Despite the fanfare, Amber Rudd has reaffirmed the direction of travel for energy in the UK rather than set out a bold new future. At least it doesn’t add to the confusion, says Jillian Ambrose.

In the past six months the Conservative party’s majority hold over energy policy has resulted more in dismantling the past than paving a path for the future. Renewable support schemes cut, the Green Deal scrapped, and shale inhibitions shrugged off. So the promise of an energy policy “reset” from energy secretary Amber Rudd was eagerly, if a little anxiously, anticipated by an industry craving much-needed policy certainty.

However, those holding their breath may have been disappointed.

Rather than a grand vision of a new energy strategy for the UK, Rudd has delivered something familiar at best and unambitious at worst. More a “reminder” than a “reset”, the carefully curated statement makes bold pledges only where very safe to do so and sidesteps the trickier areas of innovation and implementation.

The major message pushed to the national media is particularly safe in the run-up to the Paris climate talks: cut coal in a decade, Rudd has ordered.

Under the government’s new consultation, the use of coal plants will be restricted from 2023 and forbidden by 2025.

A bold move, but only if the combination of EU regulation and market economics weren’t set to see off the use of coal-fired generation from all but a tiny fraction of the UK’s current coal plants anyway.

Nearly two years ago, Baroness Verma said cutting coal already had cross-party support – no mean feat in a coalition government. “All sides in this debate can agree that we neither expect nor desire large amounts of unabated coal to be operating in the 2020s,” she told the House of Lords.

Nonetheless Rudd’s reset has been widely welcomed by green groups and the climate change lobby ahead of the Paris talks starting at the end of this month. But investors cautioned that the move will not alter the landscape.

Individual plants, such as Drax and Eon’s Ratcliffe, may now be facing an unwelcome policy shift but the capacity in doubt is marginal compared with the heavy loss of coal capacity already taking place. The direction of travel has not changed, investors say.

Prior to the reset speech, Baringa Partners’ modelling forecast a small, 7 per cent contribution from coal in the early 2020s.

Jefferies analyst Peter Atherton echoes the point, saying: “In all of the power sector scenarios produced by Decc [the Department of Energy and Climate Change] et al, coal has all but been eliminated by 2025. This announcement is not, therefore, a change of policy but is rather a confirmation of existing goals.”#

Renewables and gas

The same could be said of Rudd’s reset on renewables and gas. The Conservative policy on both technologies has always been clear, and Rudd offered few surprises in either area.

The minister rightly notes that UK gas import dependence is set to rise to 75 per cent by the end of the decade, making shale development a key strategy to securing supply. Gas-fired power will also play a “crucial role” but will need work to bring forward because “not even gas-fired power stations” can be built without government intervention.

So far, so familiar.

But any detail on exactly how government will intervene to bring forward investment in gas-fired power, or change the negative public perception of shale development, is unclear.

“We are already consulting on how to improve the capacity market. And after this year’s auction we will take stock and ensure it delivers the gas we need,” Rudd said, meaning this particular reset is yet to come.

For renewables, good news was also tempered by a lack of meaningful detail.

Rudd confirmed that the next contracts for difference (CfD) auction will take place by the end of 2016, paving the way for up to 10GW of additional offshore wind on the condition that costs come down.

“If they don’t, there will be no subsidy. No more blank cheques,” Rudd said, pointing to 35 per cent reduction in solar costs in the past three years.

“If that happens, we could support up to 10GW of additional offshore wind in the 2020s,” she said.

Again, the capacity ambition is one that is already expected by National Grid and the call for cost reduction is one that we have heard before, often from the offshore wind industry itself.

A study two years ago by RWE Innogy and the German Offshore Wind Energy Foundation declared that if 9GW of capacity was installed by 2023 globally, the cost of electricity generation could fall by 31 per cent. The report also assessed an “optimum market scenario” where 14GW of offshore wind was developed by the early 2020s, and it claimed this would result in a cost reduction of 39 per cent.

Quite how much money will be available to offshore wind in the CfD funding pot for each round, or how the government will police cost reductions, like much of the detail in the reset, remains to be seen.

But perhaps the most surprising element of Rudd’s reset is the lack of attention it pays to innovation. Demand-side response has already been identified by National Grid as a key energy sector tide change for the coming years. And both energy efficiency and consumer costs have been touted as key government concerns.

If Rudd’s key goal was to position the UK favourably ahead of the Paris talks she has no doubt succeeded, but a reset of the energy industry is still to come.

Reaction

“The energy sector will fully play its part but we need government to provide long-term policies so investors find energy projects attractive.”

Lawrence Slade, chief executive, Energy UK

“With energy prices the top financial concern for consumers, it’s right that the government delivers investment in new generation at the lowest possible cost.”

