Elliott and Associates Renewable Energy Review Europe Tokyo Paris Asia: Britain’s energy policy needs to be reviewed

Elliott and Associates Renewable
Energy Review Europe Tokyo Paris
Asia: Britain’s energy policy needs to
be reviewed
More must be done to restore competition to an inefficient system
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When the UK’s coalition government came into power in 2010 it faced many
challenges. Not the least of these was the need to inject some purpose into
Britain’s languishing energy policy.
The previous Labour administration had allowed the UK’s power infrastructure
to run down in the 13 years after 1997, dithering about setting a sensible
framework for renewal while intervening selectively to stimulate investment in
costly renewable energy.
The incoming administration offered a more hard­headed strategy. It would
bolster energy security by building the new capacity Labour had neglected to
foster, while simultaneously decarbonising the economy.
Nearly five years on, it is possible to judge the coalition’s progress, and the
verdict is not kind. In spite of rising household bills, energy security has declined
to the point where the energy regulator is now warning of a possible crisis, with
the supply margin falling to between just 2 and 4 per cent next winter. As for the
money thrown at decarbonisation — a contributor to those rising bills — progress
has been minimal. On the government’s own figures, greenhouse gas emissions
are down only fractionally – a fall mainly attributable to low economic growth.
Coal consumption is up more than a fifth.
True, the lights are unlikely to blink off in the near future. Under most scenarios
Britain will muddle through, perhaps by placing some restrictions on industrial
customers, albeit at a risk both to the recovery and to the prospect of further
investment in more energy intensive businesses in the UK.

But the bigger concern is the framework the government’s reforms have put in
place. It is hard to see how Whitehall could avoid becoming more intimately
involved in directing power investment, given the obligations Britain has entered
into to reduce its emissions. Imposing a carbon floor price would, of course, be
the cleanest way to achieve these aspirations, allowing the market to decide
which new technologies to pursue. But this is hard without international
agreement – given the opportunity for mobile users simply to switch their
operations to places where the rules are less stringent. And such co-­ordination
remains beyond reach.
The next stage on Britain’s decarbonising journey anticipates heavy investment in
renewables such as offshore wind, and in nuclear energy. To make private
generators bow to public plans, Whitehall proposes to offer deals guaranteeing
revenue for long periods to private investors without imposing significant
incentives to cut their own costs in future. The new nuclear power station at
Hinkley Point, for instance, will enjoy indexation from a start point well above
current market prices for the next 35 years. Utilities will need to be given
incentives to build the back­up capacity a market more dependent on
intermittent renewables will require.
A better course would see Britain loosen the environmental corset, while
investing in science to deliver the sort of technologies that can decarbonise at
reasonable cost. In this context, the Labour party’s promise to go the other way,
delivering zero carbon electricity by 2030, shows it has not lost its taste for green
posturing. Short of changes to Britain’s commitments, however, more must be
done to restore competition to the system, not least by imposing performance
incentives that would allow consumers to benefit as costs come down. The rules
need to be rewritten in order to spur investment in the most efficient way.
What is clear is that the coalition’s reforms require a thorough review before
more commitments are entered into. When the next election is over, this must
proceed without delay.