At SSE, we didn’t take a view on the rights and wrongs of a ‘Brexit’- it was for UK voters to decide. And they have. We now have a new Prime Minister whose largest task is delivering on her commitment that ‘Brexit means ‘Brexit’.
We will have to wait and see what that process brings, what arrangements are agreed and how that affects all aspects of our economy.
My particular interest is our energy system and the first thing I’d say to our new Prime Minister and Cabinet is that Britain needed secure, clean and affordable energy before the EU referendum took place.
This was the case before the Referendum and this hasn’t changed. Yet to meet this difficult economic, environmental and social challenge we need both a short term and long term strategy.
In the short term the Energy Secretary has a lot of work to do to keep the policy machinery moving.
Whilst new low carbon infrastructure is being built, including our recently confirmed Beatrice Offshore Wind Farm due for completion in 2019, after 2020 the pipeline (and economics) of clean energy projects are less clear and this uncertainty deters investment.
At the same time the economics of ageing coal plant make this technology challenging and the UK will require a range of other flexible technologies – such as gas – to replace these plants and keep the lights on.
This means that immediate action has to be taken to ensure that the UK stays on track to meet its climate change commitments whilst maintaining secure and affordable supplies for our homes and businesses.
There are three steps I urge the new Government to proceed with.
Firstly, the Government must run this year’s and future year’s annual ‘Capacity Auctions’ which guarantee that technologies such as gas power plants are available when needed.
It is expected that around 12.9GW of generation, a mixture of coal and old nuclear, will be closed down or decommissioned by 2025.
The Capacity Auctions ensure the Government and National Grid has enough power to keep the lights on. They are designed to encourage new generation to come forward and at SSE we’re developing our plans to help the Government achieve this, including for a second Combined Cycle Gas Turbine (CCGT) power station at Keadby in Lincolnshire. It was therefore encouraging to hear last week that the Referendum result does not appear to have derailed the Government’s plans in this area.
Secondly, the Government must make headway towards low carbon investments.
The first part of this is a strong and stable price for carbon in the 2020’s. A strong and stable carbon price means that carbon dioxide emissions are effectively priced and help the best value for money low carbon investments to go ahead. The Chancellor has previously indicated that a decision on the future of the UK’s unilateral carbon price would be made later this year and we would urge that this is not derailed by the Brexit negotiations.
The second part of this is that progress must be made with the next round of low carbon energy contract auctions, scheduled this year for delivery in the next decade. If these two elements can be progressed, investment in low carbon infrastructure can continue apace.
Thirdly, with all this the customer and affordability must remain paramount.
It is absolutely critical that the Government drives ahead with a strong agenda for customers. Britain has some of the draughtiest homes in Europe and progressing the next national home insulation scheme is critical.
It is also crucial that the infrastructure enabling the mass deployment for smart meters to peoples’ homes must be fit for purpose and in place as soon as possible. Good inroads are being made but this is one of the UK’s largest infrastructure projects, touching every home in the country and we have to get this right first time.
And, of course, we have to take steps to implement the substantial package of reforms resulting from the Competition and Market Authority investigation into energy markets. Whilst we still disagree with some of the findings, there is no disagreement that there will be a lot of work to do to implement the package over the coming months.
Ultimately, we know the long term energy framework is less certain than it was before the referendum result.
Taking the steps outlined above will allow the new Government to keep momentum on energy policy through the short to medium term.
Beyond that there are more complicated issues at play and a longer term strategy has to be considered carefully to ensure that the UK learns lessons from the past and keeps pace with changes coming in the future from new smarter technologies.
Longer term, the opportunities from batteries, electric vehicles and new low carbon technologies will bring new tools to the policymakers toolbox and we must facilitate their development too.
We know that energy security and climate change transcend state borders. Whilst we may be an island (UK) we are connected to Europe through gas pipes and electricity cables, our supply chain is local as well as global and energy is a commodity that is traded globally.
Therefore, integrating our energy market with neighbouring countries can help to deliver secure, stable power supplies, as well as harmonising standards which can help to attract investment and reduce costs.
So, as well as urging for short term momentum to be maintained domestically I also hope that the new PM realises the long term significance of energy in our new relationship with Europe and the world. At the heart of this co-operation, collaboration, and the customer must guide our approach.
Alistair Phillips-Davies is Chief Executive of Perth-based SSE.