Carbon Trust

UK energy – time to face some hard truths

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Courtesy of Carbon Trust

How can the UK meet its future energy needs? Tom Delay, CEO of the Carbon Trust, looks at how we can solve the problem with our energy future.

The future of nuclear power in the UK looks well and truly stuck. The whole episode illustrates how high the stakes are at present for our energy future.

Last month the new nuclear plant at Hinckley C was granted planning permission but we still don't know yet at what cost it could be built. Perhaps more importantly, how much should we be prepared to pay? Well, that depends on the cost of the alternatives and how much we like them. It also depends on who agrees the price. In the case of Hinckley C that's not you and me but the government on one side of the table and a single supplier, EDF, on the other.

When it comes to how the UK meets its future energy needs we all need to wake up to some hard truths. The bottom line is that it's going to be more complicated and more expensive than the old days of state run coal-fired power stations or the North Sea fuelled 'dash for gas' of the 90's. There is no silver bullet, no one size fits all solution.

The answer to the nuclear puzzle, is expected to be revealed shortly when the government announces the 'strike price' that will be offered to EDF for generating carbon free electricity from the new power station. If the price is too low then it is rumoured that EDF will walk away from the deal. If it is too high then you and I pay over the odds for our electricity for decades to come. Clearly it isn't an easy decision. Indeed, keeping the lights on and our carbon emissions down, all at the lowest cost, has perplexed many an Energy Minister over the past decade.

The problem with our energy future is clear - our need for electricity is rising just as many of our existing coal and nuclear power plants reach the end of their lives. Unfortunately the solution is far from clear and this is slowing the much needed investment in new electricity generation to the point where we may end up with what can be built fastest, rather than what is cheapest or best for the long-term.

There are three main reasons for this. Firstly, a false belief that electricity will always come cheaply and reliably from 'over the hill' and be out of sight, secondly, a reluctance in these harsh economic times to invest in the future, and lastly, poor information about the cost of our different technology options.

When it comes to energy we all tend to shoot the messenger so politicians are hardly incentivised to offer up hard truths leaving regulators and lobby groups of all persuasions to fill the void. But they have a habit of building polarised views rather than consensus. This slows progress and introduces doubt into the minds of investors which in turn increases the cost of finance and ultimately the price we have to pay.

In Victorian times things were different; we invested in the railways, sewers and roads that we still use today. Now, we increasingly see money that we spend as an immediate cost, and not an investment for the future. In the energy debate, this general issue becomes acute. Gas fired power plants are cheap to build but are then exposed to gas prices that look set to rise in the UK. The alternatives, nuclear, renewables and energy efficiency are all more capital intensive up front but have low or zero fuel costs in the long term.

If only we knew the true cost of our options, today and in the future, we could make a compelling case for investment in clean, secure, electricity generation. But here's the rub, we don't. Every technology has its own issues which influence both its cost, now and in the future, and its potential for deployment at scale.

US shale gas is abundant and cheap but internationally traded gas that we use in our power stations, is far more expensive. UK shale gas is unlikely to be plentiful or cheap. Nuclear might be proven over decades and at scale but the two plants currently under construction in Finland and France are over budget and late. Offshore wind could be cheaper than nuclear in the medium term but the engineering work and scale up still needs time. And, carbon capture and storage could 'clean up' fossil fuels for decades but similarly needs to be demonstrated at scale.

So what to do?

First, it's time to engage with the public and explain the risk of the lights going out and the need to invest now in a secure, low carbon energy future. The government must be explicit about the cost of energy independence and the value of cleaner power. It's time to build the case for change, investment and win public support.

Second, reduce energy demand, starting with enhanced efficiency measures for industry and commercial property where big change can be delivered cost-effectively and fast. This in turn will make our industry more competitive. In parallel, we must fast-track investment in a smart grid, better able to handle high levels of renewables and decentralised power.

Third, build capacity today that won't be much cheaper to build in the future, gas fired power backed up by a significant increase in storage capacity for gas imports and sensibly located onshore wind farms.

Fourth, support the development of  technologies that are expensive or unproven today but have the potential to radically shape our long term energy future, creating export industries and real jobs. This means accelerating the demonstration of next-generation offshore wind that could be huge and out of sight and carbon capture and storage that would offer gas a long term future.

And, yes, returning to nuclear, set a strike price for the first 5 to 10 GW of new nuclear that would give investors the returns they need today and the industry the opportunity to prove its credentials whilst capping the subsidy to be paid by consumers. This needs to be followed up quickly with strike prices for offshore wind and CCS to ensure investors in these sectors also get the certainty they require.

When it comes to energy policy there's no quick fix, that's for sure. Rome wasn't built in a day and rebuilding our energy infrastructure to meet our long term needs is a thirty year project. We've got the technologies, we've got the investors, what's missing is an injection of independent thought and some levelling with the British public on the value of making it all happen.

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