Energy 'reset': Ten burning questions
What should we be looking for in Amber Rudd's long-awaited 'reset' speech?
By Richard Black
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Energy and Climate Change Secretary Amber Rudd’s ‘reset’ speech has been nearly as long in the gestation as Harper Lee’s second novel.
Now that the speech is definitely scheduled for tomorrow (Wednesday) morning and attention is turning from guessing the date to anticipating the contents, what should we be looking out for? And what are some of the surrounding issues that merit a bit of consideration?
1. Is energy policy still aimed at solving the ‘trilemma’?
Under the Coalition government and the Labour administration that preceded it, energy policy had three clear objectives: ensure security of supply, reduce carbon emissions in accordance with carbon budgets, and keep costs under control.
Since the election, we have seen ministers highlight two of these three objectives as single priorities. A few months ago it was keeping immediate costs down, and now, judging by DECC’s advance briefings to the Sunday Times and Telegraph, it appears to be security of supply.
You can construct energy policy around one element of the trilemma, but that can affect the others negatively. For example, a one-eyed focus on reducing near-term costs would include keeping old coal and nuclear stations running as long as possible and investing less for the future – but that would negatively impact both security of supply and decarbonisation.
So, six months into the Conservative-only administration, does the tripartite ambition still stand – or is one leg of the tripod now longer than the other two?
2. Will the end of coal be confirmed?
In their joint pledge before the General Election, the three main parties (defining 'main' in the pre-election context!) vowed to phase out coal, the most polluting fuel, without setting a date. But current policies won't achieve it.
There's growing interest in putting Britain's remaining coal-fired power stations out of their misery. They're mainly 40 or 50 years old, decreasingly profitable, and prone to breaking; this was the reason behind the National Grid's request for additional capacity a couple of weeks back.
Setting a date for the end of coal - perhaps 2020 or 2023 - would stimulate investment in new gas-fired power stations, which currently isn't happening - the market signals just aren't strong enough. It would go a long way to reducing UK carbon emissions, and, of course, garland Ms Rudd and Mr Cameron with laurels ahead of the UN climate summit, which opens in a couple of weeks. It's also backed by Conservatives including Nick Hurd MP.
The country that invented the Industrial Revolution ending the use of coal... now there's a big idea. Will the reset speech turn it into reality? And if not - given that it's been copiously signalled - why not?
3. If security of supply is the priority, what's the timescale?
There are two separate problems with security of supply. The tightest capacity margin between electricity supply and demand is likely to occur next winter. But that's far too tight a timescale on which to get new power stations up and running; or new interconnectors, for that matter, or new energy efficiency measures to reduce overall demand.
In fact just about the only things that could be ramped up within a year are measures to even out peaks in demand. Whether you call them 'load-shifting', 'demand response' or anything else, the key on a 12-month timescale isn't technology but market incentives. So what does Ms Rudd have in mind?
After the 2016/7 winter, things should ease a bit as new generation comes online but there is still a systemic flaw in the electricity market, which lacks incentives to build new power stations, particularly gas which can be used flexibly to balance the variable output of wind and solar. The Capacity Market could address this by rewarding new build (or indeed greater use of demand response), but so far it's rewarding incumbent generation. Will Ms Rudd announce a revamp, or something else?
4. Are boffins or columnists running the show?
One would love to think that all ministers based their policies and pronouncements on real-world evidence rather than the advice of newspapers.
Well, we can hearken back to simpler times all we want; the reality can be very different.
Columnists of a climate-sceptic, pro-fossil fuel bent worked themselves into synchronised apoplexy last weekend over the National Grid's 'emergency' (not that it was one, but why let facts get in the way of a good rant?)
Sure, energy security is essential; but if Peter Hitchens, Charles Moore and Matt Ridley had been apoplectic about energy bills (or, heaven forfend, climate change impacts) would DECC be highlighting a different leg of the trilemma?
Too cynical? Consistency and logic in the 'reset' would reassure.
5. Does the government intend toying with carbon budgets?
It’s often hard to know whether unattributed sentences in newspaper articles are deliberately steered or accidentally phrased.
From the weekend’s crop, we learn that Ms Rudd will hint that ‘she wants a rethink on the government’s commitment to combating climate change, which... could only be met by deployment of nuclear, wind and solar power, at a cost which, Rudd believes, would be unacceptable to consumers.’
Does this mean that Ms Rudd anticipates making a challenge to the successive five-year carbon budgets that progressively reduce the total emissions allowed across the economy?
If so, would that mean trying to negotiate down the fifth carbon budget for period 2028-2032, which statutory advisers the Committee on Climate Change (CCC) will shortly propose? Is the timing of the speech a shot across the Committee's bows as it finalises its advice?
