This post is by the Rt Hon Greg Barker MP, minister of state for energy and climate change. An extract first appeared on The Guardian. The piece is from a forthcoming collection of essays: Green conservatism: protecting the environment through open markets. Similar collections are being published under ‘Green social democracy’ and ‘Green liberalism’ projects as part of Green Alliance’s Green Roots programme, which aims to stimulate green thinking within the three dominant political traditions in the UK.
Choice, competition and a dynamic market are all a recipe for success. When the UK electricity sector was privatised in the 1990s, one vast state run monopoly became a teeming market of fourteen new firms, competing for the business of the British consumer.
Thirteen years of Labour government took a different approach to the electricity market. For my money, we ended up with the worst of both worlds. Competition dried up and the sector drifted away from dynamic pluralism to domination by a small number of big companies. By 2010, just six energy firms controlled over 90 per cent of the UK sector.
We know that, invariably, the tighter the regulation, the more difficult it becomes for anyone to enter a market. The more uncertain a market’s future, the less likely new players are to join in. That is why we don’t need to abolish the regulator Ofgem and replace it with yet another quango, as some have suggested. It would be another quango, with another name, probably in exactly the same office building but with even more powers to pull the regulatory noose ever tighter; another quango to create even higher barriers to entry for new players.
So where do we go from here? We certainly need big, successful national energy companies, with balance sheets capable of supporting the huge investment in both new UK energy projects, as well as reaching overseas. They are a source of valuable earnings and strategic investment. We must not be against national champions. However, in the 21st century, that can’t be the be all and end all of the UK energy sector story.
There has to be another way
It is clear that even the most ambitious Conservative government couldn’t just turn the clock back to the 1990s and recreate the healthy competition from that period. Perhaps, as the UK economy continues to grow, under a Conservative administration, major global energy companies could be tempted into our market to the extent that the Big Six might become the Big Seven or even the Big Eight. One or two of the existing smaller independent generators might rise to genuinely challenge the status quo.
The good news is that our Electricity Market Reforms (EMR) will, at long last, create a genuine level playing field to encourage the existing cohort of independents, as well as potential new players, to scale up and join in a more competitive energy market; but this not the whole answer. In addition, we have to re-imagine the entire sector and not squeeze the existing players into the ever tighter embrace of regulation that risks nationalising them in all but name.
To complement EMR, we should unleash a completely new model of competition and commercial opportunity. As well as boosting the prospects of energy independents, other companies, for whom energy is not a core activity but which have the potential to generate electricity, should be encouraged to join the market.
The Big 6 need to become the Big 60,000
To achieve this, we will need companies, communities, public sector and third sector organisations to grab the opportunity to generate their own energy at real scale and start to export their excess energy on a competitive, commercial basis. Not just a few exemplars, but tens of thousands of them.
But this won’t happen on its own. There can be nothing timid about our approach. Nor will we make things better by just cutting the big players down to size. We will continue to need more, not less, investment and far more, not fewer, players in the market. We need to focus on building up, not knocking down market participants. To do that at real scale, we need to be more ambitious in considering what energy demand and supply in the UK could look like.
Thanks to huge leaps in technology and innovation, aided by the coalition’s massive investment in UK science and R&D, we no longer have to exclusively rely on distant, monolithic power plants to supply our energy needs. Yes, Britain’s energy security and the low carbon transition both demand a continuing big role for large scale energy projects. Indeed, Britain can lead the world in offshore wind and new nuclear. But large scale technologies such as these are an important part of a diverse energy mix, not the entire recipe.
Back in 2006, I published a pamphlet called Power to the people which called for a radical new approach, to usher in an age of popular decentralised community energy. In government we have made great progress: the number of community energy systems in homes and businesses has leapt from a few thousand to over half a million and is continuing to grow all the time.
Solar technologies alone now account for over 2.5GW of installed capacity and continue to grow at a terrific rate. The UK is emerging as the most exciting growth market for solar in Europe. However, we have still only just scratched the surface of the potential for community energy in the UK.
With falling costs, there are a whole range of locally deployable low carbon energy technologies that can now be exploited economically. From Combined Heat and Power (CHP) systems, solar PV, geothermal, coppiced biomass and a range of energy from waste technologies, right through to hydro and micro hydro schemes and more; the UK is bursting with innovation and potential. The key to unlocking this opportunity is a dynamic private sector.
Conservatives love real markets. We follow the tradition of the entrepreneur, the risk taker, the self- starter and the business creator. We unleash innovation and will always champion the SME and the local solution. We are instinctively on the side of the disruptive new entrant.
