Ministers are facing calls for an urgent overhaul of UK energy policy, with politicians and industry experts demanding swift investment in new power plants and storage after a near-breakdown in the electricity network.
Fergus Ewing, Scotland’s energy minister, has written to UK energy secretary Amber Rudd voicing concern over the country’s “worryingly low” safety margin of supply over demand. He accuses the government of having ignored repeated warnings that critical infrastructure is near breaking point.
His comments follow an unexpected supply crunch last week that showed just how fragile Britain’s creaking electricity network has become. As the system came under severe stress, sending prices soaring, big industrial users were asked to reduce usage to prevent a breakdown.
A full-blown emergency was averted. On a balmy, windless November day, the National Grid’s plans for dealing with the failure of back-up power plants were sufficient. But what about a midwinter supply squeeze?
Last week’s scramble highlighted the challenge facing Ms Rudd as older, uneconomic coal-fired power stations are closed to meet new EU rules on air quality and ageing nuclear plants are retired. While the closures have long been expected, not enough new capacity is being built. Malcolm Webb, former head of industry group Oil & Gas UK, blames failures by successive governments, describing British energy policy as an “unholy mess”.
Ms Rudd’s first big policy speech, likely later this month, will be closely watched. So far, anyone looking for a big-picture strategy risks disappointment. The Department of Energy and Climate Change is in the grip of a Treasury clampdown on spending. Ms Rudd is slashing renewable energy subsidies, championed by Liberal Democrat predecessor Ed Davey, and preparing sharp departmental cuts demanded by George Osborne, the chancellor.
“Affordability is the top priority now, while decarbonisation has taken more of a back seat,” says one industry insider.
At the heart of this brief is a desire to cut the maximum amount that can be spent supporting clean energy, from £9.1bn a year to £7.6bn in 2020-21. This is ultimately paid for by households and businesses via electricity bills.
“She is nervous of doing anything that the chancellor will not approve of. This is a Treasury energy policy. Osborne’s priorities are fracking for gas and building nuclear power stations,” says a second industry insider.
Yet, while Ms Rudd is focused on cuts to her budget, the bigger issue is Britain’s security of supply. The first in a new generation of nuclear plants, at Hinkley Point in Somerset, is not expected to come online before 2025, while efforts to “frack” for shale gas have so far run into vigorous local opposition.
Renewables, meanwhile, have been a success, despite protests over subsidy cuts. They comprise 19.2 per cent of Britain’s supply versus 2.7 per in 2003, putting the UK on track to hit its immediate carbon reduction targets.
Mr Ewing says ministers should ensure that new capacity, including renewables, is built more quickly alongside storage.
However, wind and solar power cannot meet the grid’s baseload needs because they do not provide a guaranteed uninterrupted supply of power. Sometimes, like last week, things can go wrong. The UK looks likely to become more dependent on undersea interconnectors and imported gas.
One answer could be to extend the demand-side measures used by the grid — or, put simply, to manage energy usage better. Simon Virley, UK chairman of energy at KPMG, says: “We have to find ways to manage demand more actively and avoid having power stations being paid just to cope with the teatime peak.”
Mr Davey agrees. The grid, he argues, should be able to encourage more businesses to reduce their consumption at peak times. But he doubts that Ms Rudd will support this, saying his Conservative coalition partners balked at the idea because of fears that such action could harm economic growth.
“This seems to stem from Britain’s experience in the 1970s,” says Ed Reid, analyst at research group Lazarus. “There is a generation that thinks if we are asked to use less, it means Britain isn’t great any more. But we’re talking about voluntary usage cuts, not mandatory ones.”
Smart meters could help. If households can measure the cost of peak usage, they might curb their demand. But predicting such behaviour is difficult.
Dieter Helm, professor of energy policy at Oxford university, says the focus should be on ensuring the economic incentives are in place for back-up power. So-called “capacity” auctions, introduced to address this need, are flawed, he argues. Polluting diesel-powered generators, for example, look set to benefit disproportionately.
Instead, says Prof Helm, the UK urgently needs more gas-fired capacity. These plants can be built quickly, relatively cheaply, and are able to respond to fluctuating needs in a way renewables cannot. “The government needs to get on with it. They will have to be more interventionist and make sure gas gets built before returning to a more market-based approach later.”
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