Utility Week expert view

“Once built, the power assets could be sold to private sector operators – a short turnaround version of the privatisation of the entire UK power industry.”

Quite rightly, there is a lot of nervousness about the prospect of the UK running short of power generation within a decade. The government is looking at ways to reform the electricity market to encourage investors to build the plant needed. But it is giving undue attention to some options that, in a less stressful context, might be considered a little suspect, while not pushing hard enough on more durable alternatives.
It is tempting to read the sudden enthusiasm for marginal or risky technologies like carbon capture and shale gas as the product of desperation. Carbon capture and storage (CCS) was, 20 years ago, viewed as viable, or even possible, by only a handful of academics. It has gone from having few advocates and no track record to having widespread support… and no track record.
Likewise there is unbridled enthusiasm in government for shale gas despite a procession of notable commentators – former chief scientist Sir David King among the most recent – warning that shale will not transform the UK market.
CCS or shale gas, or better still both, may well be capable of helping to curb climate-changing emissions and restore energy security. But they need time to be evaluated alongside potentially cheaper, less polluting and similarly untried options like wave and tidal plant. The administration’s excitability over geologically risky technologies is made still more perverse by the geological pace of decision-making to drive robust technologies like nuclear, offshore wind, distributed generation and good old interconnectors.
The administration was frozen, it seems, by faith that the market would deliver on investment, and by fear of the responsibility of picking winning technologies, before panicking and picking winning technologies. Even now it continues to dither in implementing its own decisions, with grinding negotiations over strike prices for offshore wind and nuclear.
Back in the real world, the UK is going to need new baseload capacity as well as flexible plant to fill in gaps when the wind turbines do not turn. National Grid’s modelling predicts that in little over ten years the capacity margin will be less than 1 per cent. That means it needs only the then 40-year-old Heysham 2 plant to pack up (again) on a cold winter’s day and the Christmas candles may cease to be merely decorative.
Given the time left, only new gas plant, and possibly biomass, can provide the baseload and back-up we need. Environmental targets may have to slip but UK industry and householders will not be too worried. There. Technologies sorted. Now we need the finance.
Political caprice has turned many investors away from the energy sector and the continuing uncertainty and indecision does not help.
The Committee on Climate Change this month warned that potential investors were not impressed with the proposed price regime to be offered to offshore wind. And the argument over a deal for nuclear power has scared off one major player – the German Horizon consortium. Negotiations drag on with EDF.
The chairman of the Olympic Delivery Authority, Sir John Armitt, recently called for the government to finance nuclear new-build itself. The 2012 Olympic infrastructure project showed how a major undertaking can be completed against the stopwatch. Once built, the nuclear assets could be sold to private sector operators – a short turnaround version of the privatisation of the entire UK power industry.
Why not extend the approach to offshore wind? Once the construction risk is taken out, buyers will emerge. Indeed, there may be case for looking at the entire anticipated £70 billion generation spend in this way.
Once the urgent need for capacity is dealt with, there will be more time to nurture – with some government de-risking – CCS for shale gas-fired CCGTs, marine, pumped storage to back up wind, distributed generation and so on. And there will be time for a pan-European supergrid to be built to provide low-carbon back-up for renewable intermittency.
Government intervention in energy was considered unthinkable until the last few years of the Blair government, when it become clear that the market was not going to deliver security of supply. More recently, the coalition has pledged to tackle escalating prices and threats to security of supply. Most of it has turned out to be rhetoric, but the notion that the government can and should do something has been planted and has grown.
It may come down to an adjustment in priorities. For a start it might be best to remember that the HS2 rail link will need electricity to be of much value to the economy. So as long as no more banks need to be bailed out and there is a political desire to boost UK manufacturing, there must be a place for government-led investment in energy to end the seemingly unending uncertainty.
Trevor Loveday is an independent journalistTrevor Loveday