The Big 60,000 would mean thousands of new local community energy companies, serving both their own needs and those of their neighbourhoods. It would mean thousands of companies and organisations grabbing a genuine new commercial opportunity, making their operations more resilient, resource efficient and reducing the risk of energy price shocks.
But this is not a pipe dream. It can be a reality in a prosperous industrialised country with a growing population. In Denmark, distributed energy meets around 30 per cent of the nation’s heating and electricity needs and in the industrial Netherlands nearly 40 per cent of energy is met from decentralised sources. The largest share is met by gas fired CHP.
Gas with environmental standards is the ally
There is a lesson here for the environmental lobby. Gas is not a bogeyman. Gas is our ally. In any credible long term plan to decarbonise our economy, when extracted and utilised to the highest environmental standards, gas is still an essential intermediate energy source. If we are to scale up community and distributed energy and, crucially, at a time of a rising cost of living, ensure that energy bills are affordable for consumers, over the medium term we will need more gas not less. Unabated coal should be the committed environmentalist’s number one target, not the cleanest and most efficient of fossil fuels. Of course, we will need to think harder and act even faster to decarbonise gas usage in the long term. But, in a balanced, secure energy sector, gas, as well as both large and small scale renewables, new storage technologies and demand response systems, will still have a vital part to play for years to come.
So here is the challenge for the next Conservative government. How to encourage both massive investment in our large scale energy infrastructure, especially offshore wind and nuclear, and re-engineer our grid to be smarter, whilst also unleashing the potential for all scales and types of community and distributed generation?
I have stated on record, my personal ambition is to see over 20GW of solar deployed in the UK by the next decade. We could achieve that huge figure by covering just 14 per cent of our industrial and commercial roof spaces with increasingly efficient solar photovoltaic panels. New projects like the 5MW array at the Bentley Motors factory in Crewe, the UK’s largest rooftop solar array, and the 1MW ‘solar bridge’ at Blackfriars in London are fantastic examples of how this can be done.
Renewable heat can help supersize the ambition
CHP, particularly in larger industrial, commercial and retail premises could also help supersize our ambition. To do this at scale, gain the best deal for the consumer and maximise carbon and investment efficiencies, we will need to plan strategically at the local level for renewable heat networks: industrial, commercial and residential. Success will require a clear integrated vision to deploy renewable heat and electricity in the most efficient way. Private sector, communities and local government will all need to work in partnership with overarching support from national government.
We must encourage not just homeowners and social landlords to appreciate the attractions of self-generation and exporting electricity and heat but also, most importantly, our business sector, large and small.
If CHP can work in Slough business park, at British Sugar in Norfolk, at Waitrose in Bracknell or in the heart of Sheffield, Birmingham and even in Whitehall, it can work anywhere. And community energy is the perfect partner for a step change in energy efficiency.
There is nothing to focus the mind on energy efficiency like starting to generate more of your own energy. Experience of the last three years has shown that installing a decentralised, low carbon energy system is a terrific spur for people to slash their unnecessary consumption. Thousands of newly deployed, distributed energy technologies have been quickly followed by the installation of sensible waste saving measures. In the USA they call it the D3 agenda. This is the coupling of Demand Response and Demand Reduction technologies and measures with Decentralised Energy. D3 is growing like wild fire in corporate America. Now we need to drive it here in the UK.
Regulation shouldn’t stand in the way
But, if we are to create thousands of new local energy companies, we should look to do even more to hack away the regulatory barriers that stop companies and community groups exporting to the grid or creating their own local, mini grids. We will need to further align commercial and community incentives and eradicate any remaining, over complicated or overlapping government policy that stands in the way.
To create the necessary smart infrastructure, a future Conservative government should continue to build grid resilience and flexibility and future proof any upgrades. Self generation must become the automatic default option of the progressive, ambitious, go ahead company and the obvious choice for the disruptive entrepreneur, whether they are a retailer or a manufacturer, running a multi-national or a brand new start up.
But government doesn’t have money to throw at this agenda. And we need the interests of the consumer at the heart of this agenda, if we are to create genuine competition and deployment at scale, without placing a burden on energy customers.
Thanks to falling costs and innovation, this is achievable. We can build the Big 60,000 and unleash unprecedented consumer choice. The government must be a partner in this. It requires vision, ambition and a coherent strategy to shoot for it. But the prize is growth, jobs, economic resilience, a better deal for the consumer, a cleaner, greener, safer environment and energy security. Doesn’t that sound like a Conservative agenda?