UK energy strategy, says Amber Rudd, is still out of balance. With new gas-fired, nuclear and low-cost offshore wind power, and the death of dirty coal and other far-reaching measures, the Government has a lasting solution, she believes. Jon Herbert details her long-term proposals.
In a keynote policy speech mapping out a new strategy for decades to come, the Energy and Climate Change Secretary has announced wide-ranging plans designed to deliver energy security, but also long-term affordability and a low-carbon future.
Energy, adds Ms Rudd, should be boring! Sustainable energy should be “there” so that people can go about their busy lives without giving it a second thought. But getting “there” requires radical changes. The UK is saddled with an outdated energy infrastructure, she says. However, a central theme to her new proposals is scalability — whatever energy sources are chosen for the future must have the capacity to deliver on a realistic scale if genuine security is to be guaranteed.
Therefore, big bold changes are proposed. The route forward, with a major emphasis on private-sector entrepreneurship and tightly-retargeted public-sector involvement, has been criticised widely for removing subsidies from renewable energy sectors still finding their feet in new markets. However, the energy secretary is adamant that this is the only way to go.
Ms Rudd has signalled that unabated dirty coal is out, a series of new gas-fired power stations are to be built, a “new fleet of nuclear power stations” is very much on the cards, and offshore wind power — if, and only if, costs are reduced — will be part of the new British energy landscape. The death of coal is dependent on new gas stations being brought online.
Crucially, de-carbonisation to combat climate change is a major government priority linked directly to reducing the UK’s financial deficit, she has explained. It is also intrinsic to creating energy resilience.
Innovators, disruptors and reinvigorated competition
Ms Rudd has also honed in on the true role of innovation. Unleashing innovation, she says, is about much more than simply investing money in new bits of kit. Innovators must also be disruptors; government intervention should be minimal, she believes. And where government does become involved in change, which it inevitably must as an enabler, its role is not to choose and promote new economic models, as that, she says, is the job of the market.
Reinvigorating competition calls for new technologies that don’t appear out of thin air. Nuclear energy, gas-firing and even shale gas took years to develop and the “brilliance” of business is in commercialising them.
The DECC minister also sees a key role for smart meters, which with “real entrepreneurial innovation” could help to keep people’s bills low to the tune of “tens of billions of pounds over the decades ahead”. A government paper examining how this will work in practice will be released shortly.
Bad news for the big six
Ms Rudd also announced that working with the National Grid, Ofgem and others in tandem with the National Infrastructure Commission, the current generation and distribution model is to be made more flexible and independent. Huge efforts are to be made to help smaller energy suppliers succeed in the competitive marketplace — not “pretty news” for the big six energy suppliers.
And there is to be a sustained attack on the 45% of energy used for home and industrial heating that is responsible for a third of all carbon emissions. District heating systems, hydrogen fuel-cells and heat pumps that extract latent heat from seawater or the atmosphere are all technologies that offer potential solutions. Again, these approaches are to be set out shortly as part of the Government’s strategy to meet its carbon budgets in 2016.
Energy efficiency measures have already helped 1.2 million households to achieve lower power bills in the last five years; Ms Rudd predicts that by the end of the current Parliament a million more should be enjoying the same benefits, particularly people living in damp and draughty homes.
“By 2025, with a new nuclear power station built, offshore wind competing with other renewables, unabated coal a thing of the past, and smart energy coming into its own we will have transformed our energy system,” she concludes.
Backing new winners
Part of the new strategy is concern that in recent years energy R&D has been neglected in favour of the mass development of all renewable energy technologies, according to current DECC thinking.
“We do not think this is right,” Ms Rudd explained in her speech. “We cannot support every technology. Our intervention has to be limited to where we can really make a difference,” she added.
The Government has come under intense pressure for withdrawing financial support for solar and onshore wind development from New Year 2016. However, its current view is that these technologies have already been fully introduced to the market and must now succeed or fail on their own commercial merits. Instead, future government funding will be directed to emerging and evolving technologies such as energy storage, low-carbon fuels and more efficient lighting.
Carbon capture and storage (CCS) technology is another example, as is building on the UK’s “rich nuclear heritage and becoming a centre for global nuclear innovation”. The nuclear industry is misunderstood. “Opponents of nuclear missed the science. It is safe and it is reliable,” says the energy secretary.
