Annual Policy Review 2014


Energy

Energy

Achieved

  • The Energy Bill received Royal Assent in December 2013
  • Agreement announced for new investment in nuclear generation at Hinkley
  • The Government has provided funding of £3 billion to the UK Green Investment Bank to help support sustainable projects in the UK

More to do

  • Deciding way forward on green subsidies
  • Convincing the public and certain spheres of media and politics on potential of shale gas

The unexpected

  • Extra say for communities over siting of onshore wind farms
  • Shift of policy on ‘green taxes’
  • Successful Labour attack on energy prices
  • Winter storms and power outages over Christmas
  • Public protests in Balcombe around shale drilling

Dangers 

  • Government’s recent announcement on green levies has placed increased expectations on suppliers to reduce energy prices for consumers
  • Rising cost factors continue to drive up energy factors despite Government action

 

The February resignation of Chris Huhne saw Ed Davey move from his role in BIS to become Secretary of State for Energy and Climate Change. Mr Davey is a known environmentalist and lists environmental causes as the key reason for coming into politics.

One of Davey’s biggest challenges has been the passage of the Energy Bill through Parliament. The Energy Bill received criticism from a cross-section of MPs — Energy and Climate Change Select Committee member Barry Gardiner commented that the failure to introduce a decarbonisation target was a broken pledge: “all pretence of meeting our carbon budgets and emission targets will be abandoned.”

This apparent failure of Mr Davey to stand up for Liberal Democrat principles will dismay environmentalists in the party grass roots. The Secretary of State has certainly had to take hard decisions: for instance the announcement that onshore wind farms should include greater consultation from developers with the local communities in which they are proposed. This is seen by the green lobby as a sop to Conservative MPs, who themselves are concerned about the creation of wind farms in their constituencies.

Above all, the major challenge the Government has faced is security of supply for the future, with an ageing generating infrastructure and uncertain trends in oil and gas production.

Recognising the changing nature of traditional oil and gas supplies, the Government asked Sir Ian Wood to look at how to harness the industry’s future. The Wood Review, commissioned in 2013, has already issued interim recommendations that a new oil regulator be set up to oversee the next phase of exploration in the North Sea, with the aim of ensuring greater coordination between competing companies.

The deal to inject private funds to develop new nuclear capacity at Hinkley Point C, with a guaranteed high price for the electricity, was welcomed by just about everyone except fervent anti-nuclear campaigners, albeit with certain reservations about the long-term costs.

Recognising the future may lie in more innovative sources of energy, the Prime Minister and Chancellor, both advocates of shale gas, have announced a series of tax breaks and sweeteners for local authorities in areas where fracking might take place. Some MPs remain cautious given the local opposition they will face – particularly in the run up to an election – and the environmental lobby remains vehemently opposed.

Despite the deep concern about the UK’s energy security, the statement which most made the political weather was the dramatic energy freeze policy announced by Ed Miliband at the Labour Party conference, This tapped into the feeling that people generally get a raw deal from the ‘big six’, a feeling probably enhanced in households who spent Christmas without any power. The Coalition’s reaction at first concentrated on the inadvisability of trying to fix prices, but ministers soon seemed to realise that something in the public mood needed addressing. Their response, somewhat counter-intuitively, was to shift green subsidies out of energy bills into general taxation. Whether this has shot the Labour fox remains to be seen.

With Labour keeping up the attack, the status quo in the energy supply market is not politically sustainable. Despite the nervous investment climate, all the parties are having to contemplate structural reform of the market. Whether any of that becomes Coalition policy before the election probably depends on whether competing Lib Dem and Tory instincts can be accommodated.