Energy News

A New Direction for UK Energy Policy

           Energy News
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Energy Secretary Amber Rudd delivered a ministerial review of UK energy policy last week, the central focus of which was to reduce both costs and emissions by concentrating on technologies that deliver at scale. The speech was designed as a resetting of UK energy policy following changes to renewable subsidies earlier this year and shifted the focus towards new gas-fired plants and nuclear generation.

The speech included the announcement that a consultation on the closure of all unabated coal-fired power stations would be launched in the spring. This confirmed reports last month that consideration was being given to closing coal-fired power stations that were not fitted with carbon capture and storage by 2025 and restricting usage from 2023. However, this move will only be taken if the government is confident that a timely shift to new gas generation can be achieved.

Expectations of coal plant closures impacted the Drax share price, repeating the pattern earlier in the year when the CCL exemption for renewables was removed, cutting a source of income to its biomass plants. Drax has been converting to biomass but will still have between two and three coal-fired units remaining. A potential new coal power station fitted with Carbon Capture and Storage (CCS) will be built at the Drax site if it is successful in bidding for funding.

The phasing out of old coal-fired plant delivers an important message ahead of climate talks in Paris. However, the announcement raised concerns as to what would replace the capacity currently met by coal. The review is treating new gas-fired power stations as a priority, with an increase in renewables over the next five years and in the longer term, nuclear generation.

It was announced in the review that, as long as costs come down in line with government targets, three auctions for offshore wind will be held over the course of the next three years with the first one by the end of 2016. Rudd said that further support will be strictly conditional on the cost reductions we have already seen accelerating. The government made cuts to renewable subsidies earlier in the year, seeing the cost as too high and calling on renewable technologies to “stand on their own two feet”.

If the cost conditions are met, the government could support up to 10GW of additional offshore wind in the 2020s. Offshore wind is currently meeting around 5% of annual UK electricity requirements, and this is expected to grow to 10% by 2020.

The auctions for offshore wind would be held under the Contract for Differences scheme, the support mechanism put in place for low carbon technologies as the existing Renewables Obligation is phased out. However, there was no mention in the review of auctions being held for other renewable technologies.

Nick Mabey, Chief Executive of E3G, warned that “the dash for gas and the failure to set out a coherent plan for boosting energy efficiency and clean energy will not restore investor confidence or position the UK to benefit from the accelerating global clean energy revolution.”

While the government points to the high cost of subsidising renewables, a recent report from Good Energy shows that wind and solar brought down the wholesale cost of electricity by £1.5 billion in 2014 by reducing the highest marginal cost of generation. But in her speech, Rudd pointed to the impact of renewables’ intermittency, hinting that a cost should be placed on this in the same way that fossil fuels pay a cost for carbon, which points to the importance of developing storage.

Amber Rudd remains supportive of the UK’s Climate Change Act and reiterated the government’s commitment to meeting the UK’s 2050 target but concluded her speech by saying, “Our most important task is providing a compelling example to the rest of the world of how to cut carbon while controlling costs.” Read the full speech here.

Written By- Nikki Wilson


Alfa Energy Group

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