"National
energy leadership requires clear policy around investment to manage risk and
investment, and a healthy balance between the market, and the consumer
(taxpayer)?"
By:
Nicholas
Newman
National energy leadership requires clear
policy around encouraging investment to manage risk and development, and a
healthy balance between the market, and the consumer
(taxpayer)?
The question of energy
and especially its price has always been a politically sensitive issue. The
question, is whether Britain's energy policy is failing? Many would suggest that
significant parts of it already have. In fact, until recently, the United
Kingdom did not enjoy an overarching energy policy framework; instead it
depended on guidance from European energy policies for much of the day-to-day
implementation of operational issues. In a sense, what there was of a
discernible British energy policy was merely an incomplete jigsaw. What is
certainly clear is that successive British governments have failed to
demonstrate “responsible” energy leadership.
Britain can certainly
be proud of its successes largely due to the result of responsible leadership
back in Brussels and not here in the UK. Such successes include the ban on
old-style light bulbs, the backing of the use of biofuels in petrol, the
introduction of carbon trading, the scrapping of ageing coal power stations,
together with the introduction of smart meters in homes and energy-efficiency
labels on domestic electrical goods. In addition, the introduction of more
energy efficient domestic goods has certainly benefited the consumer’s pocket
and in the case of cars, has reduced pollution in our cities.
However, despite these
advances there are still grumbles, not only from consumers, but major players in
the energy market. From an energy security perspective, the actions taken to
encourage investment in renewables, has only had a marginal impact on slowing
down the UK’s reliance on imported fossil fuels such as coal, oil and
gas
.
[1] [i]
In 2010, the cost of energy imports
contributed to around 15% of the UK's then trade deficit. University of
Lancaster’s environmental researcher Oluwabamise Afolabi, reports that the DTI
in 2007 projected that UK natural gas imports will increase to 70% by 2017 and
imported coal could be meeting up to 75% of the UK coal needs by
2020.
Certainly part of the reason is that the
EU energy policies have not gone far enough in the implementation of its
ambitions for a single energy market for the continent, whilst we do have a
single market for bananas! A single market for energy would certainly help meet
many of Europe's energy security concerns and hopefully facilitate greater
competition Europe-wide. In the UK, there is a serious need for more energy
suppliers actively competing in the market. At present, for instance the gas and
electricity market is dominated by six major players, so it is not surprising we
suffer high power prices.
Nevertheless, the
current government has preserved the vacuum in clear policy ownership and
focused leadership left by its Labour government predecessor. This is
demonstrated by the recent fiasco of the U-turn over feed-in
tariffs
[1] [ii]
for solar
power [1]
[iii]
and the failure to encourage investment in
insulation for buildings with solid walls. The government’s decisions over
feed-in tariffs plunged the rapidly growing job-creating solar power
installation industry into crisis at a time of high unemployment. It is clear
that senior policymakers made a decision without clearly understanding the full
impact it would have on Britain's solar power sector.
There seems to be a lack of leadership
being exhibited by ministers on energy policy by many in the governing
coalition. We are seeing, increasing opposition in Parliament by Conservative
MPs, but also by members of the public towards the government’s ambitious
support for new wind power projects throughout the country. In January, 101 Tory
MPs wrote to Mr Cameron, calling for onshore wind farms subsidies to be
“dramatically cut” – well beyond the 10 per cent reductions already in the
pipeline. In addition, there have been protests about new renewable energy
projects across the UK, together with concerns about the increasing number of
people being plunged into energy poverty due to the shambolic energy taxes and
subsidy system. Overall, current subsidies paid out to renewable energy
producer’s amounted to some £1.5 billion a year, of which £400 million was
given to companies operating onshore wind farms, reports the Telegraph in June
2012. However, DECC reports that renewable energy subsidies are costing each
British household around £103 per year and between 2004 and 2010 electricity
prices rose by 60% and gas bills by 90%, noted DECC.
At a strategic level
investors are increasingly concerned about the sense of drift on energy policy
towards new investment by the current government towards various types of
generating technology, many large-scale investors are complaining that they are
not getting sufficient encouragement to move ahead on meeting the government's
ambitious programme to replace time-expired coal and nuclear power stations with
new generating capacity from both traditional and new generating
technologies.
