In truth, the outcome of what Liberal Democrat energy secretary Ed Davey saw as a “good negotiation” makes it clear that the blindingly obvious settlement has been reached while the real battles were won by the Conservatives.
On the no-brainer issue of lifting the cap on how much the government can sting the consumer for the cost of subsidies for new nuclear and renewable generation, the cap has been raised.
On the issue of how much long-term commitment the UK should give to renewables, the guillotine came down at 2020. Gas fan and chancellor, George Osborne, has “negotiated” a space for gas to dash into. Tellingly, the government considers its gas strategy (to be published after Utility Week goes to press) as separate from the Energy Bill.
Osborne’s enthusiasm for gas does have points in its favour. Intermittent wind energy is not going to fulfil the role vacated when superannuated fossil and nuclear-fuelled power stations are retired. The baseload part played by nuclear and the mid-merit flexible slot taken by coal plants are not the best positions in which to play wind. Gas can do both.
In truth, the chancellor’s first line of reasoning might arise from reports of huge shale gas resources sitting under Labour constituencies in the UK and the anticipation that the UK could enjoy some of the US experience of shale-induced falls in gas prices. And the gas sector is very bullish about gas resources, with or without UK shale.
Then there is the growing political sense that any public belief in the need for the UK to meet its environmental commitments has fallen behind the more pressing desire to have guaranteed electricity and heat. In which case, gas’ll do nicely.
And planning and investor anxiety may delay nuclear to the point where it will miss the bus – gas plants may already be connected and generating.
So gas looks good. But the decision to leave an opening for yet more gas by not setting a decarbonisation target for 2030 before 2016 fails to provide any certainty for investors. Renewables investors have made much of that fact, but the same applies to prospective backers for gas-fired plants. It is perhaps a reflection of the gas sector’s confidence that the Treasury will hold sway, that it has not protested.
Treasury support for gas is sound if the priority is to secure reliable energy supplies over the next few years when a fifth of the UK’s power production capacity will be axed, rather than meeting long-term environmental targets. Even if the Treasury does not get its cheap shale gas, at least there would be electricity available for us to moan about its price. And it would put a higher value on energy efficiency, which is the lowest of low-carbon measures and could do with a boost.
Trevor Loveday
This article first appeared in Utility Week’s print edition of 30th November 2012.
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