The UK plan is uneconomic for owners and consumers, writes Nick Butler Read more
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The UK plan is uneconomic for owners and consumers, writes Nick Butler Read more
The election is over and against all expectations we have a clear result. When it comes to energy policy, however, the agenda will be set not by what the Conservative party has promised in its manifesto but by external events. A number of looming issues are already obvious and the government will have no control over most of them.
The first is the further postponement of the plans for nuclear development starting at Hinkley Point in Somerset. Two new reactors capable of supplying some 7 per cent of total UK electricity demand are planned. The first was originally supposed to be on stream in time to cook Christmas dinner in 2017. But despite the prospect of a lavish price — index linked for 35 years regardless of what happens to global energy prices – and £10bn of even more generous financial guarantees, funding for the investment required is not in place. The reluctance of investors to commit will not be helped by the technical problems in the reactor vessels, which are now under investigation by the French nuclear regulator. This problem has widespread implications for the companies involved (Areva and EDF) and for nuclear development in many countries across the world, starting with France itself. Read more
Keeping the lights on is one of the core responsibilities of any government. If the lights go out, the government soon follows. Concern about energy security has grown in the UK over recent years with repeated suggestions that demand is pushing dangerously close to the capacity of the power grid. That is why the commitment from Ed Balls, shadow chancellor, to create an Energy Security Board is more interesting than most of the announcements made during the election campaign.
Energy policy has been largely absent from the election debate, which is probably a relief to the industry. The issues at stake are too complicated and detailed to lend themselves to sound bites and instant solutions. The complexity of the challenge is why a security board is potentially a good idea as part of a much needed renewal of energy policy. Read more
An intriguing process has begun in the EU, almost unnoticed outside the small world of Brussels and the shrinking circle of those who believe in an ever-closer European Union. The EU is asserting its role in the energy market. The policy was nodded through at the March meeting of the European Council on the basis of a paper published at the end of February by the new European commissioner for the energy union — Maros Sefcovic, one of the vice-presidents of the EU and also one of the most effective players in a Commission that is already showing itself to be stronger and more determined than its last three predecessors.
The February document was a good piece of work. It is careful and meticulous in the best European tradition. There are no grand statements of ambition. No country is forced to give up the power to set its own energy mix. The French will not be told to start fracking for shale gas or the extensive volumes of tight oil that exist in the Paris basin. Germany will not be required to change its policy of phasing out nuclear power. There is no proposal to unify taxation on energy production or consumption. The idea floated by Commission president Donald Tusk to establish a common buyer for imported natural gas in order to strengthen the trading power of the EU was not endorsed.
What changes is simply but crucially that a new level of policy making is established above the nation states. Read more
Spare a thought on this bright summer’s day for two men struggling to reconcile truth and political reality.
Oliver Letwin, Cabinet Office Minister in the UK government and Jo Johnson MP, head of the No 10 policy unit, have the task of writing the first draft of the Tory Party’s manifesto for the election next May. The manifesto will have to include something on energy policy.
Both Mr Johnson and Mr Letwin are decent men who can generally be relied upon to speak and act honestly and honourably. That is where their problems begin. On energy policy how can they tell the truth about a policy which by common consent – among business, academics and the serious NGOs – is a costly failure? Read more
The full-scale competition review of the UK’s energy market which will be announced later this week is a challenge the industry should welcome. The inquiry will absorb a huge amount of time and effort over the next year but it offers the chance both for the industry to clear its name by removing the cloud of public suspicion over pricing policies and simultaneously for individual companies to examine their own strategic positioning in a market which is changing rapidly.
Of course, the competition review will add to uncertainty and will reinforce the reluctance to invest in new generating capacity, which is already evident, but the sense of doubt will exist in any case, and the review may help to produce some longer-term clarity. In the short term the government will have to find a new mechanism to ensure that supply is adequate to meet demand – and doing so with an expensive plan for emergency electricity supplies. But that is a separate issue from this fundamental analysis Read more
George Osborne in his Budget speech on Wednesday talked, correctly, about US industrial energy costs being half those of the UK. The situation has deteriorated rapidly over the past five years. His proposed response is worth quoting directly:
“We need to cut our energy costs. We’re going to do this by investing in new sources of energy: new nuclear power, renewables, and a shale gas revolution.”
This must be a speechwriter’s joke. A line written in where the content bears absolutely no relationship to reality. New nuclear at £92.50 a megawatt hour will double the current wholesale price of electricity. New offshore wind on the Department of Energy & Climate Change’s own figures, which many feel are too low, will cost more than £120/Mwhr. These are not secret figures. They are well known in the Treasury, as is the risk of generating capacity failing to meet demand. There was no mention of that little problem. Read more
Forget the evidence, feel the populism. That seems to be the motto of the UK secretary of state for energy, who has written to regulators suggesting that British Gas and perhaps other gas suppliers should be broken up because their profits are too high. There is nothing like picking on an enemy no one loves. With their refusal to be completely transparent on costs and pricing, the utilities have made themselves sitting ducks.
