Recent Government Reset on Energy Policy

By Paul Massara
This week Amber Rudd the Secretary of State for Energy unveiled her long awaited Reset of energy
policy, which was in truth a strange mixture of old and new policies, constrained by previous policy
decisions and political dogma. In that sense it wasnt so much setting a new vision for energy in UK that
we desperately need but rather a mid- stage course correction, with I predict more to come.
So lets deal with what was new, which was the acceptance that spare capacity was getting too tight and
that new nuclear wasnt going to be able to fulfil the gap for at least 10 years. Therefore we have a new
dash for gas! This is supported by a drastic reduction in the forward gas price which makes the building
of new CCGTs look more attractive. They will also provide much needed flexibility for the system that
will help balance intermittent renewable supply in the short term.
The second new policy, and one that grabbed the headlines and gave a nod to Paris COP21 was the
agreement to phase out all coal generation by 2025. Perhaps the biggest impact of this wont be felt in
the UK where coal makes us less and less of the generation mix but elsewhere across Europe. This will
emboldened the green parties across Europe to put pressure on the German government and elsewhere
to set a date to phase out coal.
What was also new is that the government will continue to think about offshore wind providing it can
prove to be cost effective in auctions. Whilst the competitive nature of the auction is compelling the
idea that they have rejected the two cheapest forms of renewables (solar and on shore wind) makes this
policy somewhat bizarre.
So what was old news well the continued support for nuclear. The government have finally admitted
that it requires significant subsidies to build. The continued unchallenged devotion to new nuclear, will I
think be a mistake as new capacity will not come on for at least 10 years and then we will be contracting
for 35 years of supply. In that period I predict that solar and battery storage will disrupt the market and
make nuclear seem incredibly expensive. I fully expect that in the next 2 years we will have a further
reset as new technology challenges previous assumptions.
What was also old news was that the government have backed themselves in to a corner by rejecting
the two cheapest forms of renewable power solar and on shore wind both of which show the most
promise to get to a subsidy free situation within the next 2 years. They claim that they are focused on
hitting their carbon targets at the lowest possible cost, yet reject the two most promising technologies.
What is also missing is a vision for the future energy world, where solar, on shore wind, demand side
management, batteries and electric vehicles will all interact. Until we have a coherent vision, it is very
difficult to create a transition path to that future, instead we fluctuate around picking winners and
creating uncertainty for investors. This reset also shows the need for an independent body such as the
OBR which will mark a balance scorecard of security, co2 reductions and affordability and create
transparency for investors.
So perhaps the best way to look at this is a med term course correction with more to come.