The Chancellor’s energy budget: In or out of balance?
Richard Black asks whether George Osborne's eighth Budget will deliver a long-term energy vision.
By George Smeeton
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Something quite remarkable has happened in the world of UK energy policy over the last few weeks; and the Budget will give an early indication of whether its importance has been registered in the highest echelons of government.
In short, three very significant bodies have come out with visions of how the UK electricity system should best develop over the next 15 years; and they’re all pointing in the same direction.
These are not the habitual bunches of either ‘greenies’ or ‘brownies’, I should add, but organisations with real skin in the game: National Grid, Energy UK (the main lobby group for generating companies) and the nascent National Infrastructure Commission.
First out of the traps was Steve Holliday, who’s about to step down as boss of National Grid after 10 years spent keeping the lights on.
As he described it in the Sunday Telegraph last month, what’s happening in electricity systems worldwide isn’t so much a change as a ‘revolution’ – phasing out the traditional model of big monolithic power stations delivering electricity to passive consumers, and phasing in a diversified, renewables-based system for the advantages it brings, namely:
- energy security rather than reliance on coal and gas imports
- democratisation, taking political influence away from a handful of powerful utilities and delivering it to the electorate
- predictable and falling prices
- freedom from carbon emissions.
Some modern nations such as Denmark are already halfway through the transition; and it’s happening in Britain too, though not quite as quickly.
At the start of Mr Holliday’s time in office, renewables supplied 3% of UK electricity; now the figure is nearly 25%. Then, fewer than 50 power stations pumped power into the grid; now there are more than 240, plus hundreds of thousands of homes and businesses up and down the country producing electricity for their own use.
Mr Holliday offered three key components he believes now need to come in in order to maximise advantages of the flexible, diversified grid in the UK.
One is truly ‘smart’ control systems that put consumers in charge and foster innovation. The second is a grid that allows homes and businesses to generate their own electricity, store it or sell it when there’s a surplus and buy it when there’s a deficit. The third is a proper understanding of demand response (more of that later).
Turkeys embrace Christmas?
A few days afterwards, a broadly similar and much more fleshed-out prescription for the logical future of electricity emerged from an apparently unlikely quarter: Energy UK. Historically a byword for conservatism and corporatism, its report is thus doubly remarkable for the certainty with which it embraces an energy transition.
Its first conclusion is that 15 years hence, the electricity system will look very different from today. Smart meters, solar energy from household and business roofs, storage (partly from electric cars plugged into the grid), more interconnection with Europe, and fridges and washing machines equipped with sensors programmed to draw power when it’s cheap and plentiful. All of these concepts, it notes, are realities now, and becoming smarter and cheaper all the time.
Secondly, efficient is beautiful. Increasing energy efficiency is regarded with distaste in corners of Treasury where the late, unlamented Green Deal still irritates from its place in the bin of screwed up policies; but efficiency is common-sense, and should logically be resurrected as the foundation of all other energy policies.
And thirdly, long-term thinking and a stable policy framework are needed soon in order to drive the investment changes we need.
The third major endorsement for the near future ‘flexigrid’ came from the National Infrastructure Commission (NIC), set up by George Osborne to ponder and recommend on the big infrastructure questions of the day.
Its boss Lord Adonis commented: ‘Our existing power stations are closing down and their replacements will be radically different as we decarbonise supply to reduce emissions. This represents an enormous challenge, but it also leaves the UK uniquely placed to benefit from three exciting innovations set to transform the global electricity market – interconnection, storage and demand flexibility.’
Beyond the set of three
Now, it’s worth pointing out that although many energy professors have been advocating the flexigrid concept for years, and other countries (notably Germany) have national plans for making it reality, in Britain there is a fairly hefty rear-guard action in play.
One of the arguments it makes is that demand response – where companies and indeed householders are rewarded for switching off non-essential systems at times of high demand and high cost – is somehow undignified.
Private Eye’s resident curmudgeon, Old Sparky, recently described it as a ‘third-world’ option, even though it’s probably used more heavily in the US than anywhere else. He clearly hadn’t read Steve Holliday’s observation: ‘…to read some reports in the press you would think that factories are having to shut down all over again and Britain is on the cusp of another economic meltdown. That sentiment is absolute nonsense…’
Demand response contracts are in fact just business deals, whether it’s a factory that makes a bit of extra cash from switching off its air conditioning during a spike in demand or a group of households gaining a rebate from allowing a smart algorithm to choose exactly when the dishwashers go on.
Here too there’s been a remarkable development in the last few weeks. The ‘brown movement’ likes to claim that heavy business users will hate demand response. But now they’ve said officially that they quite like it – ‘they’ in this case being the Major Energy Users’ Council (MEUC) and the Energy Intensive Users Group (EIUG), lobby groups for big energy users.
Rather than building new generators that would only operate at peak time and thus represent a wasteful use of billpayer’s money, MEUC’s Technical Director, the appropriately named Eddie Proffitt, said it was much better ‘to encourage businesses to turn down when demand is high and even divert their own generating plant onto the grid for the benefit of everyone.
‘They could then make use of much cheaper power at off peak times or even be paid to use it when supply exceeds demand. I believe trebling the contribution made in this way is a very real prospect and an essential step towards going green.’
Dazed and confused
The one remaining event in of these remarkable few weeks was the report from the Energy and Climate Change Select Committee. And it wasn’t too complimentary.
‘Sudden and numerous policy announcements have marred the UK’s reputation for stable and predictable policy development,’ it concluded. ‘A lack of transparency in the decision-making process has led investors to question the Government’s rationale for policy changes and to wonder “what will be next?”’
There was much more in this vein. In a nutshell, it said the government – with Treasury in the vanguard – has enacted a series of abrupt policy changes with far too little consultation, with lack of transparency, and with no discernible long-term strategy in view.
As a result, not only decarbonisation is threatened; energy security is at risk, and lack of investor confidence is exerting an upward pressure on energy bills. (Evidence to the Committee suggested the price of abrupt and opaque shifts could be as high as £120 per year on the average bill).
Which brings us back to the Budget.
Lots of other commentators with more specialised interests are going to be discussing what it means for their favourite technology – wind, solar, tidal, biomass, nuclear, energy efficiency.
But in the broadest sense, it boils down to a single question: if there is a global direction of travel towards a diversified, flexible electricity system – if the assembled advice of the National Grid, Energy UK and National Infrastructure Commission all see this as the logical future – will the Chancellor use the Budget to advance progress, or retard it?