Amber Rudd’s Speech
By Paul Homewood
They say that what a politician does not say tells you more what he does. Amber Rudd’s well trailed speech to the Institution of Civil Engineers yesterday was certainly full of coded messages, but we will have to wait and see just what it all means.
These are some of the highlights she had to say in what was billed as “A new direction for UK energy policy”.
In his seminal speech in 1982, he defined the Government’s role as setting a framework that would ensure the market, rather than the state, provided secure, cost-efficient energy.
This was driven by a desire to create a system where competition worked for families and businesses.
“The changes in prospect,” said Lawson at the time, “will help us ensure that the supplies of fuel we need are available at the lowest practicable cost.”
Allowing markets to flourish. Open to trading. Independent regulation to provide confidence to investors. Competition keeping prices as low as possible.
Of course, the market that was created was not free from all government intervention. Markets never are.
Intervention was necessary then and will always remain so in an industry that delivers such a vital service.
But intervention was limited.
The second phase of modern energy policy began when Tony Blair signed the Renewable Energy Target in 2007.
What has this left us with?
We now have an electricity system where no form of power generation, not even gas-fired power stations, can be built without government intervention.
And a legacy of ageing, often unreliable plant.
Perversely, even with the huge growth in renewables, our dependence on coal, the dirtiest fossil fuel, hasn’t been reduced.
Indeed a higher proportion of our electricity came from coal in 2014 than in 1999.
So we still haven’t found the right balance.
It is a sad admission that we have replaced a free market system, which worked, with one that relies heavily on state intervention, which has not even met its aims.
To set an example to the rest of the world, the UK also has to focus on where we can get the biggest carbon cuts, swiftly and cheaply.
That is hard to do when, after 20 years of action on climate change, 30% of our electricity still comes from unabated coal.
Unabated coal is simply not sustainable in the longer term.
In an ideal world, the carbon price provided by the ETS would phase out coal for us using market signals. But it’s not there yet.
So I want to take action now.
I am pleased to announce that we will be launching a consultation in the spring on when to close all unabated coal-fired power stations.
Our consultation will set out proposals to close coal by 2025 – and restrict its use from 2023.
If we take this step, we will be one of the first developed countries to deliver on a commitment to take coal off the system.
The final death knell for coal is announced, not because of substantive reasons, but to “set an example to the rest of the world”. Interestingly though, she adds:
But let me be clear, we’ll only proceed if we’re confident that the shift to new gas can be achieved within these timescales.
We need to build a new energy infrastructure, fit for the 21st century.
Much of that is already in the pipeline – new gas, such as the plant at Carrington, and of course, a large increase in renewables over the next five years and in the longer-term, new nuclear.
In the next 10 years, it’s imperative that we get new gas-fired power stations built.
We need to get the right signals in the electricity market to achieve that.
We are already consulting on how to improve the Capacity Market.
And after this year’s auction we will take stock and ensure it delivers the gas we need.
As I pointed out last week, we need at least 20GW of new gas-fired to replace coal power, and saying you need it and actually getting it are two different things.
The scale of the problem is made clear by the problems holding up construction of the new Trafford gas power plant, which was awarded a 15 year capacity market contract only last year. Despite this, the project has so far failed to secure financial backers.
The problems facing potential investors are numerous:
1) Competition with heavily subsidised renewables, leading to uneconomic returns.
2) Reduced capacity loading, due to preferential access to markets for renewables.
3) The prospect of further rises in the carbon floor price, which John Gummer’s CCC wants to set at punitive levels, in order to make renewables look cheap.
4) The risk of being at the mercy of future political interference.
5) The likelihood that, given political imperatives, the full economic life of gas power plants won’t be seen out. Indeed, if decarbonisation targets are to be met, they may all end up being shut down in 15 or 20 years time, just as is being threatened with coal now.
6) Volatility on the global gas market.
No investor in their right minds is likely to take on board all these risks without asking for a substantial premium. Whether Amber Rudd is willing, or can afford, to pay it is another matter.
That is why the Prime Minister has been calling for an ambitious Energy Union for Europe – to save hardworking families money and to guarantee energy supplies for future generations.
So we welcome the report out from the EU today on the “State of the Energy Union” which lays out the steps Europe needs to take to strengthen our partnership.
And I can say to Europe that Britain stands ready to help make this vision a reality.
This is an example of where we can achieve more working together than alone, and where Europe can adapt to help its citizens where it matters to them.
Heaven knows what this means, though no doubt Cameron had this inserted to burnish his EU credentials.
There is of course a role for Interconnectors to play, but the thought that more “Europe” will help matters is like the Titanic sailing around to find a second iceberg!
We are dealing with a legacy of under-investment and with Hinkley Point C planning to start generating in the mid 2020s that is already changing.
It is imperative we do not make the mistakes of the past and just build one nuclear power station.
There are plans for a new fleet of nuclear power stations, including at Wylfa and Moorside.
This could provide up to 30% of the low carbon electricity which we’re likely to need through the 2030s and create 30,000 new jobs.
This will provide low carbon electricity at the scale we need.
No mention of the mind boggling cost.
Climate change is a big problem, it needs big technologies.
That’s why we should also support the growth of our world leading offshore wind industry.
In the global context this is a technology which has the scale to make a big difference.
It is one area where the UK can help make a lasting technological contribution.
On current plans we expect to see 10GW of offshore wind installed by 2020.
This is supporting a growing installation, development and blade manufacturing industry. Around 14,000 people are employed in the sector.
