Interview: Jonathan Brearley, Director of Brearley Economics and the architect of EMR while at Decc

“Asking government to set prices is a complete loser’s game… you’ll never be able to set them accurately.”

Jonathan Brearley is enjoying the view. As the UK’s electricity market goes through its biggest overhaul since privatisation, the man who designed the programme is watching from the outside. And delayed timelines notwithstanding, he likes what he sees.

Twelve months after his shock departure from the Department of Energy and Climate Change (Decc), the architect of EMR is ready to talk. In his first and only interview since, he tells Utility Week how and why EMR was envisaged, whether the department is getting it right, and where the energy industry is going wrong on self-representation.

“I picked up the capacity market rules the other day… I remember when it was a concept on a PowerPoint slide,” he says over coffee on a Fitzrovia terrace. Over the course of the next hour, Brearley, charming and unassuming, fields Utility Week’s questions with the ease of a man who is no stranger to scrutiny.

Brearley, a civil servant for over a decade, designed the UK’s electricity market reform in 2009 before leaving the department as the legislation began its journey through Parliament in mid-2013. This raises the question: why leave the helm of EMR before the ship comes in?

At the time, his exit was reported as a devastating blow to the fledgling legislation, which was designed  to cement the EMR framework, and a symptom of a department torn apart by tensions in the coalition government and undermined by the Treasury.

“I stayed until I was confident that EMR would be delivered, but I felt it was time for a change for me,” Brearley replies with barely a pause. There is no doubt he’s had practice answering this question.

In 2009, he explains, he imagined his tenure as a top civil servant at Decc would last only another couple of years. But a new course for Brearley – and the UK energy industry as a whole – was set with a pre-summer holiday meeting request from the head of Decc. The schedule referred to the meeting as a ‘catch up’, Brearley recalls.

“Now there’s only two reasons you get that: you’re either going to be fired or you’re going to get a really hard job. It was the latter,” he says with a smile.

The hard job was a total redesign of the policy framework underpinning the energy market to address the triple challenge of securing supply, while decarbonising the power sector and keeping consumer bills affordable.

But at this stage no-one at Decc had any idea of the scale of the reform that would be needed.

Political pressure to keep a lid on rising bills is perennial, Brearley explains, and the Climate Change Act of 2008 had already put decarbonisation firmly on the agenda. But the scale of the UK’s impending supply shortfall was not fully appreciated until early 2010.

“When I started I had a fairly sanguine view of security of supply,” Brearley says, with a wry nod to this summer’s unprecedented string of unplanned outages and the risk looming for the coming winter.

“Very quickly, within the first two to three months, it became clear from conversations I had with industry, and from the new analysis that we started to run, that we had a more serious problem than we thought.

“But even then we thought the emerging problem would be hitting a bit later than it’s started to hit.”

The capacity crunch point had been anticipated towards the end of the decade, but as early as 2017/18, as older carbon-intensive power plants shut down and new low-carbon options were expected to come forward gradually. The crunch has come far sooner, with the recent months’ outages bringing it forward from the winter of 2015/16 to the one ahead. EMR’s capacity market auctions, designed to ensure thermal plant availability, will take place this December for delivery in winter 2018/19.

Brearley concedes that if he could change anything about EMR it would be that both the capacity market and auctioning of contracts for difference (CfD) should have taken effect sooner. “Looking back on EMR, I think we could have made some decisions faster, which would have got the schemes in a little bit quicker.

“I don’t think it would have shaved off an enormous amount of time but it would have made us a bit more efficient,” he says. “Some of my former colleagues in Decc would kill me if they heard me say that because it is a very difficult and complex process,” he adds quickly, that civil service diplomacy in evidence again.

The department was wary of legal risk and consulted exhaustively, Brearley explains, adding that they could have done more to push for quicker decisions from government (“and I mean at the highest possible level”) when internal disagreements threatened a stalemate.

“There were times when we took a bit longer than we should to do that. But that’s entirely understandable when you’ve got two different political parties working together, and different departments in government that disagree on a much more fundamental level.”

“Coalitions are new. And none of us had any experience of working in one. It was an odd time,” Brearley remembers. Specifically, he explains, the move to auctioning CfDs should have come earlier.

