Interview: Lord Hutton of Furness, chair, Energy UK

“We are on the cusp of extraordinary transformations in electricity that will knock the socks off anything we have seen in the past ten years.”

Lord Hutton is nursing a black eye when we meet. It wasn’t, says the staunch New Labourite when probed, the result of an altercation with fans of opposition leader Jeremy Corbyn. “I don’t think they care about me now: they probably would but I’m out of the political fray and don’t intend to get back into it,” he says.

The peer, who was widely regarded as one of Tony Blair’s most loyal supporters, held a series of Cabinet posts towards the end of New Labour’s ten years in office.

The shiner, he explains, is the result of a tree-felling accident at his home in Cornwall. He had been clearing ground to make way for a wildflower meadow he is creating on the smallholding the house sits on.

He’d been working with a couple of friends who had left Hutton to split the felled logs on his own. “I was kitted up with all the chainsaw gear on. I’ve been using chainsaws for most of my adult life: what can go wrong? Quite a lot it turns out,” he says

One of the logs spun off and smashed into his face, leaving the mesh visor a mangled mess.

“It happened so quickly. All I knew was that my head was on the ground,” he says. When he came round, Hutton was spread-eagled on the ground, 20 minutes walking distance from his house with a broken cheekbone but thankful that he still had his sight.

It’s been an eventful month chez Hutton. After this interview he is due to go to Colchester to see his infant grandson who has just been in an accident with a cyclist.

This domestic drama comes at a time when he is winding down as chair of the Nuclear Industries Association in order to free up time for the same role at Energy UK, which he recently took on.

Lord Hutton has remained closely involved with the energy sector since leaving the House of Commons at the 2010 general election. His last role in government was as secretary of state for business, which incorporated energy. While in the role he pushed through the government’s last energy white paper, which was chiefly notable for putting nuclear power back on the agenda as part of a broader push for a decarbonised generation sector.

He concedes that the topic was far from the top of his agenda when he became an MP in 1992, but says overseeing policy in that area gave him a powerful sense of its importance. “If we don’t have a clean, affordable, reliable energy system we can pretty much give up any aspiration we have as a country and an economy,” he says. “We are very much at a crossroads in the energy sector. A lot of the good things that happen don’t get the attention they should – we have done some amazing things.”

Hutton says that it you examine the original plans for decarbonising the power sector, the reality has exceeded expectations.

“If you said to me in 2007 that in a few years there would be days when we were not using coal, I would have thought you were out to lunch, and of course now we are looking at a completely coal-free sector.

“We’ve done the most extraordinary things and we are on the cusp of extraordinary transformations in how we generate, distribute and trade electricity that will knock the socks off anything we have seen in the past ten years.”

Progress has been smoother in some areas than others, though. One example of an area that has been less smooth is the smart meter rollout. “It’s a massive undertaking so it’s no surprise it’s taken longer than we thought,” he says.

Another is carbon capture and storage, where he admits to a “slight concern” about the recently published report from the Intergovernmental Panel on Climate Change (IPCC) about reliance on this still unproven technology to compensate for overshoots of carbon emissions in other areas.

“We are still in the foothills of getting our heads around that. Unless there is some extraordinary breakthrough I think that is probably more medium and longer-term territory. It makes the challenges they [the IPCC] highlight even more serious.”

Progress on nuclear has also been slower than Hutton believed would be the case when he was secretary of state.

He says: “When we did the white paper ten years ago, all the major utility companies came and said they would put nuclear on their balance sheets. Six months later, the crash happened and those balance sheets were no longer strong enough to support investment on that scale.”

He remains a passionate supporter of the industry, which he got to know well through his role as MP for the Cumbrian coastal town of Barrow.

“It’s a trump card for nuclear that it has the ability to make a very profound contribution to challenges both here and round the world,” he says. The issues for nuclear power are not technical but economic, he argues, specifically the large amounts of upfront capital that new-build projects require.

“We’ve all come to understand in a way we didn’t fully appreciate a few years ago just what an investment challenge it is in current market conditions,” he says.

The 63-year-old sees a role for the state in providing support for nuclear projects through loans and equity stakes. He also says the government should look “very carefully” at whether the regulated asset base model (used to support the construction of the Thames Tideway tunnel) can be applied in the nuclear sector.

