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IF YOU have ever played rock-paper-scissors, you’ll know the frustration of having no sure winning strategy. Whip out a perfect pair of sharp scissors, and the rock might blunt them. Then again, paper smothers rock, and scissors cut paper. There’s no win-win.

So pity those pitting their wits against our energy demands. As consumers, we want energy to be affordable. As a society, we want our supplies to be secure and reliable. And as responsible global citizens, we want power to be clean, green and low-carbon, too. But these demands trump each other in different ways. “It’s called the energy trilemma, because you can’t reconcile the three things simultaneously,” says economist at the University of Cambridge.

Or have we just not hit on the right solution yet? An experiment kicking off in a small island nation in the north-west of Europe later this year could point the way to an answer.

Like many nations, the UK is struggling to handle the three-way battle between competitive pricing, security of supply and carbon-saving commitments. The country’s particular problems include the drying up of native oil and gas from the North Sea, an ageing portfolio of nuclear power stations and a renewable-energy sector struggling to become competitive. Add to that the aim of reducing the country’s carbon dioxide emissions by 80 per cent from 1990 levels before 2050, and an economy emerging from its longest recession since the second world war, and it is easy to see why political debates about the country’s energy costs have been looming large.

This story is by no means unique to the UK. Germany’s attempt to kick-start an ambitious and expensive programme of renewables expansion while simultaneously shutting down its remaining nuclear plants has created a lot of political hot air, while increasing the country’s reliance on dirty coal. The US has seemingly hit the jackpot with its shale-gas bonanza delivering cheaper, cleaner energy now – but at an unknown environmental and economic price in the long term.

“The first rule of energy policy is ministers lose their jobs if the lights go out”

What makes the UK different, and its experience eagerly watched, is its enthusiastic embrace of free-market solutions to energy problems. Since the 1990s, the UK has privatised every part of its power generation and supply business. There are no caps on pricing: firms generating energy can choose how much they charge, and have more or less free rein over how much power they generate and by what means. One result has been a “dash for gas”: the amount of electricity-generating capacity covered by cheap-to-run gas-powered plants ballooned from almost nothing .

All things considered, this has been a reasonably good deal for the consumer, says Pollitt. According to the UK’s Office of National Statistics, energy costs absorbed 5.4 per cent of the average UK household budget in 1982. By 2003, That proportion has risen since, to just over 3 per cent, but the UK government’s independent has found this to be largely due to an increase in the prices energy suppliers pay for gas. Figures from the energy industry suggest the cost of gas for a UK household is , with electricity 15 per cent below – although some of this can be accounted for by the UK’s relatively low rates of tax on fuel.

But cost isn’t the only factor. “My first rule of energy policy is that government ministers lose their jobs when the lights go out,” says , an energy researcher at the University of Oxford. In the UK, electricity demand on a typical day might vary between 25 and 50 gigawatts, depending on the season, weather, whether people are at work or home, and which TV programmes have just finished or entered an ad break (see diagram).

Covering that variation means having back-up power stations that might end up barely operating. “It’s perfectly possible for some capacity never to be used,” says Eyre. That is an expensive luxury, but our requirement that energy should be available 24/7 means it is a necessity. To meet this need, the , the private company that operates the long-distance electricity transmission network in the UK, pays firms generating electricity to keep capacity in reserve, a scheme known as the . Grid operators elsewhere in the world have similar schemes, the cost of which, one way or another, must come out of consumers’ pockets. Reliability trumps cost.

Now let’s add in the carbon question. In pursuit of its international climate-change obligations, the UK has been making steady, if unspectacular, progress in cleaning up its energy act. Renewable energy sources now supply up to 15 per cent of electricity demand. But sun and wind are intermittent: a bit of cloud or a calm day can render them temporarily unavailable. On 11 May, Germany briefly set a record by supplying 75 per cent of its electricity demand through renewables, but its figures show that over the course of 2013, daily energy production by (see charts). This largely unpredictable variation means you need even greater volumes of costly back-up capacity – be it gas, coal or nuclear power stations – to smooth out the peaks and troughs of the renewable supply.

So low-carbon trumps reliability trumps cost. All we need to complete the circle is the observation that private energy companies operating in a competitive free market will generate energy the cheapest way they can – and that’s not through renewables. Cost trumps low-carbon. Rock, paper, scissors.

So what to do? The standard answer has been to abandon free-market principles and subsidise low-carbon generation. The UK government, for example, has introduced obligations for energy suppliers to , “feed-in tariffs” to pay small-scale producers of green energy, and subsidies for householders to buy equipment such as solar panels. A “green tax” transferred some of the costs for these initiatives on to all consumers’ bills, but was part-rescinded last year following prolonged public debate.

