What would a Conservative government mean for utilities?

In the latest of Utility Week’s profiles of the contenders to form the next government, David Blackman examines the Conservatives’ plans for the next five years. He talks to experts including Tim Yeo and Aurora Energy’s Richard Howard about the details behind the key Tory targets and what they would mean for the sector.

The past week has seen a mounting sense of urgency on tackling carbon emissions as delegates converged on Madrid for the annual UN climate change talks.

The grim warnings from scientists don’t seem to have unduly troubled the Conservatives though, judging by Boris Johnson’s no show at last week’s Channel 4 climate change debate.

What was heralded as the highest profile opportunity for Westminster’s politicians to focus on the issues instead descended into farce, as the Tories lodged a complaint with Ofcom about the channel’s decision to plonk a melting ice cube on the stage instead of the absent prime minister.

Johnson’s non-attendance may reflect a sensitivity on the Tories’ part that they have been outpaced on environmental and climate change issues over recent months.

This reticence may seem strange though, given that it was a Conservative government which this summer moved the motion for the UK to achieve net zero emissions by 2050.

The Conservatives’ general election manifesto, published last week, confirms this landmark pledge.

There is movement on the transition to electric vehicles where the government’s existing target of a 2040 phase-out for selling diesel and petrol cars has been criticised for being too slow.

The manifesto says a re-elected Conservative government would consult “on the earliest date” that the sale of internal combustion engine vehicles can be phased out, whilst balancing this with the caveat that the “impact on drivers and businesses” will be minimised.

The document reiterates an earlier Conservative campaign pledge to invest £1 billion to complete a fast-charging network so that all households are within 30 miles of a rapid electric vehicle (EV) charging station.

Clean energy focus

This mooted Budget will also contain goodies for decarbonisation schemes, the first tranche of £4 billion’s worth of funding for new flood defences, a Gigafactory for manufacturing batteries, and “clean energy”.

The manifesto confirms another earlier campaign promise: to ramp up offshore wind provision from the existing target of 30GW by 2030 to 40GW.

Reiterated too is the commitment of £800 million to support the roll out of the carbon, capture, use and storage (CCUS) clusters in the 2020s, going some way to reversing the 2015 cancellation of a previous £1 billion project to pilot the technology.

Patrick Hall, researcher at liberal Conservative thinktank Bright Blue welcomes the move but is cautious about putting too many eggs in the CCUS basket.

“It’s positive to see investment in that technology but we have to recognise that it’s not a silver bullet.”

Tim Yeo, former chair of parliament’s energy and climate change committee, is more bearish about the Tories’ born-again faith in CCUS.

“Nowhere in the world is there an economically viable form of CCUS: every scheme running requires a huge subsidy. To think it’s going to make a big contribution in the 2020s is a complacent and dangerous assumption that nobody is challenging.”

Renewables are another area where the Conservatives are placing too much emphasis on, he says.

“The growth of renewables is great and clearly will play a bigger and bigger role. But all three parties are making unrealistic assumptions about how big a proportion of electricity can be generated by intermittent renewables,” he says. He argues that once intermittent sources exceed 50 per cent of generation, the costs required to provide back-up power become hefty given that cheap long-term energy storage is not yet available.

“I would have been reassured with a more solid recognition of that,” says Yeo, who now chairs the New Nuclear Watch Institute.

Solar silence

As for the most tried and tested renewable technologies: onshore wind and solar, the manifesto is silent.

This lack of attention to onshore wind in particular is a “missed opportunity”, says Hall, given that the technology now represents the cheapest form of renewable electricity on the market.

But Richard Howard, head of research at Aurora Energy, says that this silence may give potential future Tory energy ministers “more wriggle room” on the issue than their predecessors. Even Claire Perry, a strong supporter of clean energy, felt bound by the effective ban on onshore wind and solar, included in the party’s previous two manifestos, he says.

“Things are different now to four years ago. Some minds have been changed and there’s been a turning of the tide on this issue, although that’s not to say there are people who would still be in favour of a ban.”

However many feel that the manifesto doesn’t provide enough clues about the roadmap that the Conservatives, who remain firm favourite to win next week’s election, will use to reach net zero.

“Very vague,” is how Yeo describes the manifesto.

Howard, who is a former head of the environment & energy unit at the right of centre Policy Exchange thinktank, agrees that manifesto lacks a “coherent, over-arching plan”.

