Prospects for UK energy policy under coalition options

UK energy policy is framed around low carbon – led energy security, with much to be done to realise that goal. Nuclear new build, reshaping the markets to deliver investment, a robust planning system and cleaning up fossil fuel power are all focal points within the framework. So what do we need from the coalition talks?

Firstly, and most importantly, the industry and capital markets will look to a strong signal from the incoming government on energy policy, on the basis that the private sector is expected to find £200 billion over the next decade to rebuild the UK’s energy infrastructure.  That investment will not happen if there is political and regulatory uncertainty.  The biggest difference by far in the parties’ energy policies is the Liberal Democrats’ opposition to new nuclear build, strongly espoused in particular by their energy spokesman Simon Hughes.  Both Labour and Conservative are pro-nuclear – the Tories particularly so – and so either party in coalition with the Lib Dems would have to either concede ground or overcome objections.  Both Con-Lib and Lib-Lab coalitions face the same issue, and the outcome depends on whether this is a red-line for the Liberals.  In a Conservative minority administration, it is likely that Labour would support legislation on nuclear.  Intriguingly there is a possibility for the Conservatives to have Lib Dem support on an ad hoc basis such as ‘confidence and supply’, but allowing the Liberals to vote against nuclear, in the knowledge that Labour could support specific legislation.  Under a Lib-Lab pact, Labour could probably rely on the same support from the Conservatives.

Planning legislation is key to the ability to build new energy infrastructure in time. Any Conservative-led administration is likely to further speed up the planning process if anything. We would suggest that they will retain but build on the current planning legislation (which introduced the Infrastructure Planning Commission), although we know they have been critical of elements of the IPC framework.  Arguably, they go further, promising that ministers will have overall responsibility for determining and implementing policy, and talking of bringing some infrastructure decisions away from consultation and direct into government.  Conservative views on planning are unlikely to adversely affect security of supply, and more likely to result in strong objections from environmental / civil liberty groups.

The future for new coal plant is largely shaped by EU policy, which is likely to apply to any administration.  The Large Combustion Plants Directive, and subsequent emissions legislation, is likely to send a number of coal plants into mothball by 2015 at the latest.  The parties are generally agreed on the need to press ahead with demonstration projects for carbon capture and storage; the Conservatives have vowed to accelerate Labour’s plans, and the Liberals are against new unabated coal capacity.  It is easy to see a consensus forming here regardless of the government, and companies such as Scottish Power are already planning either to meet emissions limits (in the case of the Longannet plant in Fife) or replace existing coal with gas-fired capacity (Cockenzie in East Lothian).  ’Dirty’ coal is off the table, regardless of the new administration.

So we turn to energy market reforms. Under a Con-Lib government, it is difficult to see a carbon “floor price” being a red-line issue.  Such a policy makes renewables more attractive in comparison to fossil fuels, regardless of the impact on nuclear policy.  The same applies to a Lib-Lab coalition, and is unlikely to be opposed by the Conservatives.  M&C have argued that a carbon floor, and capacity payments system, are both vital reforms to the market in order to attract new investment, and give nuclear a level playing field with renewables and fossil fuels.  Labour have said that they are considering both, while the Tories have announced them as policy.

Political interference in energy policy is more or less inevitable as any new government seeks to deliver the huge investment needed to make up for a lost decade of energy planning.  Government knows that it cannot afford to pay for the new power stations and ‘rewiring Britain’, and so it needs to put in place a regulatory and investment climate whereby the private sector will deliver.  Cost to the consumer will be a secondary issue to security of supply – the frustration is that the cost now of doing what should have been started ten or more years ago is far higher than it need have been.

In summary, the biggest threat to energy policy is uncertainty, and the biggest uncertainty is the Lib Dems’ opposition to new nuclear build.  While no new atomic plants are likely in any case before 2020, clear guidance on whether they will be allowed will drive investment decisions in renewables and cleaner fossil fuels in the immediate future, and will also shape the market dynamics.  If we plan to generate say 25% of our electricity from nuclear in the 2020s, that will have a significant impact on the type of market and infrastructure we build in the 2010s. It is important that realpolitik delivers a green light to nuclear as a ‘necessary evil’ of energy production. Low carbon, reliable electricity that is not reliant on foreign imports from unstable regions – if not nuclear, then what?