David Hunter, energy analyst at Schneider Electric, has analysed the changes made by Amber Rudd in her 100 days as UK Energy Minister – and highlighted the following key issues.
When the levy breaks
The Levy Control Framework was put in place by the Treasury to keep a lid on the amount of subsidy support for low carbon technologies. However, amidst a higher than expected adoption of wind, solar and other subsidies, the framework budget is at risk, with one member of the Climate Change committee claiming it was ‘completely bust’.
Yet a significant part of the increased cost is as a result of falling wholesale prices, meaning that the levy portion of the bill may rise, but the wholesale part will fall simultaneously – is that a failure?
Bonfire of the subsidies
The ‘greenest government ever’ has announced an end to onshore wind subsidies, one year earlier than anticipated, much to the chagrin of the renewable industry and sustainability campaigners. It is also looking at subsidies for other forms of green generation such as solar. Ultimately the government has to navigate an effective path between rising policy costs and decarbonisation targets.
The next generation of nuclear power plants, originally planned to enter service in 2017, are still some way away. The government has ‘struck’ a price of £92.50/MWh with EDF, the company that plans to build the first new station at Hinkley Point in Somerset. However, there is controversy over whether the 35 year, index-linked ‘contract for difference’ represents value for money for the bill payer – what premium is fair for low carbon, predictable ‘baseload’ supply? Also, the reactor design slated for the UK has run into huge delays, cost overruns and technical problems in both Finland and France and it still remains to be seen whether the UK will be affected.
The horns of a trilemma
The traditional ‘trilemma’ facing policymakers is how to make energy supplies sustainable, affordable and secure. The Secretary of State has been explicit in putting these in order, with affordability as the top priority. Keeping bills under control is bound to be popular, however if push comes to shove the government’s top priority will surely be to avoid ‘black-out Britain’.
Meanwhile, there is pressure for the UK to be able to take a credible position to the crucial global climate talks in Paris in December.
Keeping the lights on
Last week, Scottish Power confirmed that it will close Longannet, one of the biggest power stations in the UK, in March 2016 – and has also scrapped plans for a new gas-fired power station.
National Grid is warning of far tighter spare capacity margins this winter than we have been used to.
Time is running out for the government to connect the dots of its energy security policy to make sure that enough new low carbon generation can be built in time to compensate for the ageing coal, gas and nuclear plants coming to the end of their lives. At the same time, it has to ensure there is enough back-up – both thermal power stations and industrial ‘demand response’ – to keep the lights on when the wind doesn’t blow on cold winter days.
The cheapest energy…
…Is the energy you don’t use, often referred to as the ‘negawatt’. There is massive potential for energy efficiency, and research suggests that the cost of reducing energy use has better returns of investment than other forms of decarbonisation.
Meanwhile the government has postponed its zero carbon homes target and ended the Green Deal for energy efficient investments – so there is a focus on what policies will fill the gap.
Also, there are challenges related to the Energy Savings Opportunity Scheme (ESOS) for business, with concerns over the ability of companies to be audited and comply in time for the December deadline. Perhaps more importantly, the design of the scheme risks limiting valuable audits to a box-ticking exercise, rather than driving meaningful change in behaviour and carbon reduction measures.”