“There are some good things in the manifesto but they don’t add up to a whole and there a lot more details that needs to be added.”

It could be suggested that the relatively relaxed timetable that the Tories have set themselves means that they have time on their side.

But that’s not the case, argues Chris Hewett, chief executive of the STA (Solar Trade Association).

Key decisions need to be made over the next decade in order to meet the 2050 target, he says: “We were looking for some kind of pathway to 2030 and you can’t discern that from this manifesto.

“2020 to 2030 is a very important part and the first part of that pathway so we would hope to see all manifestos setting out that detail.

“Solar has been operating in a policy vacuum for the last year and this manifesto does nothing to fill that.”

Clock is ticking

Energy UK’s head of public affairs and engagement Simon Markall points out that the clock is ticking down, with 2050 only 30 years away.

Expressing “disappointment” about the “lack of clarity on how to get to net zero”, he says: “We’ve got 120 quarters, which is not that many and we need action rather than words.”

There is a big difference between targets and action, says Yeo: “Everybody is setting quite challenging targets but they are all weakened considerably by the absence of credible actions to achieve them.

“Setting a target is easy, it’s like plucking a figure out of thin air, but to be credible there need to be much more back up detail about how they are proposing to deliver it.”

Unlike some other parties, at least the targets in the Conservative manifesto are realistic though, says Howard.

In a new report for the right wing thinktank Onward, he challenges the feasibility of the 2025 net zero emissions target propounded so enthusiastically by the Extinction Rebellion campaign.

Just to take one example of how difficult this lofty ambition would be to achieve, Howard points out that it would require replacing six million UK diesel and petrol cars with EVs per annum between now and the middle over the next five years.

This would be equivalent to three times the total world production of electric vehicles., he says: “Even with the best will in the world, we might hit six million sales globally but not in the UK.”

“2025 is not a credible timeline to do this.

“Extinction Rebellion say they want to tell the truth on climate but I want Extinction Rebellion to tell the truth on climate. They haven’t shown how that can be achieved and how is possible within that time frame,” says Howard, who adds that even the Labour party conference target of 2030 is “difficult to believe”.

However, he acknowledges that the left has succeeded in capturing the climate change debate over recent years, both in the UK and the USA where it has become a rallying point in the race for the Democrat party presidential nomination candidates like Bernie Sanders and Elizabeth Warren.

“Conservatives need to have an answer to that. Not just in the UK, they need narrative so that parties on the right can demonstrate that they care about the environment and the climate,” says Howard.

The white paper that never was

To counter this narrative means developing the kind of coherent policy response to climate change, which former business and energy secretary of state Greg Clark was attempting to achieve with his never published energy white paper, as opposed to the shopping list of initiatives outlined in the Tory manifesto.

In his new report, Howard says this Conservative narrative should be based on new technology, personal freedom and market mechanisms.

“We can harness those ideas and do something about carbon.”

At the heart of this approach should be properly biting the bullet on pricing carbon. The report rejects the idea that carbon should be taxed because this would open up investors in renewable technologies to the risks of political meddling with rate levels.

It proposes lifting the freeze on the UK’s carbon price floor, which has been stuck at £14 per tonne of CO2 since 2014, saying it should have been more than twice that level

And the existing Contracts for Difference subsidy regime, which the study acknowledges has provided developers of low carbon projects with stable revenues, should be scrapped because of the impact it is having on consumer bills.

The report instead suggests a new regime of Carbon Contracts, which would compensate generators if the future carbon price fell below the level agreed when the project was being developed.

This approach even extends to flipping on its head the way that electricity and gas are treated for VAT purposes. By raising VAT on gas to 20 per cent, while cutting it to zero for electricity, the playing field would be evened up for lower carbon domestic heating solutions like heat pumps.

The result would be “really quite small” differences between the costs of installing and operating gas boilers and heat pumps, Howard says: “Changing the incentive structure makes it slightly more palatable to install renewable heating.”

Even more radical is Onward’s recommendation that the Winter Fuel Payment, which all pensioners receive and costs the taxpayer £2 billion a year, into an Energy Efficiency Capital Grant scheme targeted at upgrading the energy efficiency of fuel poor households.

It’s easy to see why ideas like these haven’t made it into the Conservative manifesto, given the party’s reliance on the “grey vote”.

However, the report provides the kind of detail that may help to fill in the energy policy blank cheque that the Tories have served up in their latest manifesto.