This ground breaking expertise has helped the costs of contracts for offshore wind come down by at least 20% in the last two years.
But it is still too expensive.
So our approach will be different – we will not support offshore wind at any cost.
Further support will be strictly conditional on the cost reductions we have seen already accelerating.
The technology needs to move quickly to cost-competitiveness.
If that happens we could support up to 10GW of new offshore wind projects in the 2020s.
The industry tells us they can meet that challenge, and we will hold them to it.
If they don’t there will be no subsidy.
No more blank cheques.
Today I can announce that – if, and only if, the Government’s conditions on cost reduction are met – we will make funding available for three auctions in this Parliament.
We intend to hold the first of these auctions by the end of 2016.
There is only one reason why our offshore wind industry is world leading, and that is because nobody else is daft enough to throw such obscene subsidies at what is an extremely inefficient and costly technology. I am sure Brits will be eternally grateful that they are making a lasting technological contribution!
But what we really want to know is just what level of cost would Amber find “competitive”. The market wholesale price of less than £50/MWh? There is certainly no prospect of offshore wind ever getting down to those levels.
We may see a slight reduction in prices offered, but the subsidy will remain at unaffordably high levels .
But climate change is a global problem, not a local one.
Action by one state will not solve the problem. It’s what we do together that counts.
And that is why achieving a global deal in Paris next month is so important.
Paris is a city that is currently in mourning.
But in a less than two weeks’ time, we will see the leaders of the world gather there in solidarity to seek to achieve the first truly global deal on climate change.
Since I became Secretary of State I have been working with my counterparts in India, China, the US, Europe and others across the globe to help make sure we come to Paris in the best place possible.
The commitments countries have made so far are significant and a deal is tantalisingly close.
This much I know, climate change will not be solved by a group of over-tired politicians and negotiators in a conference centre.
It will take action by businesses, civil society, cities, regions and countries.
Paris must deliver a clear signal that the future is low carbon that unleashes the levels of private investment and local action needed.
Collective action works when you share the burden fairly, but also when each makes a distinctive contribution. We know that in isolation, cuts to Britain’s own greenhouse gas emissions, just 1.2% of the global total, would do little to limit climate change.
Amber is not daft. She already knows that the commitments made by the developing nations will not stop emissions from continuing to rise. So will she carry on with our disastrous policies, in the knowledge that the rest of the world is ignoring our example?
What is the UK’s role in that global decarbonisation? Where can we make a difference?
Our most important task is providing a compelling example to the rest of the world of how to cut carbon while controlling costs.
As I set out earlier, it is not clear we have done that so far.
The Climate Change Act, which the Conservatives helped create, is a good model that is being copied by other countries
Long-term time-tables, regular budgets, independent review.
We are committed to meeting the UK’s 2050 target.
We are on track for our next two carbon budgets.
But it’s clear, as the Committee on Climate Change has said, that the fourth carbon budget is going to be tough to achieve.
We do need to meet that challenge, but we need be pragmatic too.
We will need action right across the economy: in transport; waste and buildings.
And we’ll be setting out our plans for meeting the fourth and fifth Carbon Budgets next year.
But simply meeting the targets we have set ourselves will not be example enough for the rest of the world to follow.
We need to get the right balance between supporting new technologies and being tough on subsidies to keep bills as low as possible.
We can only expect bill payers to support low carbon power, as long as costs are controlled.
I inherited a department where policy costs on bills had spiralled.
Subsidy should be temporary, not part of a permanent business model.
Most importantly, new, clean technologies will only be sustainable at the scale we need if they are cheap enough. When costs come down, as they have in onshore wind and solar, so should support.
For instance, we have enough onshore wind in the pipeline to meet our 2020 expectations.
That is why we set out in our manifesto that we would end any new public subsidy for onshore wind farms. The costs of solar have come down too.
Over 8GW of solar is already deployed and even with the costs controls we have proposed we expect to have around 12GW in place by 2020.
These technologies will be cost-competitive through the 2020s.
We need to work towards a market where success is driven by your ability to compete in a market. Not by your ability to lobby Government.
This will only be possible if carbon pricing works properly.
Despite its flaws, the EU Emissions Trading Scheme is exactly the kind of intervention that should be made at a European level where collective action is more powerful.
The UK has worked hard with others to get major reforms that are helping restore a more stable and robust price on carbon.
But I’m determined that we help deliver more this Parliament to restore the ETS to full health.
Ah, carbon pricing!!
For all the tosh about controlling costs and eliminating subsidies, low carbon can only be competitive if the costs of fossil fuels are forced up by a carbon tax. If renewables do eventually become properly competitive, I am sure we would all have been a lot more grateful if we had waited for some other countries to waste their money providing a compelling example to the rest of the world.
In the same way generators should pay the cost of pollution, we also want intermittent generators to be responsible for the pressures they add to the system when the wind does not blow or the sun does not shine.
Only when different technologies face their full costs can we achieve a more competitive market.
Now that is interesting! Is she really suggesting that renewable operators will have to pay for standby capacity? I won’t be holding my breath!
The $64000 Question
Amber talks the talk, but can she walk the walk?
Will she manage to reduce the ruinous costs of decarbonisation policies? Is she prepared to cut back on decarbonisation targets if the price is too high?
Above all, will she recommend suspension of the Climate Change Act if there is no global, legally binding agreement coming out of Paris, which guarantees substantial emissions reduction?
The full speech is here.