He says it could be a key to unlocking institutional interest in the sector. “It would permit investors to get earlier returns on investment. It’s asking a lot of even experienced infrastructure investors to lock up a lot of money for a long period with not much return.

“Their risk appetite is limited, but it’s quite clear that in many jurisdictions pension funds and other institutional investors are having to take a little bit more risk.

“If we want the nuclear project to keep on track, and we must for decarbonisation, we have to have an open mind about how to secure investment.”

But the peer’s call for more government intervention falls well short of the current Labour leadership’s plans to renationalise utilities. Although he retains the Labour whip in the House of Lords, he is clearly no Corbynite.

“It [Labour[ is part of my DNA but I am profoundly unhappy and unimpressed with the direction the party has taken. The answers they come up with are the wrong answers to the wrong questions.”

Exhibit A for this is the party’s pledge to restore public ownership of large chunks of the utility sector. Hutton makes clear he is no ideologue, counting himself as a member of the “what works” club. He showed his centrist credentials by agreeing to undertake a review of the public sector pension system for the coalition government.

He says: “I’m a much more middle of the road. I want my government to be open to new ideas. I don’t want to elect a bunch of automatons that repeat clichés and parrot old ideologies.”

And he is clear that this includes nationalisation, which he believes won’t work and would lead to “lack of investment, capital flight and return to pretty sub-optimal ways of generating and supplying electricity”.

He says: “On the far left of British politics there is a romantic attraction to the notion of public ownership that doesn’t find any resonance with reality.

“I don’t want to repeat failed policies. There are much bigger things to worry about, such as decarbonisation. That’s what we should be focusing on.”

In particular, he draws on his experience of sitting round the Cabinet table arguing that investment in energy infrastructure would end up being crowded out by shorter-term pressures. “The idea that the taxpayer is going to provide the investment for that [energy infrastructure] is for the birds.

“In government you have spending choices to make and must be pretty clear about how those choices are made. They are made for the here and now and the short term, not for 25 years down the line. Obviously if we go down the road being proposed by Labour that’s exactly what might happen to the energy sector.

“It’s not worth it. Leaving aside the ideological questions, this is a risk we can’t afford as a society, and why run it if we can operate an effective and efficient customer-focused energy sector that is an attractive proposition to investors?

“It’s ridiculous to put all that at risk in pursuit of an ideology – and let’s be clear that it’s a failed ideology. It’s not a recipe for success and it’s not a policy I can accept. It risks throwing a bucket of cold water over investors when we should be encouraging them to step up.”

Added to that is the fact that nationalisation would be “extremely difficult” to implement, Hutton argues, potentially tying up in knots whoever holds the energy portfolio when they should be focusing on other issues such as decarbonisation.

“I’m not a fan of nationalisation because it runs all sorts of risks of delivery and obfuscation. We can make the market work better for everyone and not put at risk wider objectives for misplaced short-term objectives.”

Equally, he’s no fan of the recently introduced price cap on standard variable tariffs, arguing that the policy has been “oversold”.

“It won’t work out in the way that supporters of the policy expect it to. People think they will see their bills fall but that’s not going to happen any time soon, and if it happens at all it will be because the wholesale price is falling. It’s very likely that the price of energy will rise next year.”

Like Labour’s renationalisation plan, he believes it will send the “wrong signal” to investors and could make them question whether they want to be in the market.

And while he believes the energy system is becoming more decentralised, he dismisses as “happy clappy” the notion that the grid can be decentralised.

“There is no realistic proposal for moving from a centralised to a decentralised system any time soon. I don’t think it would be a sensible thing to do.”

In broad terms, the direction of energy policy is right, he says, and both Ofgem and the government are doing work on meeting the UK’s energy challenges. He also name checks Energy UK’s Future of Energy study, due to be published in the New Year.

But the peer believes there is still a case for a stocktake by the government, like the white paper that he piloted in government.

“To avoid that risk of incoherence, there needs to be a clear and regular articulation about where we are going, particularly in a market system like ours where you have to send signals not only to customers but investors.”

For this political veteran, there’s still a lot of unfinished business in the energy sector.