Failing to identify
risks
It also appears that the government
appears to be failing to identify and manage risks and plan for such unforeseen
events as natural disasters, supply disruptions and wars. There appears to be a
lack of long term preparation against supply disruption, this can be seen from
the following issues. At present, we have limited interconnector capacity
amounting to just under 5% of UK generating capacity, is made up of high voltage
undersea power cables linking Britain with France, Belgium and Holland. For
energy security reasons the UK needs to double such capacity. Once completed
Britain will be better able to balance shortfalls in renewable generation here
with imports from elsewhere in Europe.
Then there is the question of gas
security, Britain only has 3.3 bcm, equivant to 14 days of gas storage capacity
available in theory, reports DECC, and much of that is reserved for storage
capacity for other nations in Europe. Unfortunately, there are no reciprocity
agreements to such storage capacity that is located in the UK with foreign owned
companies at present; I was surprised to learn from an energy trader recently.
Though there are ambitious proposals to increase gas storage capacity, given
sufficient government support. Unlike France and Germany, which have at least
one month gas storage capacity? Currently Britain imports 24% of its gas from
Qatar. This apparent lack of direction and foresight can also be seen in the
relatively low large-scale electricity storage capacity of only 20 GW hours:
perhaps sufficient to replace current UK wind generating capacity for just two
hours if the wind failed to blow.
In addition, unlike several other European
countries Britain has failed to move ahead with pilot carbon capture projects.
The realisation of carbon capture technology could aid Britain in its ambitions
to further diversify its current sources energy, as coal is available worldwide
in easy to reach commercial quantities including Poland, USA , South Africa and
Australia.
There are increasing fears that Britain
could face power shortages by end of the decade, unless urgent action is taken
to construct sufficient new generating capacity to meet growing demand. I would
hate to think Britain consumers will face in the future the prospect of regular
power cuts, as is the case of Nigeria today.
We are also seeing a lack of realism,
amongst policymakers into the impact of their policies. One of Europe's and
U.K.'s ambitions is to reduce reliance on gas imports. Unfortunately, the
government’s neglect of creating a proper framework for reducing gas usage for
power generation purposes is encouraging a reliance on this fuel source to back
up for the variability of renewables. Which could raise interesting energy
supply and security concerns for large scale consumers such as hospitals and
railways that rely on 24/7 energy supplies.
Since 2004, the UK has
been a net importer of gas, as domestic production has declined and the
country’s power sector has switched to gas for power generation
purposes
[1]
. Since the winter of
2009, the UK has depended for half its gas needs on imports. Current government
policy neglect is encouraging reliance on imported gas to remain at present
levels whether imported from Norway, Russia, Nigeria or Qatar. As Britain's
reliance on renewables increases we are going to see imported gas-for-power
generation purposes providing a backup to wind energy projects when the wind
fails to blow, because Britain has not invested enough in sufficient gas and
electricity storage capacity and expansion of its interconnection links with the
rest of Europe.
Danger of short term
thinking
Overall, Britain's
energy policy is in danger of suffering from short term thinking, which might be
building up new problems for the future that might prove expensive to solve. In
other areas, there is much to be proud of, but it is clear much more needs to be
done. In addition, there has to be greater dialogue between all stakeholders
involved in energy policy so that Britain develops an affordable, reliable and
secure energy sector that meets our economic ambitions for
growth.
However, the government needs to
demonstrate responsible energy leadership and move actively forward on
implementing many of its ambitions quickly, such as starting construction on new
nuclear power stations, stop dithering on proposed coal and carbon capture
projects and encourage investment in new energy storage capacity. Nevertheless,
the emphasis on energy policy should be rebalanced more in favour of the
consumer and taxpayer, by enabling users near such projects to directly benefit
from the profits of such schemes.
[1]
[i]
DECC aims for at least 15% of UK energy
mix to come from renewable sources by 2020 if current levels of investment are
maintained.
[1]
[ii]
A feed-in tariff (FIT, standard offer
contract or renewable energy payments) is a policy mechanism designed to
accelerate investment in renewable energy technologies. It achieves this by
offering long-term contracts to renewable energy producers, such as home owners,
it is typically based on the cost of generation of each technology. Technologies
such as wind power, for instance, are awarded a lower per-kWh price, while
technologies such as solar PV and tidal power are offered a higher price,
reflecting higher costs.
[1]
[iii]
Solar power is the conversion of sunlight
into electricity, either directly using photovoltaic (PV), or indirectly using
concentrated solar power (CSP).
[1]
In 2010, 34 per cent of natural gas demand
(371 TWh) was for electricity generation reports the DTI.