Richard Lloyd, executive director, Which?

“It appears that the secretary of state is bending over backwards to highlight the benefits of gas-fired and nuclear power, while overstating the challenges of increasing our renewable energy capacity.”

Niall Stuart, chief executive, Scottish Renewables

“As the country that used coal to start the industrial revolution, it is right that we celebrate this historic moment as the UK becomes the first major economy to turn away from this deadly, polluting source of energy.”

John Sauven, executive director, Greenpeace

“The government’s apparent preferred options of nuclear and gas, and an old fashioned grid are not cheap and will not be subsidy free for decades.”

Juliet Davenport, chief executive, Good Energy

“Amber Rudd’s speech quite rightly focuses on the necessity of a secure natural gas supply, along with nuclear and renewables, in meeting the UK’s energy needs. This further underlines the national imperative and urgency for exploration of our British shale gas resources.”

Francis Egan, chief executive, Cuadrilla

Difficulties with gas

Energy secretary Amber Rudd sees gas, along with help further in the future from nuclear, filling in the generation gap that will be created by the coal plant dropping off the grid between now and 2025.

However, there are a series of issues that make this seemingly straightforward gas-for-coal swap anything but.

1. Investment concerns – investment in new gas-fired power stations has not been forthcoming, despite the development of the capacity market. Tweaks to the system are likely to be required to encourage the construction of new plant.

2. Carbon targets – there are concerns that building new gas-fired power stations to meet baseload and peak demands will “lock in” carbon emissions for the best part of the next five decades. This comes as the energy secretary insisted the UK still aims to meet its long term carbon reduction goals.

3. Security of supply – Rudd stated that UK reliance on gas imports could be as high as 75 per cent by 2030, exposing the UK to potentially volatile global markets. The government hopes developing domestic shale gas reserves will insulate the UK from possible price spikes, and to keep costs down.

Quote:

“Scenarios looking at energy decarbonisation see a major rise in the use of power to meet our heating needs. This is a major challenge as peak heating or cooling demand often coincides with peak power demand.

“One option is to use heat to move power demand away from peak times. Heat costs about 100 times less to store than power and with large thermal stores on heat networks and smaller ones in homes, we can disconnect heat demand (time of use) from heat supply (time of production).”

Tim Rotheray, director, Association for Decentralised Energy

Opinion: Tom Greatrex, Former shadow energy minister

There’s little to reassure investors that the government is serious.

In these pages back in July I suggested the political circumstances could hardly be more benign for Amber Rudd and the government to set their energy policy agenda for at least a decade ahead. In announcing cuts to support for onshore wind, solar and getting rid of the unlamented Green Deal, the energy secretary moved quickly – no doubt with the approval of the Treasury – to set out what, governing with a majority, she didn’t want. She said much less about what she did want.

Against the backdrop of sharp criticism and a dramatic fall in investor confidence, which seems to have surprised ministers, there have been weeks of speculation about a major speech from Rudd to “reset” the government’s policy objectives and give industry a road map into the 2020s. Last month, it was suggested that the “reset” would strongly advocate demand management above new generation.

A fortnight ago, as the first NISM for a few years got predictable crisis headlines, it had been downgraded to a “soft reset”. This week, despite the efforts at spinning as something more substantial, what we eventually got was mostly a restatement of existing policy.

With the exception of a few bizarre weeks in 2013 (when former energy minister John Hayes was boasting about putting the coal back into coalition), unabated coal generation coming offline by the mid-2020s may be a pre-Paris climate talks friendly notion, but is not really more than a statement of what will happen anyway. Seeking to emulate the US by replacing coal with gas to reduce emissions is hardly an original sentiment either.

Of course, it is much easier to advocate more effective use of technology, demand reduction, international interconnection and distributed energy as alternatives to new generation from the safety of academia or on planet think-tank, than when faced with the harsh realities of being held responsible for keeping the lights on. Particularly when a couple of weeks ago the combination of unplanned unavailability of thermal plant and a sustained high pressure weather system across much of northern Europe led to NationalGrid issuing a NISM notice. Little matter that the intervention worked as intended, the resulting headlines will not have encouraged boldness.

Rather, we have the familiar reiteration of support for an electricity supply mix of new nuclear, offshore wind (­provided cost fall) and gas generation replacing coal. Even for those who broadly accept the pragmatism of the approach, key questions remain unanswered. No suggestion of how the capacity market will deliver investment in new gas where it has failed to date, no indication of the size of the levy control framework post-2020 and little confidence for offshore wind developers that warm words today won’t give way to similar antipathy to that directed at onshore wind.

Ministers may find that it is answers to those questions of substance that will have more impact on repairing investor confidence than this week’s speech, however carefully crafted and extensively spun.