A future for low-price oil
Another interim priority is to maximise economic North Sea oil and gas extraction, where it is estimated that 20 million barrels of oil equivalent can still be extracted by an industry that employs 370,000 people. DECC has launched a consultation in this vital area.
Amber Rudd has focused on two key energy policy developments which together she says have left Britain dangerously exposed.
The first was the break-up of large nationalised energy monopolies in the 1980s, designed to push energy provision onto private industry rather than the state with the aim of delivering energy at “the lowest practicable cost”. The second was the introduction of Renewable Energy Targets in 2007.
The results have been ironic. “We now have an electricity system where no form of power generation, not even gas-fired power station, can be built without government intervention. And a legacy of ageing, often unreliable plants. Previously, even with the huge growth of renewables, our dependence on coal, the dirtiest fossil fuel, hasn’t been reduced. Indeed, a higher proportion of our electricity came from coal in 2014 than in 1999,” Ms Rudd explained.
“So we still haven’t found the right balance,” she added. Electricity market reform is part of the answer. A consumer-led, competitively-focused energy system with energy security at its heart that delivers for families and businesses with minimum government involvement is the Government’s aim by 2025. But, she believes, the system needs to be so robust that it is boring and unremarkable while underpinning energy security.
UK gas is among the cheapest and most secure in Europe. However, declining North Sea output has been upstaged by private-sector investments in new LNG terminals and pipelines to improve supply diversity.
Praising the role of markets, she said that current UK gas imports are expected to rise from 50% to 75% by 2030, which is why the Government wants to encourage more investment in shale gas exploration. Accumulated North Sea know-how will be crucial here, she says. Switching to gas will enable backbone coal-fired power stations, including Longannet and Ferry Bridge, to be closed by 2025, with supplies reduced from 2023.
The Government also supported through its new energy strategy the aim of a new EU report released in November on the “State of the Energy Union”. It is also committed to improving the Capacity Market follow auctions in 2015.
On nuclear, the energy secretary notes that, “It is important that we do not make the mistake of the past and just build one nuclear power station. There are plans for a new fleet of nuclear power stations, including Wylfa and Moorside.” She adds, “This could provide up to 30% of the low-carbon electricity that we’re likely to need through the 2030s and create 30,000 new jobs. This will provide low-carbon electricity at the scale we need.”
“Climate change is a big problem, it needs big technologies,” Ms Rudd insists. Paris is in mourning but also due to host the COP21 UN Climate Change Conference from 30 November to 10 December. A successful outcome in Paris is crucial to the UK’s aims and interests and will see world leaders gather to try to achieve the first truly global deal on climate change.
“Since I became Secretary of State I have been working with my counterparts in India, China, the US, Europe and others across the globe to help make sure we come to Paris in the best place possible. The commitments countries have made so far are significant and a deal is tantalisingly close,” says Ms Rudd.
But an energetic approach is essential. “This much I know, climate change will not be solved by a group of over-tired politicians and negotiators in a conference centre,” she adds. “It will take action by businesses, civil society, cities, regions and countries.
“Paris must deliver a clear signal that the future is low carbon that unleashes the levels of private investment and local action needed. Collective action works when you share the burden fairly, but also when each makes a distinctive contribution. We know that in isolation, cuts to Britain’s own greenhouse gas emissions, just 1.2% of the global total, would do little to limit climate change.
“So we have to ask ourselves the important question: What is the UK’s role in that global decarbonisation? Where can we make a difference?”
Fundamental to success at Paris will be an accurate reflection of the costs of carbon and truly competitive solution that works in practice, Ms Rudd is convinced. “We need to work towards a market where success is driven by your ability to compete in a market. Not by your ability to lobby Government. This will only be possible if carbon pricing works properly.”
However, pragmatic delivery systems are needed. Despite its flaws, the EU Emissions Trading Scheme is exactly the kind of intervention that should be made at a European level where collective action is more powerful, she feels. “The UK has worked hard with others to get major reforms that are helping restore a more stable and robust price on carbon. But I’m determined that we help deliver more this Parliament to restore the ETS to full health.
“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,” she suggests. “Only when different technologies face their full costs can we achieve a more competitive market.”
Published by Croner-i on 25 November 2015