The government's long-awaited energy policy reset contained some good news for green business, but it also raised more questions than answers
Was it an energy policy 'reset' or an energy policy wish-list? Did this morning's speech by Energy and Climate Change Secretary Amber Rudd demonstrate the "type of leadership that nations around the world must take in order to solve the climate crisis", as Vice President Al Gore claimed? Or was the proposed switch from coal to gas akin to "trying to go dry by switching from vodka to super strength cider", as Green MP Caroline Lucas argued? Has the government sent a clear and unequivocal signal to coal and gas investors or a fudged and confusing signal to all other energy technologies?
The answer, as is so often the case when dealing with a topic as complex and controversial as energy and climate change, is all of the above.
Rudd's much-anticipated speech was always going to struggle to live up to expectations (expectations, remember, the government itself set running by unexpectedly tearing apart the previous administration's energy strategy and then signalling that replacement policies would be announced by the autumn). The sheer scale of the challenge faced by a Department of Energy and Climate Change (DECC) trapped between the Treasury demand to slash subsidy and departmental spending, the requirement to beef up tight energy margins, and the need to meet legally-binding carbon targets means delivering a truly coherent new energy doctrine is much easier said than done.
Consequently, it would be churlish in the extreme for environmental campaigners not to welcome the ambitious and encouraging aspects of the speech. The fact the UK has moved from being the first country to pass a Climate Change Act to the first country to propose a phase out date for unabated coal power is something to be proud of.
Equally, Rudd's unalloyed commitment to the Climate Change Act and the next carbon budget is to be welcomed in the current febrile political climate, as is her support for clean tech R&D and recognition of the huge potential of demand management, energy storage, and smart grid technologies.
However, the speech also contains contradictions large enough to drive a fuel cell powered bus through. Rudd's unwavering support for gas and nuclear carries with it significant environmental and energy security risks that the government appears keen to gloss over, while the speech as a whole raises far more questions than answers.
Here are just some questions government needs to answer if it is to assure businesses and campaigners that the much-touted energy policy reset really will deliver the competitive, open, low carbon, affordable, and secure energy system Rudd promised:
1. When it comes to the energy market, will the government really "get out of the way as much as possible, by 2025"?
The glaring contradiction that runs through the speech like a nuclear fuel rod is the double standard being imposed on renewables when compared to gas and nuclear. At one point Rudd assessed the merits of decentralised and centralised clean energy systems and declared "it is not necessarily the job of government to choose one of these models". This came in a speech where she had expended over 4,000 words doing pretty much exactly that, at one point going so far as to envision a future energy mix based around "new nuclear, new gas and, if costs, come down, new offshore wind".
So, which is it? Is the government transitioning to a competitive clean electricity market where by 2025 new nuclear, gas (presumably with CCS), and renewables, not to mention interconnectors and energy demand management systems, compete in "open, competitive markets"? Or will energy security concerns necessitate the continuation of subsidies dished out for gas and nuclear and an energy mix determined by ministerial diktat?
Equally, the speech included an explicit cost ultimatum for offshore wind, but where is the same ultimatum for nuclear and gas? What happens if the government's preferred options fail to deliver cost reductions - a scenario that remains an all too plausible possibility given the nuclear industry's history of cost overruns and the volatility of the global gas market.
Moreover, if the government is serious about delivering a genuinely competitive energy system from 2025 what will Ministers tell Chinese nuclear developers if it turns out they can't undercut low cost renewables and gas with CCS? The government may want a level-playing field by 2025, but is tilting the playing field in the interim the best way to deliver it?
2. What happens to new gas plants when they have to shut down in 15 years' time?
Rudd's commitment to the Climate Change Act will be welcomed by green businesses everywhere, particularly when rumours about George Osborne's opposition to the targets refuse to die. But these legally binding emission targets pose a particular challenge to the government's plan to build a new generation of gas plants.
You would be hard pressed to find a decarbonisation model that does not require unabated fossil fuels to be pretty much completely removed from the power system within 15 to 20 years, so where is the government's plan for ensuring new gas plants either install CCS pretty rapidly after they come online or prepare for an early shutdown?
