Energy policy has certainly become a popular sport in the UK these days. With the country preparing for a general election in a year’s time, the topic is now becoming a big political football.
The opposition Labour party leads opinion polls thanks in part to its energy goal-scoring. In the run-up to May’s European elections, populist anti-EU politicians also kick-out at climate action and renewable energy plans. In Scotland, where a nationalist administration claims oil sovereignty and no new nuclear, an independence referendum is due in September. And though far from certain, the UK may around 2017 even vote on its EU membership.
But where does this leave energy policy and a hoped-for ‘energy transition’?
While political games draw attention, Britain is still some way from ‘scoring the goals’ that its energy systems need. What else is driving policy today? Where did this start? And what are its prospects?
In Germany, the ongoing energy transition’s political foundation is a strong and successful anti-nuclear movement and subsequently high levels of political and financial support for rapid renewable energy deployment. By contrast in the UK, where currently nuclear has a similar market share, nuclear opposition has not had the same impact and support for renewables is much more limited.
Since a decade ago and priorities first set by Tony Blair, the two main UK energy policy drivers have been firstly responding to the global climate challenge - at least 80% GHG pollution cuts by 2050 - and secondly the necessary renewal of large parts of the country’s electricity generation capacity. As a result of combining these objectives, instead of Energiewende (energy transition) as in Germany, either ‘decarbonisation’ or ‘low-carbon investments’ are the dominant terms in the rhetorical lexicon.
‘Market reform’ & ‘low-carbon’ support
The focus on electricity in particular has led to a so-called ‘electricity market reform’ (EMR) policy package. This process was begun under the previous Labour government and since 2010 continued by the present two-party coalition. The choice of name ‘EMR’ was somewhat odd, since the electricity market itself - that is to say how day-to-day electricity is sold and bought - is not changing.
Instead, ‘EMR’ focuses mainly on state support for the purchase of large volumes of new ‘low-carbon’ generation capacity particularly nuclear and large-scale renewable using long-term support contracts. Such purchases are framed as so-called ‘contracts for difference’ (CFDs) since the premium paid (or surplus returned) in each period varies depending on the prevailing wholesale price of electricity. The priority renewable technology will be offshore wind power, which - though more costly - has the advantage of bypassing objections to wind power onshore.
Announced in 2011, the ‘EMR’ policy package also included three other main elements:
• a capacity market for when and where power system balancing may be needed (only after a higher penetration of renewables);
• a CO2 emissions performance standard to stop (only) new unabated coal being built, in effect by requiring CCS (see below) and;
• additional taxation (‘carbon floor price’) on fossil-fired generation on top of EU ETS costs.
With new ‘EMR’ legislation completed in December, public attention has shifted to ensuring compliance with EU single market rules. Long delays in submitting plans to Brussels leave uncertainties if necessary approvals will be completed before next year’s elections.
On the first nuclear subsidy offer for 35-year duration feed-in premiums (operating aid) to two new French-built reactors at Hinkley Point in southwest England, the Commission said recently that it had serious doubts over the compatibility of the plan and has opened an in-depth investigation.
Privately, the Commission has said the Hinkley case is also a test case for Europe, since if the UK is allowed to proceed other member states will copy the UK model.
Shale fever
Running in parallel now to the older electricity story is a newer story about shale gas and fracking. Driven by the rapid changes in the U.S. and by concerns about price and access to energy, the shale option is supported by all mainstream parties. In Davos in January, Cameron highlighted shale developments in his speech without mentioning climate change at all.
In practice, there have been so far only a few exploration (test) drilling wells, though all have attracted vigorous opposition and so help shape the media coverage and public perceptions of the issue. As elsewhere in Europe, initial high levels of excitement by developers have since begun to be scaled back.
At EU level, the UK together with Poland lobbied hard for there to be no adjustments to EU rules on shale gas, fearing 2 or 3 years of regulatory uncertainty. The lobby was successful, for now, with the EU Commission only providing guidelines at this stage while leaving a decision on legislation for later.
It remains to be seen if shale will become significant in the UK and what impacts it would have on other options particularly those in the EMR package. Over the next 10 to 20 years, could e.g. abundant and less costly shale displace expensive new nuclear investments? And if it did, what would this mean for longer-term decarbonisation goals?
Carbon capture
For climate mitigation, the capture and deep underground disposal of CO2 from large power plants (CCS) like shale gas also remains a popular idea among policy-makers and it is considered essential in the long run. However no one has so far got organised to demonstrate this set of technologies at scale. The UK considers itself well-suited for CCS since as an island it has good access to injection sites offshore.
There is also an active commercial lobby for it and no significant NGO opposition, since it fits well with the low-carbon rhetoric. What has postponed any start to CCS use is however the relatively high costs of both demonstration and deployment and a need for public financial support at least in the initial stages. Combined with the macro economic downturn, this has led to growing delays before any project gets going.
European frameworks and outcomes
In general, European policies ought to lead to a convergence of national energy systems. To some extent this is true, for example nearly everyone has stopped building coal-fired power plants. Elsewhere there is still divergence, for example with nuclear, where about a quarter of member state wish to retain it with new-build.
The main EU energy initiative for now is the call to ‘complete the EU internal energy market by 2014’ by finishing implementation of the 2009 ‘third package’, especially network codes for gas and electricity. While the UK in principle supports this objective, the issue does not much figure in domestic debates. As an island, the UK has an island mentality.
In the EU-level debate about a ‘post-2020’ or ‘2030’ policy framework, the UK has supported only a single greenhouse gas (GHG) target, albeit a stronger one when compared to most others. In due course, the 2030 GHG target will lead to a stronger and longer ETS pollution price. Several other member states want also targets for energy savings and renewables while others also want an emphasis on grid infrastructure. Recently, the UK has said is could accept a compromise on renewables targets.
Though the Commission has presented its conclusions in January, it will take more time to reconcile all the competing interests into new legislation. Heads of government will discuss together in March, but given the changes this year in the institutions, 2014 is hardly an ideal one for completing new policy development.
With new faces around in the coming months, in London, Brussels and elsewhere, it may be some time before we know the final score.
