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Energy Independence for Wales

During his Spring 2023 visit to Ireland, President Biden said that the world faced an historical inflection point, of the kind which happens every century or so.

Biden’s assertion is based on the way that the great powers or giant economic trends can suddenly move very quickly from time to time, leaving winners and losers. And that energy is the driver behind these huge geopolitical shifts.

To Biden, the mega-growth of the clean energy sector could be the salt of the earth; and salt on the wounds of his MAGA opponents.

Two centuries ago, the industrial revolution was gathering a full head of steam under coal’s power. It sparked the West’s pre-eminence but at the often brutal expense of countries across the world and by leaving deep scars across Wales.

At the beginning of the 20th century, oil flowed and set in motion another great game amongst the powers. Economically, the narrative involved the transfer of natural wealth from one part of the world to another, creating fortune after fortune along the way, the pipeline or via huge ships with their fluid loads.

Countries were both forged from anew and strengthened from old from oil and then gas’ riches, as the demand for this most fundamental of raw resources grew and grew throughout the 20th century. Think of the Middle East and the USA itself; and oil was pegged to the dollar, so sealing America’s hegemony. But think also of Denmark and, especially, Norway which has, in a matter of a few decades, increased its Sovereign Wealth Fund to a value which by now exceeds £1.1 trillion - that’s £1,100,000,000,000. This oil and gas accumulated wealth is approximately 50 times the entire Welsh Government budget and is one of the main reasons why a lot of Norwegians drive Teslas.

And despite the proclamations from Rio, Paris, Glasgow and now Dubai, demand is still increasing to this day. In fact, since the end of the Covid pandemic, the global economy has been feasting on oil, gas and coal as if it was the last days of the Roman Empire. That includes the expansion of oil and gas drilling in the Arctic as more favourable conditions prevail from global warming. Yes, it’s bonkers from a climate aspect but it is markets and people’s quality of life today that prevails in the economic world. And the people of Pompeii ignored Vesuvius’ rumblings until it was too late.

But although it so very difficult to turn around the supertanker which is the global fossil fuel economy, it is possible; as the technology is now available to keep coal, oil and gas in the ground and carbon out of harm’s way. But this energy transition will not take place overnight. 

The main resources which will displace coal, oil and gas at the required scales are the sun, wind and water. Wales has more than plenty of two out of these three, especially when you factor-in our superb offshore wind resource. Renewable energy and green hydrogen (produced by splitting water with electricity) is seen as the end-game of the latest great energy game. Together they provide firm renewables: clean energy whatever the weather or time of year.

We should appreciate this as we shape decarbonisation policies in Wales. In a small country, are all efforts meaningful in a big world? Or is it best to concentrate our resources - human, physical and financial - on decarbonisation solutions which can be swift, deep, practical and, above all, replicable across the world? And without harming ourselves economically in the process.

The 21st century’s energy game demands co-operation instead of rampant competition since everyone is facing the same enemy, a warming world. And you don’t argue with physics, as there will only be one winner.

America and many other important energy players of our times - including Norway and Denmark, countries comparable to Wales - accept the need for a big, historical energy shift in order to have any control over climate change. Politics and economics are tools which can help deliver the required large-scale introduction of clean energy technologies. All stand to benefit, but the countries which are moving quickly (and some are, very quickly, including China and India) will be those whose economies stand to benefit most.

After over 20 years of trying, it’s safe to say that the constitutional arrangement hasn’t provided Wales with the required tools to both respond to the challenges and to also seize the clear and significant opportunity of deriving financial gain from our energy wealth.

The “all the tools in the box” approach which is required in Wales to form a comprehensive energy and economic strategy for the benefit of Wales (which also, by dint of pace and example, will benefit others) involves these measures:

  • Full devolution of energy powers without any upper limit 

As things stand, the Welsh Government only has the powers to determine energy projects up to a limit of 350MW of installed capacity. A big power station will exceed that limit.

  • Devolve The Crown Estate

Not only to derive significant income directly to the Welsh Government’s coffers from the leasing of energy projects in Wales’ waters. But to also set the rules of the development game in order to maximise the benefits to Wales. And to facilitate and release developments which are currently stymied due to constraints of electricity grid connection, planning and other factors. Re-name it too.

  • Devolve Ofgem

In order to regulate the design of whole-systems energy grids and markets which serve Wales, while aligning with emerging UK, European and global standards.

