants it follows that the unit cost of energy from those sources will rise. Most of the costs of wind and solar are upfront construction costs; if you can only use half the proportion of the energy they could potentially generate over their lifespan, the unit cost of that energy will double compared with the cost if you could use it all.
Reeves also wants to spend her £28bn a year on subsidising green industries. The issue here is that governments have a pretty poor record in picking the right horses, and Reeves’ plan promises to be no different.
Take one of the industries she mentions – car battery factories. The Government has already tried this, backing a ‘Britishvolt’ factory in Northumbria. But the project collapsed before the foundations were even laid (it has since been taken on by an Australian company). Governments are always drawn towards propping up the car industry because it is a high-profile, very visible industry; but there are better returns to be made elsewhere. Money would be better spent right now not on trying to compete with Chinese producers who will always under cut us, but on developing better battery technology.
As for insulating homes, David Cameron tried that with his ‘Green Deal’. The idea was that homeowners would take out loans for energy improvements; loans which would be repaid with the energy savings made over a number of years. Trouble is that with higher cost works such solid wall insulation (there are 8 million homes in Britain which do not have cavity walls which can easily be filled) the figures didn’t add up: the insulation didn’t generate enough savings to repay the interest on the loan. And that was with interest rates at 0.25%.
Labour loves to call all spending by Labour governments ‘investment’, as if the mere act of spending money is a guarantee of earning a return. Sadly, it isn’t. Reeves’ Green Prosperity Plan will be living proof of that – if it ever sees the light of day.
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