Industry braces as energy policy becomes battleground

Following the government’s energy security week earlier this summer, there are mounting fears that the sector is fast becoming a political football. David Blackman takes a look at the announcements and talks to leading industry figures about their apprehension about government flip-flopping with Tory infighting on net zero policy predicted to play out in the coming months.

It used to be known as the “silly season”, when Westminster took a break along with much of the rest of population.

This year though the government had the brainwave of launching a series of weeks devoted to key policy themes.

The first, which focused on energy, kicked off with an announcement confirming plans to award new gas and oil drilling licenses in the North Sea. It also featured announcements on carbon capture and storage and heat networks as well as a No 10 Downing Street roundtable of energy bosses.

In the run up to the roundtable meeting, energy chiefs felt nervous about being used as props in a party-political stunt.

These concerns were exacerbated by a preceding government press release focused on tackling environmental protestors, an issue of at best marginal concern to utilities, as Alex Gray, head of public affairs at Energy UK points out.

This event, midway through week, saw a dialling down in the partisan rhetoric, he says: “There was a quite a distinct change in tone from the secretary of state saying energy security and net zero are two sides of the same coin, allaying quite a lot of anxiety that our members had.”

By the end of the week, which wrapped up with the publication of the long-awaited Winser review of transmission network development, the government’s tone had become a lot more “nuanced”, Gray says: “It’s a little bit more stable now.”

Apart from levelling up secretary Michael Gove’s comments on relaxing the pace of energy efficiency improvements in private rented housing, there has been no rowing back on the government’s stated commitments since the Uxbridge by-election kicked off the recent bout of net zero debate, he points out.

Chris Friedler, policy manager (energy efficiency) at The Association for Decentralised Energy, agrees that much of the debate since last month’s by-election has been just rhetoric.

Words matter for instilling confidence though, he says: “Business doesn’t like uncertainty and it doesn’t like the feeling that it’s going to have the rug pulled out from under it.

“When we do hear rumours, you have to take it 100% at its face value, otherwise, you get caught out.”

This is a source of particular concern in the energy efficiency sector where targets are less set-in stone than in other areas of net zero policy, like those rented home targets that Gove has signalled a softening on.

This nervousness is compounded by abrupt volte-faces energy efficiency policy has seen over the past decade, Friedler says: “You’re talking to a sector, which ten years ago had the rug pulled out from under it so they require a lot more reassurance.”

The last thing that the wider energy sector needs is to become an arena for political grandstanding, Gray agrees: “Energy is a long-term industry and we’re looking 20 years in the future with what we’re building now so these short-term actions and comments aren’t that helpful.”

So far Labour hasn’t risen to ministerial attempt to turn net zero into a wedge issue between the two main parties by promising to scrap any gas and oil licenses awarded by the government.

“If Keir (Starmer) is being pragmatic, they (the government) are going to have a really tough time finding a dividing line,” says Alex Simakov, senior research fellow, energy & environment at the Policy Exchange thinktank.

To an extent, policy watchers see the hardening of government’s rhetoric around net zero as a kite flying exercise, designed to test out how well such messages may go down with the public in a general election campaign.

“It depends how it plays out in the focus groups that the Tories will no doubt be doing,” says Doug Parr, head of policy for Greenpeace UK, which has been barred from meetings with government following the campaign group’s recent protest at Sunak’s north Yorkshire constituency home.

But he doesn’t see how the Tories can turn the narrow attack successfully mounted on London mayor Sadiq Khan’s ultra-low emission zone in Uxbridge into a broader campaign against climate measures.

“I just don’t see it’s going to work and recruit them votes,” Parr says, arguing that last month’s by-elections could hardly be interpreted as a big overall thumbs down for the net zero agenda.

“What happened with Uxbridge was not such a big swing towards Labour as there has been elsewhere. In the Selby by-election, which possessed what was the biggest coal power station in the UK, people voted en-masse for a party that wants to decarbonize the power sector by 2030,” he says, referring to Drax’s giant plant.

A swathe of polling, no doubt fuelled by alarm amongst holiday makers about the ferocious temperatures many have experienced this summer, bears out this message, Parr, says: “You need to have some kind of tinder to work with to start a fire. If there isn’t any tinder, then you’re going to struggle to start fire. Mercifully, public opinion is, broadly speaking onside with the need to take action on climate change.”

How far the Conservatives embrace net zero scepticism is likely to hinge on the mood at the party’s annual conference, which takes place in Manchester at the beginning of October, says Friedler.

The big policy energy set piece this autumn is likely to be chancellor Jeremy Hunt’s promised government response to the package of subsidies and tax breaks contained in the US government’s Inflation Reduction Act, which may be trailed at the conference.

Before then, passing the government’s energy bill is going to be “very critical”, says Friedler, who believes the legislation is sufficiently well advanced to be “done and dusted relatively quickly”.

It would be politically sensible for ministers to get through this legislation, which has completed the bulk of its Parliamentary stages, he says: “There will be pressure from the government to get it passed before the winter because it’s good politically to say we passed an Energy Act to help prepare families for this winter.”

However, particularly given the recent heightening of tensions around net zero, he sees opportunities for MPs to use the bill to champion hobby horses. “No Conservative Party leader likes a backbench rebellion and if there’s a large, disgruntled group of fiercely anti-net zero MPs, Rishi Sunak will inevitably want to try and keep them happy.”

Meanwhile this so far noisy group’s opponents on the Tory backbenches shouldn’t be underestimated, Friedler adds.

“There’s a lot of quite angry pro-net zero Conservative MPs, who are very firmly pushing back on this.”

Gray suggests the ructions surrounding energy week offer a taste of the likely debate leading up to the general election, which must take place by the end of next year.

The next year will be tough for energy companies to negotiate, says Angus Hill, energy director at WA Communications.

“Both parties have got, very different messaging and positioning on it but ultimately the industry and technical solutions are probably going to be the same.

“The challenge for industry is how they talk to both parties during this really heightened political time to get support for projects or technologies or policy changes they need to secure growth.”

But Parr confesses that he is not “terribly optimistic” about how the climate change debate will shape up during what he sees as a “hiatus” as the current government runs out of steam and potential replacements bed in.

“It’s difficult to see where there’s going to be much progress in the near future on this agenda. I’m just hoping I’m wrong because the climate crisis continues to be with us.”