  • Establish a Welsh energy systems operator 

Currently, National Grid’s Energy Systems Operator keeps GB’s lights on by managing and balancing the electricity grid. But a Future Systems Operator is being established with a wider remit to reflect the new energy world - and that includes a whole systems approach to the electricity and gas grids plus the huge demands of zero emission transportation. What better time, therefore, to establish a dedicated systems operator which works to Wales’ unique energy advantages, while both supporting and steering our neighbours’ grids to the east and the west.   

  • Ambitious state energy and community energy development companies

Long overdue but Wales is now establishing its own energy development company (it’s what nearly all European countries have been doing for years) but its remit should not be limited to on-land developments. The big prize is out at sea. In addition, strategic support should be provided to grow the excellence in community energy developments throughout Wales by increasing their capacity and providing priority to local energy projects, so maximising local wealth benefits. In common with global best-practice in the energy industry, these developments can be undertaken in partnership with companies from anywhere, who can provide the right experience, finance and technological know-how and in the form of joint ventures.

Planning is already devolved to Wales but reform is needed of the planning system and also of land ownership to place the well-being of Wales’ communities front and central to decision-making and to also speed-up and simplify the development process. This must benefit Wales primarily while also facilitating the development prospects of supportive external companies, so helping to make Wales a magnet for investment.

In summary: control the resources, the powers, the rules and the system - in order to maximise energy development opportunities in Wales for the benefit of Wales.

For reference, we could do worse than to copy Denmark’s Energy Model. Established in response to the last big energy crisis of the 1970s, the Danish Energy Model integrates regulation, infrastructure and development for the national good. To the Danish roster of success, you can add the giant energy and trade companies which Denmark has nurtured, such as Vestas, Ørsted and Maersk. Not bad for a country of 5.8 million citizens.

But, instead of requesting these vital powers and measures one by one - and the Senedd will likely be underwater by the time the process is completed - wouldn’t it be easier to just have them all, automatically, through independence? After all, we are in a climate, energy and economic emergency and we need to release our energy - literally and cleanly - in order to reduce carbon and to create the wealth which we desperately need.

The people of Wales should be in the position to quickly make the necessary decisions which sets Wales on the right, strategic energy trajectory. For our benefit but also for England’s benefit and countries on continental Europe too, who are a market for our energy exports. While also serving as a route to market for Ireland’s vast energy resources by creating a strong Celtic energy partnership. Plus acting as a hub for the global import of clean energy via our superb ports. Small countries can move swiftly in response to challenges which, by now, are frustratingly apparent. And the opportunity is very real now - and not to wait ten or twenty years - because the demand for clean energy is so large and alive now. 

But where will the money which is needed for this large-scale investment come from? The financial world is awash with capital which is looking for a good home. Can Wales be one of those homes? And this is not a case of merely opening our doors for others to benefit from our natural resources, while we settle for a tip. It is disappointing that the Welsh Government continues to support such accommodation on energy after 25 years of devolution. Policies have been implemented which leave crumbs on the table for Wales’ communities. 

We should invest our own money in the form of pension funds or by using our considerable assets as collateral in raising finance. We need to be thinking of sums in the billions and, yes, we should do this in partnership with others who also have the finance, the technology and the know-how. This is Wales being very much open for swift business on energy. For our benefit and for our partners. But on our terms. This is completely normal practice for other countries and for many of the world’s largest companies. And things can happen very quickly, where there’s a will.

Consider Silicon Valley, which has grown Apple, Microsoft, Intel, Amazon and more. Massive private companies with risky venture capital behind them. Well, to an extent but it was US pension funds which underwrote the financing of these transformational companies and with the strategic oversight of the US Government. Spurring incredible creativity of the kind which is now being emulated in the clean energy tech sector. The biggest risk is not to be investing at scale and quickly into clean tech. We, therefore, have a choice: to be active players in the new, clean energy game; or to remain as largely passive consumers. 

Now assess Port Talbot and Llanelli’s steelworks future and the industrial and manufacturing strengths which remain across south Wales and extend to north east Wales. Businesses which employ thousands and which, like all, are suffering due to the high costs of energy but which are facing the need to decarbonise to remain in business. Markets are demanding clean products. The virtuous circle is to invest in the development of clean energy to power these industries which can then sell their clean products to eager buyers. The vicious circle is one of continued managed decline.

