Coherence is returning to UK energy policy

Stromleitung mit SonneUK energy policy took two big steps forward today, after months of self-inflicted damage by a government unclear about what it wanted to achieve.

There remain some big gaps, most notably on energy efficiency, onshore wind and solar, but we now know a lot more: the government is serious about coal phase out and it will give offshore wind a fair crack at the whip. The first two building blocks of its energy policy have been put in place.

The coal decision is the big one. The world’s first coal power station was built in London in 1882. The last UK stations, Ratcliffe and Drax, will close 143 years later in 2025.  We will be the first major economy in the world to ditch the filthy fuel. It helps that we are two thirds of the way there but, now its end is in sight, things will speed up. We lose three of the oldest power stations next March.  The government and regulators can now plan an orderly phase down of the remaining seven. The government may be focused on filling the gap with new gas power stations, but it’s far from clear that we will get a new dash for gas, and we ought to be able to persuade DECC to open up competition to negawatts, which we believe could fill two thirds of the gap created by phasing out coal.

An example to the world
When David Cameron agreed to the principle of coal phase out, in a party leaders’ pledge we brokered in February, it attracted international interest; but there was no clarity about when and how it would be achieved. The PM can now dine out on it when he meets world leaders at the Paris COP in two weeks time. If he can inspire others to follow our lead, he will achieve more than almost any other policy the UK could champion. Ramping down on coal should be the priority for every country on earth.

Politics has a habit of fighting the last battle and, in the past few months, we have seen a great deal of negativity about the cost of renewables, a major challenge in the last parliament but very much less so in this one.  It’s therefore very significant that Rudd has persuaded the chancellor and the prime minister to maintain support for offshore wind in the 2020s.  The government has thrown down the gauntlet to the industry on cost reduction, as we have long recommended. In return, the sector gets to chew on another 10GW of CfD contracts. If you’d like to know more about this approach, we have published the case we made to government.

Still unanswered questions
There were many things today’s speech did not do. Thankfully, it didn’t reset energy policy, but it was close to Rudd’s description of the need for ‘course correction’.  She endorsed the case I made last month,that energy policy is meant to be boring and, by implication, that it should not be a political football. The speech did not answer the many questions about the future of solar, onshore wind or energy efficiency, and it underplayed the UK’s low carbon story. It did not resolve the glaring inconsistency between the government’s approach to renewables cost competition and its willingness to treat nuclear as a special case.

These are issues we’ll have to return to in the coming months, but we now have more clarity on the principles this government aspires to for a secure, low carbon energy system: competition, cost discipline and innovation. We can work with that to get a more sustainable energy system, particularly as we now have a longer term frame for decision making to 2025. And we have a strong signal that the government is in the market for new policy ideas on heat and demand side action.  Most importantly, it starts to resolve the politics, which has been at the heart of the problem the past few months. The negotiation in advance of the speech required the PM and the chancellor to agree on the coal and offshore wind decisions.  In doing so, they are now out of reverse gear on energy policy and heading in roughly the right direction.

One comment

  • I don’t think the coal decision is a big or coherent. The problem is that it is another arbitrary technology-based intervention in a market that should be governed by consistent regulation focussed on environmental outcomes. It happens to be an arbitrary intervention that greens like, but it suffers from the same problem that all the other recent abrupt policy changes created – increased political/regulatory risk and a harmful impact on the investment climate and cost of capital. We already have a policy for coal: the EU Emissions Trading System backed by the Carbon Price Floor to address carbon; and the Industrial Emissions Directive to address air quality and acidification. These will ultimately kill off coal, if that’s the right thing to do, but what about the situation where it would still make sense to run a coal plant under this regime – we would be losing something (energy security or cost effectiveness) if it was banned by executive fiat.

    Of course, the closure is entirely symbolic and makes no difference at all to carbon emission as it will simply release pressure within the EU ETS cap, allowing more carbon to be emitted elsewhere in the EU in line with ETS and IED.

    The coherent approach would have been to rely on, and build the credibility of, the existing policy instruments – not to introduce new ad hoc measures. If these are not reducing carbon fast enough or improving air quality in the way campaigners would like, then the coherent policy response would be to tighten the ETS cap post-2020, raise the carbon floor price and/or strengthen the Industrial Emissions Directive.

    I think the emphasis on energy security and cost-effectiveness are the important new emphases in the policy, and that these are pre-requisites for gaining popular support for green measures. It is an implicit ranking of the objectives of the energy ‘trilemma’.

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