Prospective investors in gas power plants know emissions restrictions are coming, which is one of the reasons they are reluctant to bring forward new projects in the current climate. The government is visibly desperate for them to overcome this reluctance, which leads to two more crucial question: How much subsidy are Ministers willing to shell out to get new gas plants built? And when will long-promised CCS projects materialise?
3. Can you prove an energy mix that is more reliant on gas and nuclear is cheaper than one with a greater reliance on renewables and energy efficiency?
Rudd's goals are clear. The evidence to back them up is far more opaque. The entire direction of the government's energy strategy since the election has been defined by the belief renewable energy is too expensive and there is a more cost-effective route to decarbonisation. Even when evidence emerged onshore wind and solar power is already cheaper than Hinkley Point C, the government countered that nuclear represents a good deal when you look at all the grid costs associated with renewables.
But where are the projections and calculations to show renewables really are less cost-effective? People are being asked to take a lot on trust. Why can't the government show its workings and make public the figures it has used to justify its new "cost-effective" decarbonisation path?
4. Is the renewable energy sector going to face additional grid charges?
Rudd hinted further costs could be loaded on renewables projects, declaring that "in the same way generators should pay the cost of pollution, we also want intermittent generators to be responsible for the pressures they add to the system when the wind does not blow or the sun does not shine".
Does this mean we're going to see potentially retrospective charges on renewable energy generators? Will the same charges be levelled at thermal and nuclear plants when unexpected faults put far more pressure on the grid than anticipated lulls in wind speeds ever could? Will any charges cover the full system cost imposed by renewables, or like inadequate carbon charges on polluters, will they cover just a fraction of the true cost? Investors and developers deserve to have the answers to these questions as soon as possible.
5. How much money is actually left in the Levy Control Framework?
The government has spent the entire summer justifying its torching of renewable energy policies by insisting there is no money left in the Levy Control Framework (LCF) budget. Now, presumably as a result of the swinging cuts imposed on the wind and solar sectors, enough budget is apparently available for three rounds of auctions for contracts for difference (CfD).
This is arguably a good use of what money remains, given competition should help push down costs, but how much is left? Is it advisable for a large number of offshore wind developers to keep pursuing their plans or realistically is there only funding available for a couple of projects? What about biomass, solar, and onshore wind projects, will they be able to compete for CfDs as originally planned? After all, Rudd said this morning that she wanted to see a "competitive" market and EU State Aid was granted on the understanding the contracts would be allocated on a competitive basis.
Moreover, given large energy projects take years to plan what will happen to the LCF model post-2020? Will Hinkley Point eat up the bulk of the budget, as many fear, or is money going to be available for a wider array of clean energy projects?
6. Where has the government's ambition on energy efficiency gone?
Rudd attempted to offer some succour to a battered energy efficiency sector that has reportedly lost thousands of jobs in recent months, reasserting government plans to deliver one million efficiency upgrades this parliament.
But, as Ed Matthew of the Energy Bill Revolution campaign, observed this afternoon "a commitment to only deliver energy efficiency measures in one million homes marks an 78 per cent reduction in the number of homes that received support during the last Parliament. If this pledge is fulfilled it marks a catastrophic fall in the number of households helped."
It is common knowledge in the energy efficiency sector that the ECO energy efficiency scheme is starting to grind to a halt and while Rudd's suggestion the government wants to see it improved will be welcomed the industry is desperate for more detailed plans. Meanwhile, the pointed omission from the speech of the Green Deal will fuel suspicions it will not be replaced, meaning the market failure that leaves millions of households nowhere near optimal levels of efficiency will remain completely ignored for another parliament.
7. Should clean tech R&D adhere to 'learn by doing' principles or not?
In defence of nuclear, Rudd declared: "The challenge, as with other low carbon technologies, is to deliver nuclear power which is low cost as well. Green energy must be cheap energy. But innovation is not just about trying things out in a lab and magically discovering a new energy source. It is also about testing things at scale. We learn from doing."
Later, in the same speech, she argued: "Energy research and development has been neglected in recent years in favour of the mass deployment of all renewable technologies. We do not think this is right."
Leaving aside the fact there is scant evidence early stage R&D budgets were ever raided to support the "mass deployment of all renewable technologies", how come support for nuclear is justified by the need to "learn from doing" and support for renewables is castigated for delivering precisely the same outcome. From marine energy to wind farms, deployment has been crucial to helping lower costs. Is the recognition of the importance of research and development and deployment being shelved or not?
