We’re dangerously close to an energy crunch but Hinkley isn’t the solution

 
Tony Lodge
Householders Welcome Lower Energy Prices As Profits Fall
The government is panic subsidising old coal plants because new gas stations haven't materialised (Source: Getty)

"I want to see an energy policy that emphasises the reliability of supply and lower costs for users.” Just two days before becoming Prime Minister, this key extract from Theresa May’s first major campaign speech in Birmingham was welcomed by the energy industry and consumers alike. But what would it mean in practice and in policy?

We didn’t have to wait long to find out. The unexpectedly swift coronation of the former home secretary was followed by the axing of the Department of Energy and Climate Change and the creation of a new ministry to deal with Business, Energy and Industrial Strategy. It is early days yet, but this is hopefully a sign that energy policy will now be much more closely aligned with domestic economic policy and making Britain more competitive in the post-Brexit world.

The new secretary of state, Greg Clark, faces a bulging in-tray, from a chronic lack of new build to replace old power plants, the growing conflict of interest facing National Grid, and the hugely important task of reviewing the eye-wateringly poor Hinkley C proposal.

Read more: Hinkley Point C: Politicians gamble with other people’s money

I spoke alongside Clark in 2009 at the Conservative Party Conference on a platform appropriately titled Facing up to an Energy Crunch. Seven years later and the UK’s energy policy has been allowed to drift further. It is in a perilous state and the warnings which were made at that meeting have all turned out to be well-founded.

Clark will be the fourteenth secretary of state with responsibility for energy policy since 1996. His new minister of state with specific energy duties will be the eighteenth. Consequently, this most important area of policy, which needs stability and consistency, has suffered from erratic leadership, regular U-turns and a lack of long-term focus and planning.

This is best summed up by the situation which overshadows electricity supply policy today. The government is paying 45 year old coal-fired power stations hundreds of millions of pounds to stay open so as to avoid winter shortages – even though Whitehall policies had initially forced them to close. These desperate and expensive subsidies arise from a lack of joined up and consistent long-term planning to properly encourage investors to replace coal stations with new gas-fired power stations. Coalition ministers first announced plans to deliver these new plants in 2012 but only one is being built.

Up to 20 gigawatts of new gas plant are urgently needed. The capacity market which was designed to encourage them with a robust incentive price has not delivered, and big changes to ensure a higher price are essential to convince investors. Panic subsidies to old coal plants and attempts to get new gas plants built on too low a price just undermine the case for the new and existing gas-fired power stations which we need now.

The proposed Hinkley nuclear plant is almost irrelevant in this context as it will not open before 2026 even if it gets approval next month. The government should be brave and instead choose smaller and more modern new nuclear plants for our long-term supply needs.

Read more: Are the economics of nuclear bust in the UK?

The new secretary of state must also address the growing conflict of interest which faces National Grid. This is a privately owned company listed on the stock market which owns the main national pipelines and the electricity transmission network, alongside having the responsibility for keeping the lights on and balancing the electricity network. It has huge commercial interests in boosting the import of more and more foreign electricity through undersea interconnectors, irrespective of the wider negative policy implications.

In a recent Commons answer, ministers confirmed foreign electricity imports have risen by 30 per cent in just two years. These imports don’t have to pay high British carbon taxes as the electricity is generated overseas. Importantly, the electricity can also flow the other way to meet rising European demand, and yet National Grid and the government are keen to see more interconnectors built. National Grid benefits from high usage of its infrastructure and this may conflict with its responsibility for keeping the lights on.

A new independent electricity system operator is long overdue. It has worked well in the US and can remove conflicts of interest and vested interests at this vital time in the national interest.

The priority for the new super ministry must be to prioritise the swift replacement of old coal plant with new gas plants. The sticking plaster energy policy of the past 18 months must end and a clear post-Brexit strategy must be unveiled. So far Britain has been lucky, but it will not take much for the energy crunch I warned about with Clark all those years ago to become a reality.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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