Helm Talks - energy climate infrastructure & more

Politicians have been seeking for decades to put right the infrastructure crisis in this country that is rooted not in a lack of ambition, but in deeper economic and political constraints. Building in Britain is exceptionally costly, with high energy prices, high labour costs and high financing costs making major projects difficult to deliver at scale. At the same time, the country saves too little to fund long-term investment, leaving infrastructure heavily reliant on foreign capital, while government is constrained by debt and rising interest payments, and repeatedly prioritises short-term spending over capital renewal.

Taking Thames Water as a case study, regulatory hesitation and political short-termism have both delayed necessary restructuring and entrenched decline. Meaningful renewal will require more than rhetoric: it demands lower input costs, stronger incentives to save and invest, firmer control of public debt, and a clear political willingness to favour long-term capital investment over immediate consumption. Without a whole-economy approach, the goal will remain elusive.

The International Energy Agency describes the current Iran conflict as the “biggest energy crisis in history”. While oil prices have risen sharply, they remain below the real highs of past shocks. However, the impact is being felt very differently around the world, with some countries

even benefiting from the situation. For example, the US and Russia are relatively well placed as major producers, while China and India have buffers through their domestic coal, stockpiles and alternative supplies. Europe, by contrast – especially the UK and Germany – is very exposed because of its energy choices and growing dependence on imported gas.

Markets are already adapting: higher prices encourage new production, alternative routes, and renewed interest in nuclear and other energy sources. Rather than dramatic headlines, this podcast focuses on the more complex reality: an energy problem with very different consequences across the world, not a single historic crisis.

The concept of a zero-sum game was fashionable in the 1970s. The idea was simple: competing interest groups, and especially unions, would fight for ever-bigger shares of the nation’s cake, and their gains would mean losses to others. Fast forward to 2026, and what we have now is a negative-sum game: cake for some reduces the cake for others, and reduces the size of the cake. The result is lower economic growth.

This is indeed playing out now: the government’s core motors for economic growth – 1.5 million new houses, net zero – are all coming up against the need to pay for more welfare and other public services. To cover all this, the government has raised taxes, notably on the business costs of labour, and borrowed a lot more. The result: higher labour costs and higher costs of capital. Add to this the highest costs of industrial energy in the developed economies, and the results for economic growth can only be negative. Now add in the new renters’ rights with increased costs to landlords, and thence the supply of rented housing going down, whilst the higher labour costs have increased the costs of building new houses and reduced demand. 1979 is with us again. The negative-sum game is not sustainable, and thus it will not be sustained.

There is no such thing as a free lunch, and there is no such thing as “free” electricity. What is true is that there are going to be days in summer when supply exceeds demands and hence the value of electricity generated will be zero. Surpluses arise because a renewables-based system needs far more total generating capacity to guarantee supply at all times, including when the sun is not shining and the wind is not blowing. Using the UK as an example, meeting a peak demand of around 45GW may require roughly double the capacity compared with the “bad old days” of fossil-fuel-based generation, as well as twice the grid system and lots of batteries and storage. There are bound to be times when lots of that 120GW is generating but demand is low.

But excess electricity does not reduce the costs. These don’t magically go away. Investors will build wind, solar and nuclear plants only if they are paid through mechanisms such as fixed-price contracts, and households also need to fund the expanded grid, balancing and storage required to handle the extra capacity. As a result, “free” electricity during certain periods will still be paid for elsewhere – ultimately by consumers and taxpayers. Renewables are a good thing, but they need to be accompanied by an honest public discussion about the real system costs of decarbonisation rather than the promise of free energy.

Another day and another bit of sticky plaster is applied. With the highest industrial
energy prices in the developed world, the government is increasing the number of
companies that will get a bit off their bills in 2027. This follows other moves, like the
£150 off customer bills. It will not be enough, given the sheer scale of the problems.
The industrial crisis will go on; domestic bills are scheduled to go up and stay up for
the next decade; new energy-intensive inward investment (e.g. for data centres) is
being deterred; and where there are projects, own generation from gas is the route
to firm power.

The facts are not changing, and it is getting ever more painful to ignore them.
Climate realism means facing up to the relentless increase in the concentration of
carbon in the atmosphere, the continuing 85% of the world’s energy supplies coming from fossil fuels, and the lack of any transition away from this, with the oil, gas and coal burn going ever up as the world energy demand looks set to double by 2050. Renewables on a system basis are not cheap. It takes 120GW now to meet the
same peak 45GW demand, which 60GW once comfortably met, as well as doubling
the transmission grid and adding all the extra batteries and storage. The renewables are not “home-grown” – the supply chains are foreign. 

Britain is not on a path to home-grown energy. It is not cheap, and other countries
are not looking to Britain as a “clean-energy superpower”. They look to Britain to find out how not to do it – no one else wants the highest energy prices. It’s not difficult to sort all this out, but more sticky plasters will make the situation worse and harder to fix the longer the government ducks the need for a fundamental re-set of British energy policy.