A few years ago, I estimated that every person in Wales spends, on average, around £1,000 a year on energy (electricity, heat and transport fuel). Or over £3 billion per year for our population of 3.2 million. By now, with no sign of the energy crisis abating, you could probably double that sum. Most of that money flows out of Wales. So, our internal market for energy is large in itself. A market which presents energy self-supply opportunities to keep wealth within Wales; let lone the wealth creation which can accrue from exporting to our energy-hungry neighbours.

And Wales has a strong financial technology sector which can support the development of the required investments and financial exchanges. A century ago, the world’s first £1m cheque is reported to have been written at Cardiff’s historic Coal Exchange. Why can’t we re-kindle that dynamic relationship between money and energy in Wales; for positive, sustainable change? Which doesn’t just repair communities but which enables them to flourish. While keeping a little over to repair the Coal Exchange itself, parts of which are in such a sorry state. 

Across Europe, governments have long-established energy development companies, with pension funds behind them, to create wealth which in turn funds their public services. And that includes profiting from energy projects in Wales. Good luck to them! But it begs the obvious question, when our public services are on their knees, as to why do we accommodate such developments while settling for so little in return? Mature countries take the responsibility to fund and maintain their own high standards of public services. Some of those countries use our energy towards such ends. And some of those energy resources are found in parts of Wales which are amongst the most deprived in the whole of Europe. With us being so rich in our resources, why are our expectations so low?

Our solutions are largely internal to us, surely? Wales’ natural resources are an incredible asset. Assets which should be the foundation for business and enterprise; and which in turn fund excellent public services. We need the means to affect change; or else we’ll just continue our slide to being a means-tested nation.

We are in a deep cost-of-living crisis. The current orthodoxy presents no vision for the improvement of economic conditions in Wales. Some look east to London for salvation, yet again, but a quick glance to the west reveals that Ireland’s corporate tax receipts alone will, this year, match the Welsh Government’s entire budget. Ireland’s economic model is a matter of debate but there are other economic models to also assess amongst Europe’s small, high-achieving nations. They are all sovereign states who can determine what’s best for them. Worth thinking about if you’re a Welsh citizen waiting and waiting for treatment or a bus.

Can the people of Wales be persuaded to take their economic well-being into their own hands? At the moment, this is overwhelmingly dictated by factors over which Wales has no control. And the most important factor in controlling the cost of everything - whether it’s buying food, clothes or goods; and running schools, hospitals, businesses or a farm - is the cost of energy. It’s the bottom-line. The rise in energy costs being the main driver behind the rise in inflation.

To control energy is to control inflation and so the economy. That is the reason why President Biden has named his signature policy of providing a massive boost to clean energy as the Inflation Reduction Act. An Act which invests many tens of billions of dollars into American clean energy, industry and manufacturing. It is Biden’s response to the 21st century’s inflection point on energy.

But in order to control energy, you need to control a country. Yes, the USA is 100 times the size of Wales. Look, therefore, to Norway, with a population of 5.5 million. In just the few minutes it has taken you to read this article, Norway’s energy-derived Sovereign Wealth Fund will have likely grown by a few £ million. Or, since the turn of the year, grown by over £20,000 for every individual Norwegian. Accumulated, over the years, the total will have reached £200,000, give or take, per person. That’s some perspective on energy’s wealth. And some insurance policy managed by a government on behalf of its citizens. The Fund will continue to grow as Norway pivots to clean energy.

There is huge wealth to be derived from natural resources and energy. And from co-operating with partners. Energy is both a short-term and a long-term investment for a country.

Wales, therefore, to gain ownership of its resources and to develop energy wealth, on our terms. Energy-based independence for Wales, as any country worth its salt would do.

Guto Owen

December 2023

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  • Garry Jones
    commented 2023-12-29 13:36:54 +0000
    I’m reminded here of the first £1m cheque signed at the Coal Exchange, Cardiff, 1909. No sovereign wealth fund contribution there, nor from the other mineral wealth extracted from Cymru since that time. Where is our collective rage at this culpable neglect by the colonial power?
    Guto makes several valid arguments in his piece. Of particular interest to me is the economic comparison of Cymru with Denmark, pop 3.15 and 5.8 respectively. Revealing not just what could have been, but what can still be for future generations in Cymru. But only if we assert our claim to sovereignty at every opportunity presented by indy rallies, local campaigns, and elections.