By Ben Caldecott, Head of Energy & Environment at Policy Exchange
In the latest report published by Policy Exchange and authored by Dieter Helm, Professor of Energy Policy at Oxford University, it’s clear that Britain must change its energy policy to meet the challenges of climate change and rapidly declining North Sea output. If the Government fails to do this, the lights might go out, we will see a second dash for gas based on insecure Russian supplies and we’ll be locked into a high carbon future. This scenario is the worst possible, but is becoming increasingly likely.
With the retirement of our aging nuclear power stations and the closure of our coal ones due to the EU Large Combustion Plant Directive we face a rapidly growing energy gap. By 2020 between one-third and one-half of our existing generation capacity will need to be replaced. Whilst the Government knows this, it is doing too little to ensure that capacity is replaced, let alone replaced by low carbon forms of generation.
The seemingly endless succession of energy policy reviews and ad hoc policy interventions has confused investors and regulators the like, delaying or preventing crucial investments. In addition, one of the Government’s main energy policy instruments, the Renewables Obligation (RO), is one the most expensive ways of subsidising renewables in the developed world. To make matters worse, there are a plethora of organisations charged with delivering energy policy.
This has led to an unnecessarily large and wasteful bureaucracy, that’s also open to lobbying from a variety of special interests. This combination of failures, together with new urgent carbon and security constraints, make our existing energy policy no longer fit for purpose.
In the Policy Exchange report, a new energy policy fit for the challenges of climate change and energy security is set out. It is workable and will involve reform of the institutions responsible for delivering energy policy, a new cost effective Low Carbon Obligation to replace the RO, a coordinated and long-term investment strategy to make our national grid smarter and brimming with low carbon technologies, and new markets to generate the investments we crucially need. The urgency of creating this credible energy policy framework cannot be understated. It is an integral part of Britain’s low carbon future, as well as being essential for national security, energy price stability and, perhaps most importantly for the electorate, keeping the lights on.