Never mind that there has been no competition inquiry (rejected by the Government despite support from EDF, who rightly argued that one was needed to clear the air). Never mind that the figures quoted by Mr Davey have been in the public domain for months, without triggering action by Ofgem. Never mind that Ofgem is a highly professional public body that knows what it is doing. And most of all, never mind the consequences. Read more
UK-based energy companies who have held investor relations meetings in the US in recent weeks have encountered a bleak response. The UK energy sector, they were told, is “uninvestable”. This is the market’s response to two months in which the certainties of the UK energy market have been undermined by politics. Given the scale of new investment required as old capacity is retired, this stark conclusion is very damaging and must be addressed by the Chancellor in his autumn statement on December 5. Read more
Any new graduate wanting to learn about how companies should handle tough public policy questions should study how the energy companies have responded to Ed Miliband’s proposal to freeze utility prices in his party conference speech three weeks ago. Their actions and comments have been a masterclass in how to make a difficult situation worse.
We have had a mixture of denial (“they’ll never get elected”, “he didn’t really mean it”, “the lawyers will stop him”), mindless abuse (“I don’t think people want to live under Stalinism”) and fear tactics which usually mention the prospect of the lights going out. No one in the industry has bothered to think about why Mr Miliband’s comments have proven so popular. Read more
Ed Miliband’s comments on energy in his Labour party conference speech on Tuesday have profound implications for policy. The immediate focus will be on the suggestion of a price freeze lasting until 2017. The industry will no doubt focus on the implications of cutting profits and the question of what happens if world prices rise. Some might also suggest that a hard freeze will not only deter new investment, but also lead to some companies exiting the business with the net effect of reducing competition. Mr Miliband clearly believes there is profiteering but he has not published the evidence. The Labour leader should and there needs to be a full competition inquiry. It may well be that if there is profiteering a price freeze is not the only nor the best solution. Read more
Those despairing of the lack of progress in managing climate change or the absence of practical and realistic energy policies in so many countries should take a look at the work being done by some of the world’s great universities.
In Durham, the Energy Institute has focused on the societal aspects of changes in energy technology. One of their main projects is to look at the role and potential of smart grids. Thanks to advances in IT, smart grids now offer the prospect of managing the distributed production and use of power in ways which will transform the economics of the whole sector. Smart grids create automatic processes which can help both businesses and households not only manage what they use but also to become producers themselves –selling power into the grid. Read more
The problems facing the Government’s plan to reform the UK’s electricity market go well beyond the departure of two of the limited number of civil servants who actually understand the proposals. The reality is that the Government is losing its appetite for a scheme which is liable to disintegrate under the weight of its own complexity. Read more
Finally, the UK’s energy policy is taking shape after months of confusion. At its heart is a realisation that, while some decisions are urgent, others can wait. Time and timing matter. The approach is practical as well as political but it won’t suit everyone. And it leaves the biggest issue of all – climate change – unresolved. Read more
There is absolutely no need for an energy shortage in the UK, but the indecision of policy makers is making serious problems over the next few years ever more likely. There is no shortage of supply – but the raw materials of the energy business – such as gas and coal, or for that matter wind – have to be converted into power to produce the electricity which is essential for a complex modern economy. If the power stations are not in place electricity can’t be produced. Read more
Alistair Buchanan’s warning about the vulnerabilities of the UK energy supply system is serious and timely. The absence of a clear overall policy for energy supply and consumption means that in his words consumption levels are likely to be dangerously close to maximum capacity at times over the next few years and that UK consumers face the risk both of steadily rising prices and interruptions of supply.
It is impossible to disagree with these conclusions from Ofgem’s report. They are based on facts and hard analysis. Read more
The UK’s Department for Energy and Climate Change has a new permanent secretary, as predicted before Christmas. The elegantly orchestrated process, along with a comparable process at the Home Office has reasserted the independence of the civil service appointments process. Sir David Normington, the first civil service commissioner is providing to be more than a match for Francis Maude, Theresa May and the others who want to make senior civil servants political appointees.
Stephen Lovegrove, the new man at the DECC, has a number of challenges to overcome. Read more
And so the UK energy policy saga continues. Recently it was all wind and decarbonisation. Now it is about gas and shale.
Each step is presented as the answer – definitive and final – but behind that rhetoric is the slippery suggestion of another review of the policy in 2016, which makes everything decidedly temporary.
In the Department of Energy and Climate Change itself, pantomime season has come early this year. Jack and the Wind Turbines will be performed by an all-star cast. Young Greg, played by Kenneth Williams, and followed everywhere by a small dog, goes around planting windmills – “look behind you, there’s another”. He is followed around by the Rev. John, played by Ronnie Barker, proclaiming wind to be wicked, contrary to the word of the Lord and trying to pull them down. Led, if that is the word, by Mr Davey, an eternally optimistic but increasingly emotional character, caught beautifully by Tony Hancock, our heroes wander around looking for an energy policy on which they can agree. Read more
A good rule in politics is never to take on those who care about a particular issue more than you do. I was in Norfolk at the weekend and came face to face with the new force in UK politics – a regiment of middle-aged ladies burning with indignation and determined to use their considerable powers of organisation to protect what they hold dear.
The issue at stake is not Europe, which is the obsession at Westminster, or the recession, or gay marriage. The issue is the growth of wind farms and the march across the beautiful Norfolk coast of developers planting the farms in order to milk the generous subsidies on offer. Norfolk, of course, is not an isolated case. Read more
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