“Asking government to set prices is a complete loser’s game in the sense that even if you have the best analysts in the world you’ll never be able to set prices accurately for projects. So I think the more we can look to the market to see a price the more efficient these schemes will be.”

“The prescription was right – it’s the time that it’s taken to come in that is the biggest issue,” he says.

So is EMR poised to bring forward low-carbon investment while keeping consumers from blackouts and crippling price rises? Ask again in four years, says Brearley, once projects funded by the CfD regime begin to come online and the first delivery of the capacity auction has taken place. But the signs are good, he adds: “When you look at the CfD process so far it has been oversubscribed, the capacity market has been oversubscribed, and that at least looks like the right direction.”

Over three years within one of the coalition’s most contentious departments, implementing changes set to shape the industry for decades to come – and during which time the sector faced increasing political heat – might be enough to leave any civil servant a touch jaded.

But when speaking with Brearley there’s a pervasive optimism about it all; a sense that even when the policy-making process is fraught, the fact it is being tackled at all is a reason to be pleased.

“Even when I worked in Tony Blair’s strategy unit, then the prime minister’s strategy unit, we were focusing on big issues like child care, pensions. So you get used to it,” he says, brushing off any suggestion of a pressure cooker atmosphere at Decc.

Although he concedes bringing EMR to near-delivery was “quite difficult”, Brearley explains “that’s also part of the joy of the job: to get something done, to really make a change you’ve got to have that push and you’ve got to be prepared to do that kind of work. And although sometimes it’s frustrating it’s also incredibly exciting and enjoyable.” No doubt the cut and thrust of civil service life is not always the grand adventure Brearley paints, and it’s certainly not enjoyable enough to have kept him from leaving government. But if there’s a darker view of time spent at Decc, Brearley’s not telling.

His optimism extends to the future of the industry as a whole, which these days he is able to see from a slightly different vantage point. Since leaving Decc, Brearley has set up his consultancy, Brearley Economics, working in the overlap between regulatory and commercial strategies, helping companies understand the policy developments of other countries and how to plan their strategies.

His work has given him perspective not only on the way the UK’s policy framework is perceived, but also how similar its domestic challenges are to those across Europe and around the globe.

“When you go to India and you talk about one of their biggest issues, which is political concern about prices leading to price regulation below the cost of generation… it doesn’t sound a million miles away from some of the countries I can think about,” he laughs.

Closer to home Brearley says the negativity and defensiveness of the UK’s energy sector belies the fact that exciting and “imaginative” work in decarbonising the power sector is happening all the time. “I’ve seen a number of projects that are being developed where people have some very strong and very confident expectations around the UK market. That’s quite exciting, and we should be celebrating that,” he says.

Although the sector can’t pretend there aren’t pressing problems to be dealt with, including the not insignificant matter of the Competition and Markets Authority probe, the overall picture is an encouraging one, he says. “When you see that kind of activity and you see a number of very interesting and exciting projects coming forward, it’s a good place to be. It’s certainly a good place to be commercially,” he says.

But the industry must address mistrust by developing a unified understanding of consumer bill drivers, which are “more complex than saying it’s all caused by policy, or it’s all caused by company profits”.

Part of the problem, Brearley says, stems from the stance taken by trade group Energy UK. “I don’t think it should be quite so combative in its language, but I understand why it is. When you have a number of politicians saying this is all about the energy companies and nothing else it’s hard to be anything but defensive, but quite frankly what you really need is quite a dry analytical look. Until you can all say, ‘we agree with these numbers’, you’ll never have a clear sense of the debate.”

“My hope is that after we get past the election the government and the industry can work on that together.”

Regardless of which party comes to power in March next year Brearley says Decc, after a controversial few years, will be focused on restoring trust in the sector, for both investors and consumers.

Looking further into the future, can Brearley see a time when he might return to government?

“Some of the most talented people I have worked with, with some of the deepest understanding of their circumstances, work inside government – and we should be making a lot more of that. It’s a valuable resource so I’d be happy to back at some point,” he says.

He pauses. “Maybe not quite yet.”