Where next for energy policy?
This post is by Matthew Spencer, director of Green Alliance.
Anyone reading the media coverage of the Energy Bill announcement last Friday will be left wondering who really won and what will happen next to energy policy. There were some clear winners but they weren’t on either side of the Coalition divide on decarbonisation, which means that the future direction of energy policy remains very uncertain.
The lack of agreement on decarbonisation raises the risk for the first time that climate change could become a dividing line between the political parties at the next election.
The winners and losers
The clear winners in the short term were the renewable development industry and the two CCS demonstration plants, which should now have sufficient levy support to drive a new wave of construction. We are now likely to see a dash for offshore wind as ’round three’ projects race to reach financial close before 2020.
The losers are renewable energy suppliers seeking to invest in UK manufacturing. The 2020 cliff, beyond which there is no certainty of support for low carbon power supply, means that the nine engineering businesses seeking to build offshore wind assembly plants in the UK will either have to build on the basis of orders from the short term offshore dash, or wait until an EU or UK framework emerges to give them some confidence that the market will continue to grow beyond 2020.
The other loser is therefore UK industrial policy, which has just been holed below the waterline by the decision not to set a 2030 decarbonisation target. We are embarking on the biggest modernisation of our energy system in decades with very few tools left to make sure it directly benefits UK industry. According to BVG Consultants, the next wave of offshore wind could have 50-60 per cent UK content with the help of UK turbine factories. In contrast, some existing projects, being built without the benefit of UK turbine manufacturers, appear to have as low as ten per cent UK content.
The media have tried and failed to write a convincing story of political winners and losers, because it was a score-draw, with Davey delivering a strong Levy Control Framework and Osborne blocking unprecedented levels of support for a decarbonisation target. As a result the polarised politics of the Energy Bill have not gone away, they will be decided by what sceptics and advocates of decarbonisation do next.
What the sceptics want
Sceptics will hope that the lack of a decarbonisation target and new capacity payments will lock in a gas trajectory. However, despite received wisdom, this is unlikely to happen, because the fourth carbon budget means gas faces even more uncertainty post 2020 than renewables. The sceptics will therefore want the Conservative Party to go into the next election with a commitment to unwind decarbonisation and the Climate Change Act. To make that more likely they will continue to beat the drum of the costs of renewable energy. They will continue to conflate short term price increases caused by gas with the medium term costs of low carbon supply, and tap into widespread consumer distress about energy prices
Time to shift focus away from the target
Decarb advocates therefore have a dilemma. Do they keep driving for longer term certainty that will increase UK content and lower costs in the long run, or do they shift focus on the near term battle for public sentiment on energy bills? Put it another way, do they keep pushing for stronger policy or switch to countering the threat to the UK public consensus on climate change action? It will be tempting to do the first, because it’s a targets and direction frame which has policy logic, but they should do the second because energy policy will be determined by this contest for hearts and minds.
It’s time to change strategy, and organise around a bold and tangible programme to help hard pressed consumers reduce their energy consumption and the impact of rising prices. The Energy Bill Revolution is an example of a broad based campaign which attempts to do this by pushing for new finance for energy saving, but it needs to be complimented with more immediate ways of helping the hardest pressed consumers and businesses.
It’s time NGOs and business came together to offer direct energy saving services to their members and customers, at the same time as identifying the wider support needed for a bold UK retrofit programme. This is much more likely to protect political backing for decarbonisation than another battle over the direction of energy policy. It also has the benefit of not exacerbating the message that UK energy policy is up for grabs, which is in danger of becoming a self-fulfilling prophesy.