We cannot afford to squander another year with inaction

Reinstatement of the Capacity Market may be welcome news for the energy industry, but political uncertainty continues to distract from the real issue that needs to be tackled: achieving net-zero carbon emissions, says Energy UK chief executive, Lawrence Slade.

Finding things back in the same position as they were 12 months ago isn’t always a cause for rejoicing – and might seem a familiar feeling in other contexts – but it was undoubtedly good news for the industry to hear last week that the Capacity Market is to be reinstated.

Following the legal challenge that had led to its suspension since last November, the European Commission’s finding that the Capacity Market complies with state aid regulations means it can continue to do the job it has done successfully for a number of years – ensuring security of supply at the lowest cost to customers in times of high demand.

The very existence of the Capacity Market may have led some to get complacent about security of supply – but as we’ve said before in these pages, the absence in recent years of fears about tight supply margins over the winter has played an important role in ensuring a smooth transition to a world where renewables and low-carbon sources account for an ever-increasing share of our generation mix. Guaranteeing security of supply has been vital in maintaining confidence in that transition, certainly if you think about some of the fears that used to be voiced on that score.

Heading in the right direction

The Capacity Market has been rightly evolving to reflect this changing mix with newer technologies such as demand side response gaining a greater share in recent auctions. And as the European Commission decision noted, the inclusion of renewables in future auctions – something we have long called for – and other changes, mean that a technology-neutral Capacity Market will continue along this path.

You could certainly argue that it was unnecessary to try to force changes that were already in motion – particularly with the statutory five-year review in waiting – and the suspension threatened serious consequences for capacity providers, suppliers, security of supply and indeed the whole market the longer it went on. Much of the media coverage focused on larger providers, but when £1 billion of apparently guaranteed income disappears overnight, the threat can be most acute for smaller operators, plants and new developments.

I’d have to point out that eventually receiving the money owed for services provided doesn’t count as a “windfall” – as it was described in some quarters – in any dictionary I’ve consulted! Investors in this sector certainly don’t need any more uncertainty when it is the enemy of the long-term planning and funding that will be essential to achieving all the things we need to do to reach net-zero.

Short-term political considerations

Alas, uncertainty remains a continuing lament. Nothing illustrates this point better than if I tell you that this article was originally intended to set out our wishes for next week’s Budget – and why it would be a critical opportunity for the government to demonstrate its commitment to meeting the 2050 net-zero target. As it turns out, events have led to its postponement in sadly familiar fashion to the way they have led to the White Paper, which was meant to come out in the summer, being kicked into next year.

And of course, the Brexit uncertainty – the principal and arguably sole driver of events – remains.

I realise nobody has intended this, but it is becoming less and less acceptable with every passing day to keep putting off meaningful action because of short-term political considerations that have proven to be anything but short term.

Of course, Brexit is important, but it’s taking precedent over and preventing us from tackling the biggest and most urgent challenge facing this and every other country. Net-zero is a 30-year project, which is no time at all if you consider it involves transforming our entire economy and so many aspects of our daily lives. Our sector is ready and desperately eager to play its part, but we need a lead from government without further delay. When it comes to this, finding ourselves still in the same place 12 months from now is something we simply ­cannot afford.