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Monday, February 04, 2019

What next for UK energy policy?

The cancellation or deferment of the new nuclear power plant at Wylfa in Ynys Mon has brought UK energy policy into sharp focus. The UK Government seem to be prepared to pay the high price of electricity generated by new nuclear power plants, but leaving their construction to the free market has not proved to be so clever, given the huge capital investment required and the long lead-in times before any return on that expenditure comes on stream.

What is puzzling is why ministers are happy to sanction high feed-in tariffs for nuclear but not comparable payments for tidal, as evidenced by the Swansea Bay tidal lagoon. In fact it is far from clear what the aims of UK energy policy is given the reluctance of the UK Government to take any lead on supply or to spend money on key strategic investment.

In today's Times, Tony Lodge, a research fellow at the Centre for Policy Studies, says news that Germany will need to find large new supplies of electricity after announcing the gradual closure of its coal-fired power plants should concern British policymakers and those interested in our energy security.

He says coal-fired plants supply 40 per cent of German electricity and will now be run down, the aim being to replace this lost capacity with more power imports and renewables. The decline in baseload electricity supply will be further exacerbated by the decision eight years ago to close all of Germany’s remaining nuclear plants by 2022:

British ministers should examine this decision closely, given their policy to support, approve and install more and more undersea cables, known as interconnectors, to provide future access to spare electricity supplies from Europe. Part of this strategy is based on the theory that this can provide Britain with cheap, abundant electricity when needed. But falling capacity margins, such as in Germany and also now in Belgium and France, will mean much tighter supplies and higher prices in the future.

Plans show that the expansion in interconnectors could result in up to a fifth of domestic electricity supply being dependent on them by the end of the next decade, as power plants across Britain close without replacement.

This winter’s cold spell has led to high electricity demand across Britain. Last Wednesday night, gas-fired plants were supplying 50 per cent of our electricity, coal 16 per cent, nuclear 15 per cent and the country’s 9,400 wind turbines just 4 per cent, with other fuels and imports making up the rest. Yet Britain is likely to have closed all of its coal-fired power stations within five years and half of its nuclear capacity will be retired by 2025.

None of this is helped by a European Court of Justice ruling just before Christmas which declared that the main flank of UK energy policy, the capacity market which pays companies to generate electricity, is illegal state aid. Whitehall is nervously trying to keep generators and investors on board while the policy is suspended, in the hope that the European Commission can resolve the issue.

He argues that following the collapse of the new nuclear build plan, the government must now prioritise the construction of more gas-fired power plants in its energy white paper, due out this summer. He says, and I agree, that more interconnectors do not guarantee the once-anticipated abundant and cheap power supplies and are not a replacement for domestic generation.

This is absolutely correct, but it still not clarify what the objectives of UK energy policy are. In my view it should be threefold: 1) to guarantee energy security; 2) to tackle climate change; and 3) to ensure that there is a plentiful, secure and reasonably-priced supply for industry. But how to achieve this? One of the comments on the article appears to point us in the right direction:

There are a few essentials in a nation’s power generation capability: 
  1. You cannot leave it to the vicissitudes of the Free Market. It has to be a partnership operationally between the public and the private sector but at a strategic/investment level it’s a Government responsibility. 
  2. Investment is long term. You should aim for a power plant life of 25 years or more. 
  3. A mix of energy sources is desirable. Coal, Oil, Gas, Solar, Nuclear, Wind, Hydro, and imports all have their part to play. 
  4. The UK’s current policy is not only illegal but sub-optimal. 
  5. Over time the relative production costs (including capital charges) of different energy sources will vary considerably. A strong argument for diversity. 
  6. Hydrocarbon generation (including Coal) must be in the mix. With modern generation methods the emissions can be contained. 
  7. Renewables will have an increasing part to play but the idea (for example) that “Wind is good, Gas is bad” is simplistic. 
Perhaps, Ministers can now provide more clarity as to what their approach is to this subject.

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