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Friday, 6 December 2013

Should the fledgling UK shale gas industry get tax breaks?

Hefty tax breaks for the UK's fledgling shale gas industry have come under immediate fire from various quarters according to The Independent. Are they justified?

Shale Gas
Image: http://www.theguardian.com/environment/2012/apr/17/shale-gas-fracking-uk
The UKs future energy mix needs to be sufficient, reliable, secure and affordable. It is certain that it will be a mix. Currently we are operating on the edge of sufficiency and reliability while the energy is not affordable for many (http://bit.ly/1g9LcqF).

Many of our power stations are over 30 years old (http://bit.ly/1iFSaYc) and relatively inefficient. The government has recently acted, but new nuclear at Hinkley Point, Wylfa and Sizewell will not come on-stream for 10 years or more and may, even then, be uneconomical compared to gas, which would have to increase its price by more than 130% if it were not to be a better deal (http://bit.ly/1aFrKfj). Let us bear in mind that the Hinkley Point budget is £16bn for two reactors at a build cost of £5m per MW. Currently the price of wind generation is about £1.3m-2.2m per MW and falling rapidly (http://bit.ly/19loxSc).

Recent gas-fired power stations, although faster to build, must compete in a pricey global gas market where gas imports cannot be guaranteed. Local gas would be a God-send, and although the BGS has provided us with an approximation of the potential resource at our disposal (http://bit.ly/IvQbFC) we do not know:
  • Whether gas can be produced from these shales economically, 
  • Whether the gas can be produced in a safe and secure fashion that causes little environmental damage, and
  • Whether gas can be produced in a manner that is acceptable to the local population.

In this situation the UK desperately needs to drill and frack at least 10 wells in order to ascertain whether our shale gas resources can be produced economically.
  • If not, then we will have to do our best with the current expensive insecure mix that relies on imports and uses more nuclear power in the mix.
  • If so, speedily built gas-fired power stations may mean some of the nuclear is not needed, it may mean that the toxic killing machines (http://bit.ly/1914ZX5 and http://bit.ly/181Rh1H)that are coal-fired power stations can be phased out, it will lead to tax revenues and economic growth and jobs (http://bit.ly/19DShZx), it may mean that extra subsidies can be given to renewables, and it will be relatively fast to do (compared with building nuclear).

Green light for Hinkley nuclear power station
Proposed new Hinkley Point reactors  
But where are renewables and energy efficiency now?

Renewables cannot provide the amounts of energy we need. Wind, for example, is impractical.  If, for example, we switched our coal generation to wind, it would require 851,000 5 MW windmills working flat-out all year (while the average is less than 30%!). And that does not consider their effect on our environment, the radioactive and chemical pollution they cause in China (http://bit.ly/1jthcaR), the lack of constant wind (except in some parts of the Houses of Parliament) and the lack of space for such a number of mills (http://bit.ly/1914ZX5).

Cutting back our use of energy is difficult to do. Even Greenpeace only pays lip service to it, offering no advice or schemes to help even its members cut back. Only government has the clout to push this forwards (http://bit.ly/1jthcaR), and recently its schemes have been sacrificed to the perception that energy prices are too high.

And we wait for fusion...

I am not a fan of fossil fuels. I would rather not see them used. But it seems at the moment wise to develop shale gas as a cleaner, less polluting, more secure and faster solution to our energy woes than any other.

At least we should press on speedily with enough test wells to be able to judge its effects properly and to provide some real data on which it can be judged. If tax breaks help, it will probably be a good investment for the future, whether or not shale gas proves to be a good thing.

One last thought - the government should institute a body to oversee the development of shale gas that is chaired by and contains some independent scientists to ensure that all the development is carried out transparently. That, in my view, would balance the tax breaks.

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