Information Daily: UK Energy policy held hostage by short-term politics20/11/2012
Upon taking office, David Cameron promised that his government would be the “greenest government ever” however the coalition’s energy policy is in a quagmire due to battles between the Treasury and the Energy departments.
In addition, the vehemence of some Tory members against on-shore wind farms has also not helped the government’s cause.
The Government has agreed in principle to de-carbonise the electricity sector in the UK by 2030, and also ensure that 15% of Britain’s energy supply comes from renewable sources by 2020.
Since 2010, the Department of Energy & Climate Change (DECC) has been working on finalising an energy bill that would bring in radical electricity market reforms.
Ed Davey, the Liberal Democrat Energy Secretary, wants to re-affirm the government’s commitment to the green energy targets and provide adequate financial incentives for energy firms to invest in infrastructure and technologies such as nuclear power plats and wind farms.
The Government was set to announce the bill this week, but the DECC is still negotiating with the Treasury on the limits of the new financial incentives under the levy control framework set out in 2010.
The Chancellor George Osborne and the Treasury are reticent about providing huge incentives during a time of austerity. The cap has been set at £2.6bn for the 2012-13 financial year, rising to £3.9bn in 2015. However, there is no consensus on what happens in the next Parliament.
The Government’s statutory advisers, the Committee on Climate Change, has recommended the limit for incentives should rise to £8 billion per year in 2020 which would increase average consumer bills by £100 - £70 from the higher limit of incentives and £30 from other initiatives such as “carbon floor pricing”.
The Committee on Climate Change has urged the government to commit to this increase in subsidies to provide assurances to investors to invest in building infrastructure such as nuclear power plants and wind farms. However, the Chancellor George Osborne and his team in Treasury are concerned about the economic and political impact of incentives for renewables at a time of austerity.
The Prime Minister David Cameron and Deputy Prime Minister Nick Clegg were supposed to resolve the differences between the two parties last week at a meeting of the “quad” – the policy coordination body of the coalition that also includes Osborne and Danny Alexander, the Chief Secretary to the Treasury.
However, that did not happen instead the government took the populist approach to curbing energy prices for consumers, which goes against the very principle of the new proposed energy bill. The energy bill is supposed to set out how increase in consumer bills would pave the way for a greener and more successful future for the UK.
The government is still expected to present its bill but stakeholders in the energy sector are seriously concerned about what would finally be proposed. Recently, a group of energy CEOs and other stakeholders have urged the Prime Minister to take decisive action on the issue.
“This uncertainty is paralysing investment and undermining the UK’s growth prospects,” said executives including Vincent de Rivaz, head of the UK arm of EDF, the French utility.
The Prime Minister’s dilemma
David Cameron not only has to effectively address the dispute between the Treasury and Energy Department but also the opposition from within his own party.
There is vocal opposition to on-shore wind farms from senior Tories and earlier in the year, 105 MPs (mostly Conservatives) wrote to Mr Cameron opposing building wind farms.
They argue that it is too costly to deliver value for money, and also ruins the beautiful English landscape. Current subsidies for on-shore wind farms amount to £460 million a year. But focusing on the subsidies alone do not tell the whole story.
However, persuasive evidence from researchers as well as government’s own data suggest that on-shore wind farms do deliver value for money especially in the context of rising fossil fuel prices. The cost of generating one megawatt of electricity from on-shore wind farms is about 50% cheaper than that from off-shore wind farms and solar energy.
The Prime Minister wants to lead the “greenest government ever” but more and more of his party believe focusing on renewable energy would be detrimental to business interests and more importantly, Tory party’s political interests.
Cameron can take the easy option and pursue the populist pledge of reducing energy prices for consumers and “kick the can down the road” or use the Prime Ministerial podium to persuade the public and pursue the long term interests of the country.
To find out the answer we have to wait until Ed Davey presents the bill in the House of Commons by the end of this month.