Or does it mean that Ms Rudd would like to re-renegotiate already agreed carbon budgets – something that can only be done if there has been a significant change in either the scientific picture of climate change or in European or international law or policy?
If the latter, which changes does she have in mind?
Or was it just a little bit of near mis-speaking?
Either way, a bit of clarity would be much welcomed. Ten days before the UN climate summit in Paris is not the time for a nation to be sending mixed messages about tinkering with the legal basis of its decarbonisation if it claims to be a climate change leader.
6. Whither the unreality field?
Some of the government's pronouncements on energy have defied reality, particularly on costs.
It tells us that it wants to decarbonise the economy at the lowest possible cost. The cheapest low-carbon generation technologies are onshore wind and solar. Yet ministers, including Chancellor George Osborne, insist it’s nuclear – despite the fact that contracts they’ve signed with onshore wind and solar farms provide electricity more cheaply than the Hinkley C contract, in fact about £10 per megawatt hour (MWh) more cheaply.
So-called 'balancing costs' - the additional costs incurred by having a lot of variably-generating renewables on the system - could increase that by about £10 per MWh.
So that puts these renewables roughly on a par with nuclear at the moment. But their costs are coming down, while Hinkley’s, if real-world evidence is any guide at all, are likely to rise.
Yet onshore wind and solar are precisely the two technologies that the government has done most to scrap, through changes to the planning and subsidy regimes.
Another example lies in the disconnect between insisting renewables must be subsidy-free right now in order to reduce bills for - yes, you guessed it, 'hard-working families' - but then handing Hinkley’s developers a whopping subsidy until at least 2058.
So will Ms Rudd make any attempt to reconcile rhetoric and reality around the ‘cheapest’ form of low-carbon electricity, or let the unreality field persist?
7. Efficiency, productivity, waste-cutting: Where has it gone?
The cheapest form of energy is usually to use less of it - or, if you prefer, to make each watt more productive. It also makes measures that increase energy security by reducing peak load, such as demand response, easier to implement widely.
As the CCC has observed, industrial energy efficiency policy has stalled; and shortly after the election, the government also scrapped the Green Deal, its flagship policy for homes.
DECC is known to be amenable to a revamp of energy efficiency policy – so what clarity is there on what it will that look like, and how will be it supported at a time when adding anything to energy bills appears to be too toxic to contemplate?
8. How wide the field of view?
There is a spectrum of ways of looking at energy economics, ranging from narrow to wide.
The narrow version consists of looking simply at how much various technologies cost now. By progressively widening the field of view, you can encompass longer-term cost trends for the technology itself, societal costs and benefits in areas such as jobs and saved health care costs, and finally the avoided costs of climate impacts achieved by decarbonising.
Ms Rudd has ample evidence in front of her if she wants to widen the horizon.
For example, the UK Energy Research Centre calculates that the small-scale rooftop solar industry on its own employs about 18,000 Britons. For every 1% of our electricity that is generated from renewables instead of fossil fuels, we create an additional 1,675 jobs.
Meanwhile, evidence that decarbonising early brings economic benefits from avoiding climate impacts dates back to the Stern Review of 2006.
If a reset policy looks cheaper now through a narrow lens, how does it look as a long-term play from a broad perspective?
9. Apart from energy, what else?
Virtually all of the studies plotting a long-term route to a low-carbon society have three core components: use energy more efficiently, build a low-carbon electricity system, and then expand electricity into areas that are currently dominated by other forms of energy, such as transport and home heating.
There are synergies. For example, electric cars, when hooked up to the grid, act as electricity storage units. Long-term policymaking, as we see in Germany, takes all of this into account in a progressive, planned transition that also keeps costs down and avoids disruption simply by being planned.
After the reset speech, will we have one of those?
10. Where is the societal mandate?
Here are some facts.
Seventy-six percent of the UK population supports using renewable energy. On a technology-by-technology basis, this ranges from 66% for onshore wind to 80% for solar.
By contrast, nuclear is supported by 36%.
Very nearly 80% of the population backs subsidies for measures that cut energy waste, with nearly as high a proportion backing subsidies for renewables.
Subsidies for nuclear power are supported by 33% of the population – and that’s higher than backing for gas (31%) or coal (23%) subsidies.
And while a relatively paltry 41% of Britons see climate change as a very serious problem, 78% support limiting greenhouse gas emissions nationally as part of an international climate change agreement.
So there is little doubt that the UK population wants the government to decarbonise our economy, and sees cutting energy waste and renewables as their preferred route.
Will energy policy, once reset, reflect this societal mandate?
There are many other questions that may be resolved in the reset speech - but, one thinks, not all. For one thing, DECC has not finalised its review of all aspects of energy policy. For another, the Comprehensive Spending Review is a further week away.
Still, as an indication of this government's thinking and trajectory, it promises to be most enlightening.