The controversy is perhaps justified. Those on lower incomes tend to spend a much greater proportion of their income on energy, and so are hit harder. “Bills are a very regressive way of paying for these things because the poor pay just as much,” says of the UK Energy Research Centre in London.

In the search for a more elegant – and equitable – solution to the trilemma, a simple answer presents itself: consume less energy. Do that and carbon output falls, peaks and troughs in demand become less pronounced, and everything gets cheaper. “It’s the least sexy thing, but it’s the one thing that hits all three at once,” says Watson. Figures from the UK Department for Energy and Climate Change (DECC) suggest efficiency measures – getting the housing stock properly insulated and filled with energy-efficient appliances – could . But homeowners still need to pay up-front, and few see an incentive to do that. Government loan schemes to encourage investment have largely fallen flat.

Eyre’s suggestion is for consumers to receive payments for every unit of energy they save – a feed-in tariff for not using electricity. But the devil is in the detail: how much do you pay people for using more efficient light bulbs, for instance? And how do you calculate exactly how much less energy someone is using? “You’ve got to make sure that you’re not paying people to do something they would have done anyway,” says Eyre. Although DECC has looked at the idea, such concerns have put it on the back-burner for now.

Green market

Other strategies target energy suppliers. A scheme known as removes the incentive for suppliers to earn more money by selling more energy. Instead, a regulator guarantees the suppliers’ revenue at a certain level deemed appropriate for its number of customers and a typical level of consumption. The supplier can then increase its profits by implementing efficiency measures – and encouraging its consumers to do the same – thus reducing how much it pays to buy in fuel. Pioneered in California a decade ago, similar projects now exist in many US states as well as the Australian states of New South Wales and Victoria. California has since implemented an iteration that gives utilities energy saving targets to hit. If they succeed, they receive an extra payment. If they don’t, they get fined.

While useful, such interventions still do little to smooth out those troublesome spikes in supply and demand that lie at the heart of the energy trilemma. That’s where an intriguing initiative from the National Grid might make a difference. True to the UK’s liberalising stance, it aims to do so using the power of the market.

It is known as the capacity market, and it’s not so different in spirit from subsiding individuals to use less energy. “Rather than building a new power station to run for a few hours on a winter weekday, you pay for demand to come off,” says Peter Bingham of the National Grid. The difference is that you do it dynamically. Essentially, those that use energy on an industrial scale enter into an agreement that they will bring down their energy use at times of high domestic demand. A supermarket chain, for instance, might agree to temporarily turn down its refrigerators and freezers a notch at the same time as the nation returns from work and makes a million cups of tea. In exchange, it gets a payment or cheaper energy.

This year the National Grid is for the first time inviting large-scale energy users to bid for the right to reduce the load on the electricity grid at the times of greatest demand – winter weekdays between 4 and 8 pm – saying what payment they expect for it. The details are still confidential, but so far there have been expressions of interest from a variety of sectors, says Bingham, among them supermarkets, data centres, telecoms and transport providers, food manufacturers and chemical and pharmaceutical companies. The offers promising the greatest reductions for the cheapest price will win. At the moment this is intended as a fall-back mechanism that will only , says Bingham. However, as the UK’s older power stations start to close in the next few years, it is widely seen as an answer to managing future demand.

A feature of the National Grid scheme is that those promising to reduce demand will face competition from electricity generators bidding to supply more energy. In theory, this two-way process reduces costs the most. But because it is less easy, and more expensive, to switch on extra capacity than to temporarily reduce demand, overall demand should sink, helping to reduce carbon emissions. “We will decide how much we’re going to buy, and choose those that offer best value to consumers,” says Bingham. “But demand-side has to be more cost-effective.” The National Grid thinks the scheme will add less than £1 a year to household bills to subsidise the cheaper energy bills for those reducing demand.

So cost, capacity and carbon: can this cunning solution help to blunt all three prongs of the energy trilemma? Watson is hopeful that allowing companies to bid for the right to reduce energy consumption could bring the same advantages that the energy-market liberalisation of the 1990s brought – but this time with a green tinge. The gains are not to be underestimated, he says. “There’s a tacit assumption that the alternative – doing nothing – is cheaper.”

That, however, depends what you believe about fossil fuel prices, as well as the costs associated with climate change. “If they go up, the argument that doing nothing is cheaper is probably wrong.”

This article appeared in print under the headline “Power struggle”