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Ed Davey: the Treasury is wrecking energy policy

With HMT holding the energy policy pen, we are in big trouble

By Ed Davey  

I felt some sympathy for Amber Rudd, my successor as Secretary of State for Energy and Climate Change, as she announced the Conservatives’ energy policy “reset” from the Coalition policies developed by Liberal Democrats like myself in a speech this morning. For hers are policies not made in DECC, the department she heads, but made in the Treasury. The hands of George Osborne and Nigel Lawson were obvious—and, to seasoned energy policy wonks, the views of Professor Dieter Helm too.

We look set to go from the Coalition’s medium term electricity policy mix of renewables plus gas, to a Conservative policy of gas plus gas. It’s not clear that making our power mix less diverse will help security of supply, let alone our long term carbon emissions performance. And it’s not clear this will help the consumer—as per the less than veiled hint by Rudd that new gas (and nuclear) would also need subsidies. Even before we put a carbon price on gas, capacity payments required for new gas power stations may cost as much as the fast declining cost of renewable electricity subsidies.

For the country, the problem is that her policies are largely suited to the 1980s, before the danger of climate change was recognised and before technology development offered us an alternative vision of cheap clean energy, produced both locally and internationally. To propose a policy so heavily reliant on electricity generated from gas, coupled with nuclear (fingers crossed), looks more than dated: it looks dangerously expensive and unreliable.

The eye-catching proposal that coal powered electricity is to be phased out within 10 years is strongly to be welcomed—not least because I proposed it to Osborne two years ago. Even though I explained back then that coal stations would only be producing 3 per cent or less of UK electricity by 2025, I was told it would risk security of supply. The main differences since then are that new nuclear power has been delayed by a further two years and the new Government is dramatically slowing down renewable electricity deployment. So it would be interesting to know what’s happened to past HMT concerns on security of supply now that we will be so dependent on just one technology to plug the power gap.

Moreover, this looks like a policy to bring a smile to Mr Putin. One of the arguments for renewables that the Conservatives used to make was that the raw materials of wind, sun and the tide weren’t imported. With North Sea gas production falling and with British shale gas unlikely to be available in large quantities until the back end of the 2020s (if ever), that means both our electricity and heating energy will be dependent on huge gas imports. At the moment we don’t import much gas from Russia. Most of our marginal gas is LNG on ships from the Middle East. Perhaps in the future we will be able to ship large amounts of (more expensive) LNG from the US or Africa. Let’s hope Congress allows it and that Africa doesn’t need its own gas.

The biggest failure of this energy policy reset however is not to recognise the lightning speed of energy technology development. From the declining cost of solar and wind, to the dramatic developments in energy storage technology. From the new opportunities provided by greater interconnectivity into deeper power markets across Europe to the early potential of other green technologies like tidal power lagoons and CCS.

With HMT holding the energy policy pen, we are in big trouble, because if there’s a government department that doesn’t understand innovation, it’s the Treasury. By moving away from the diverse, technology neutral energy policy the Coalition developed, a policy capable of adapting to the global upsurge of energy innovation, the Conservatives are picking winners and in doing so are offering less secure, more expensive and dirtier energy solutions, that are out-of-date before they are even finalised.

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