Squabbles over energy must not leave us in the dark

The new European Union green paper on energy policy puts a very big price on meeting forecast growth in energy demand and replacing ageing infrastructure over the next 20 years.

Investment of around one trillion euros will be needed, it claims, if Europe's lights are to stay on and economies are to continue to grow and compete successfully.

It's a challenge readily acknowledged by industry executives here in the UK. The first fruits of privatisation may have been lower energy bills in real terms, but now there's a legacy of elderly generating plant and transmission networks that needs a lot of new money spent on it.

But before they commit to investment on such a scale, energy companies yearn for much greater clarity from politicians on two fronts – what the future generating mix is going to look like and how aggressively governments will pursue answers to the carbon question.

That search is complicated by recent sharp rises in the price of oil, gas and electricity. Even traditional businesses that, not so long ago, were in deep trouble, have found a fresh and highly-profitable lease of life.

Look at Drax in North Yorkshire, the biggest coal-fired power station in Europe. Two years ago, its then American owners walked away. At the rock-bottom wholesale prices then prevailing, they couldn't make any money from Drax.

Now, thanks to an unprecedented recovery in the value of its output, Drax is making even more money than the City expects. And it has already sold three-quarters of its output for this year and nearly half of what it will generate in 2007, at average prices well ahead of those it achieved last year.

Little wonder then that shares in this recently-listed generator are trading well above December's offer price. But while Drax, with some of the cleanest coal-fired plant around, can continue to milk the buoyancy of current demand, the industry as a whole, here in the UK and across the rest of Europe, can't afford to neglect the pressing investment challenge for much longer.

Despite that, many of the biggest European players, in Germany, Italy, France and Spain, are preoccupied with consolidation, mainly through contentious acquisitions. Europe's energy sector is mired in a raging row about protectionism.

"We should refuse any kind of nationalism of an economic kind, especially in the energy sector in Europe," warned president of the European Commission Jose Manuel Barroso yesterday, as he launched a green paper.

Barroso and his colleagues have come up with a persuasive agenda for advancing sustainability, competitiveness and security of supply across a trading block which already imports half its energy needs and could see that dependency grow to nearer 70% over the next 25 years, if big changes are not forthcoming.

But the commission's chances of making real progress hinge on member state governments both adopting the long view and embracing policies that smack of more than narrow national advantage.

Politicians are instinctively uncomfortable with the long view. They tend to think in much shorter spans that coincide with the spaces between elections. So, meeting the demand in many energy company boardrooms for greater strategic clarity is not going to be easy.

The big test here in the UK will be the outcome of the latest energy review. But anyone looking for clear political leadership there has so far been gravely disappointed. Take just two developments in the past seven days.

Last Thursday, much to the fury of Friends of the Earth and Greenpeace, the Westminster government threw out plans for a £55m, 27-turbine wind farm at Whinash, near Kendal. Energy minister Malcolm Wicks accepted the findings of a six-week public inquiry that the development would have an adverse impact on the landscape of the Lake District National Park.

"Tackling global warming is critical," said Wicks, "but we must also nurture the immediate environment and wildlife. This is the crux of the debate over wind energy."

By Monday, the green lobby had had some kind of revenge. The government's own Sustainable Development Commission, in its official submission to the energy review, decided nuclear power is not the answer to either tackling climate change or security of supply.

Unlike other green voices, the commission was prepared to acknowledge that nuclear is a low-carbon option. But on five other grounds, including what to do with waste, cost, the impact on energy efficiency initiatives, and international security, it came down decisively against nuclear.

However, one of its five main objections seemed rather odd, the charge of inflexibility. It claimed nuclear would "lock the UK into a centralised distribution system for the next 50 years, at exactly the time when microgeneration and local distribution networks are stronger than ever."

That rather ignores the fact that plans to replace Scotland's existing transmission system, all the way from the Highlands to the border, to deliver wind energy to markets in the south, has exactly the same inflexible consequences.

Unless we can learn to debate our energy future in less confrontational and hidebound terms, it's not going to solve anything.