More specifically, while the commitment to better support energy R&D is hugely welcome how will this translate into actual government support at a time when DECC has reportedly just agreed to budget cuts of around 21 per cent?
8. Why was talk of an energy policy 'reset' absent from the Conservative election manifesto?
Rudd dates many of the challenges she identified back to 2008 and Ed Miliband's clean energy reforms, which means a good time to have given these issues an airing and put forward sweeping new policy proposals would have been during this year's election. And yet the Conservative manifesto offered a notoriously vague vision for the UK's energy and climate strategy that offered few clues at the massive policy shake up that was on the cards.
Ministers now appear somewhat taken aback that investors and businesses are angry at having been blindsided. However, there are important questions to answer over the mandate the government has for pushing through such a fundamental shift in the UK's energy strategy (or there would be if the opposition could get its act together).
More pointedly, if many of the current problems were the result of the last government signing contracts "with no price competition", why did the 'quad', including David Cameron and George Osborne, sign off on the coalition's energy strategy. Why did none of the Conservative ministers in DECC raise the alarm over the alleged largesse of their Lib Dem colleagues? And why has Rudd just signed a nuclear contract "with no price competition"?
To put it another way, how angry will Amber Rudd the Conservative Energy and Climate Change Secretary be when she catches up with Amber Rudd the coalition Energy Minister?
9. What will the reset do to the government's standing in Paris?
The headline-grabbing commitment to phase out coal will be rightly welcomed at the UN summit as a genuinely historic step, even if the government was careful to insert caveats about the pace at which coal plants will be closed.
However, is it really the case the UK's influence in Paris will not be dented by its decision to slow the roll out of renewables and once again commit to maximising North Sea oil and gas production? If every country vowed to maximise oil and gas production and invest in building new fossil fuel industries, just as the UK is doing, then we would soon cruise past 2C of warming, with or without coal.
Rudd recently suggested no other country had raised concerns about the direction of UK energy policy with her. But well-placed sources have told BusinessGreen concerns about the future of British renewables and the pace of decarbonisation have been raised by other delegations with senior figures in the UK government.
It is great the UK wants to provide a cost-effective decarbonisation template for the world to follow. But it is hard to see how the current strategy will prove more inspiring than the explicit commitment to climate action currently being offered by the likes of Barack Obama and Angela Merkel.
10. What is the government going to do about the imminent clean energy investment hiatus? Do we have a Plan B?
Despite the many unanswered questions, there is a lot to like in the government's new energy vision. The commitment to decarbonisation remains in place, the door remains ajar to renewables, and the desire to step up clean tech R&D investment appears genuine.
However, the real test of the speech is whether this new approach is capable of mobilising the huge wave of clean energy investment that is desperately needed and on this crucial issue the jury is very much out. Much now rests on the ability of the government to rush through its promised proposals on the capacity market, the coal phase out, energy efficiency and the demand management sector, and the next wave of contract auctions, finalise them within a matter of months, and then ensure they are successful.
The timeline is staggeringly tight because unless much more detailed plans are finalised early next year the final wave of renewables projects delivered under the current regime will get underway and then the project pipeline will start to look very bare indeed. The first wave of capacity market contracts look like they have failed to deliver new investment, uncertainty continues to stalk the renewable energy pipeline, pushing up the price of capital in the process, and the ECO energy efficiency market is on the brink of crisis. Throw very real concerns about the ability of EDF to deliver Hinkley Point on time and it is clear the government's supposedly security-focused new approach is not without considerable risk.
All of which begs the question, what happens if Rudd's gas and nuclear vision proves to be a mirage? Is there a plan B?
Perhaps it would be wise to develop one based on much bolder investment in energy efficiency and a concerted attempt to exploit the falling cost of genuinely clean energy and the enormous potential of smart technology and energy storage. If the government delivers a genuinely competitive energy market, such an approach may not even require a u-turn from ministers. After all, as Rudd observed today of the competing visions for the future of UK energy "government is the enabler - the market will reveal which one works and how much we need of both". Amen to that.
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