by Nigel Hawkins
Perhaps in a quest to emulate John Buchan’s famous book, The 39 Steps, the UK’s Coalition Government, whose Energy Minister is the Liberal Democrat MP Chris Huhne, has set out its energy policy via its Annual Energy Statement. The Statement includes 32 action points.
However, what is paramount is new base-load generation investment, the key ingredient of Ofgem’s estimated £200 billion energy-related bill over the next decade or so.
Quite simply, if net debt of around £35 billion for energy firms EdF and E.On causes them to scale back their UK energy investments and refocus on their domestic markets, future UK generation capacity margins will look desperately thin. And, whilst the lights may not go out on Chris Huhne’s watch, his successors may be far less lucky.
Nonetheless, are any of the specified 32 action points of real importance for future UK energy policy? Rather depressingly, as previously, most are related to future energy consultations, studies and publications.
Some of these discussions cover the much-heralded Green Investment Bank: no firm proposals about its planned operation are due before the pivotal Comprehensive Spending Review announcement on 20 October 2010.
Whilst some media headlines have focused on the vision of an ultra low carbon economy by 2050, there are three areas of energy policy where material changes are proposed.
First, action points 10, 11 and 12 – concerning environmental inspections of oil and gas rigs, freedom of access to oil and gas infrastructure and further measures on gas security – will have a significant impact on the hydrocarbon sector. Understandably, following the disastrous Macondo oil spill in the Gulf of Mexico, which has had an unprecedented negative impact on the fortunes of BP, additional UK offshore oil and gas rig inspections will take place.
Furthermore, extending the use of oil and gas infrastructure facilities for developing smaller fields will be encouraged, along with according a higher priority to building more gas storage and import capacity.
Secondly, action points 24 and 25 focus on two renewable sectors – marine and biomass – whose recent progress has been very disappointing. The Government is now seeking to kick-start investment in marine energy.
In terms of biomass, it has been confirmed that a joint Government/industry action plan will be published in the autumn – ”to deliver a huge increase in energy from waste through anaerobic digestion”. Whether this will stimulate new investment in biomass facilities remains to be seen.
Thirdly, action points 27, 28, 29 and 30 cover new nuclear-build. The Government continues to use the mantra that no public subsidies will be available despite the fact that virtually all forms of energy are partly subsidised, most obviously the renewables sector through the Renewables Obligation.
Worryingly, it appears that the Government’s attitude to new nuclear-build is increasingly lukewarm. After all, both EdF and the Horizon consortium, comprising E.On and RWE, will need every encouragement – political, regulatory and especially financial – to deliver new nuclear-build in the UK.
What is really needed is a Low Carbon Obligation, which would require major energy suppliers to buy output from renewable and new nuclear generation plants for a defined percentage of their supply portfolio.
More generally, there are abiding concerns about the ability of the present Coalition Government to survive. Policy disagreements between the Conservatives and Liberal Democrats are becoming more evident. To what extent this development will adversely impact energy policy is not clear – but recent omens, especially on nuclear issues, are hardly reassuring.
Nigel Hawkins is a Director of Nigel Hawkins Associates, which specialises in investment and policy research.
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