Monday, February 1, 2016

UK Energy Policy overview: not a good story

Sometimes it is worth looking back at how we got where we are. An academic paper published in Energy Policy looks at the UK’s record in the energy sector, focusing on RD&D and innovation policy. Under the Thatcher government it collapsed: ‘From the mid-1980s onwards, market liberalisation and industry privatisation led to a collapse in RD&D efforts; whilst these forces were felt globally, they were experienced particularly strongly in the UK. The UK's privatised energy companies had little strategic interest in technological innovation and there was very little public or private investment in energy innovation in the 1990s. One material aspect of this was the closure of much of the UK's public research infrastructure, with remaining skills and facilities dispersed across a small number of isolated research groups’.

However there were some reactions: ‘A number of high-profile reviews and enquiries in the early-2000s paved the way for increased innovation efforts, but this turn-around started in a very gradual fashion. The principal driver for change was an emerging decarbonisation imperative. The scale of the challenge presented by climate change for energy systems was highlighted by the Royal Commission on Environmental Pollution. The RCEP concluded that the UK should aim to reduce emissions by 60% on 1990 levels by 2050, implying wholesale changes in the production and use of energy. It also represented a challenge to the technology-neutral principles that had dominated UK energy innovation policy for more than a decade; the RCEP called for stronger market-pull mechanisms for mature technologies and increased early-stage support for those emerging technologies most relevant for the UK’.                 

The paper says that actual policy response was limited: ‘spending levels increased only slightly, organisational reforms were modest and there was no major shift from technology-neutrality toward a priority-based innovation system’. Nevertheless, energy and climate became prominent issues in policy debate, and in 2001, under the New Labour Government, the Performance and Innovation Unit (PIU) ‘undertook the first systematic energy review since privatisation. On innovation strategy, the PIU was informed by an Energy Research Review Group (ERRG) set up by the Government's Chief Scientific Advisor, a prominent advocate of greater efforts on energy innovation. The ERRG called for UK public spending on RD&D to be raised to bring it in line with that of European competitors’.                            

It took time for anything significant to happen. But the Labour Government did accept the RCEP's recommended 60% by 2050 target. The paper says that ‘though this re-established the legitimacy of long-term steerage of the energy system, it was modest in terms of its political, economic and institutional impact, at least over political and corporate planning horizons. The carbon emissions of the UK electricity system had fallen steadily during the 1990s and early 2000s and the Royal Commission and PIU both presented scenarios suggesting that the 60% target could be met largely by a gradual roll-out of renewable energy and energy efficiency measures. Large-scale technologies such as nuclear power and carbon capture and storage (CCS) were not seen as central strands of the required response at this time, at least over the short to medium term’.

However, then things changed, with PM Tony Blair famously announcing that nuclear power was back on the agenda ‘with a vengeance’. Sadly the paper doesn’t explore how or why this occurred, or the subsequent cut backs in renewables and expansion of nuclear support. It’s more concerned with R&D/institutional issues, but as far as it goes it is interesting.
Full disclosure: I was a member of the ERRG. I didn’t realise it was so influential.

So where are we now?  We are in the midst of cuts.  Energy Secretary Amber Rudd’s energy market reset plan did not offer much new, apart from the welcome proposal to dump coal use, just a reiteration of the wonders of market competition: ‘We need to work towards a market where success is driven by your ability to compete in a market. We need to work towards a market where success is driven by your ability to compete in a market.’

Competitive markets are not all bad. It is good to see generation costs falling. However  that may not lead to reduced prices. As Rudd said ‘It remains frustrating to me that the falls in wholesale gas prices have not been passed on to most households. It is also not clear that all business customers are benefiting from competition in a market that lacks transparency’. Moreover, the government is not actually imposing market discipline fairly. It is cutting the cheapest non-fossil options, but supporting one of the most expensive – nuclear. Backing Hinkley, and the follow up nuclear plants, will push up electricity bills by much more than would backing on-shore wind. Whereas the proposal to cut support for on-shore wind and PV solar may raise costs, since more expensive sources will have to be used if the 2020 renewables target is to be meet. The Citizens Advice Bureau says the CfD block to on-shore wind may cost £0.5bn, over the term of the CfD contracts so far awarded:

Rudd says ‘We need a course correction using the tools we have already developed through Electricity Market Reform’. For all the talk about competition, her minor course correction seems to be mainly about imposing pre-set ideologically-based technology choices, and that seems likely to continue to take us in the wrong direction. No change (from Thatcher or Blair) there then! Rudd says ‘only when different technologies face their full costs can we achieve a more competitive market’. However, in practice, most of the choices being made are based, not on market tests, but on political preferences. Up to a point that’s fine. That is why we elect politicians – since not all choices can be made on the basis of market tests, even if they include external costs. But what do we do if they get it consistently wrong on key issues? Even Corbyn seems to be going the same way: ‘While I strongly support green energy in general, such as wind, wave, tidal, solar power and energy conservation measures, I understand that you have to have a base of electricity production. Otherwise when those renewable resources don't kick in you end up with no supply.’ Jeremy Corbyn, Labour Leader, evidently now backing nuclear power.  If true, we have not moved on much in 30, or indeed 50, years.

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