Friday 16 November 2018

Greg Clark: Electricity trilemma is coming to an end

Greg Clark: Electricity trilemma is coming to an end

Business and Energy Secretary Greg Clark has said the low cost of renewables means the electricity trilemma of affordability, security of supply and decarbonisation is “coming to an end”.

He made the statement in a speech yesterday, reflecting on Professor Dieter Helm’s Cost of Energy Review that was published last year.

Mr Clark said: “Cheap power is now green power. Thanks to all of our efforts of many people in this room, it is no longer true that when it comes to electricity, you can only choose two of the three things that we really want: green, cheap and secure.

“The policy conundrum known as ‘the trilemma’ is, I think, coming to an end.”

Professor Helm had found UK householders are businesses are paying too much for energy as a result of the government’s green taxes, with costs “higher than necessary” to meet climate and carbon targets – and suggested ways to reduce power costs across the whole supply chain.

While he did not unveil specific proposals, Mr Clark said BEIS will take a more market-led approach, allowing businesses to make more decisions to deliver innovation as well as efficiency in meeting security and decarbonisation targets.

Carbon pricing

The business secretary added he agrees carbon pricing has an “important role to play” in helping the UK meet its climate goals – Professor Helm proposed a carbon tax to stop unabated fossil fuel technologies from dominating any auction and doing this in just one country “would require border-adjustment taxes to avoid decimating our important industries because of environmental dumping”.

Delivering it would be a "major diplomatic move" if the UK was to address that challenge and would require a transformation in the way the world thinks about climate change policy.

Mr Clark said in response: "In the absence of that being immediately available, I think we need a gradual transition from current mechanisms to a more integrated market. Other policies whose logic lies in the absence of full carbon pricing are also therefore still needed.

"A good example of this approach is our £315 million Industrial Energy Transformation Fund that was announced in the recent Budget as part of our Industrial Strategy, something that would help companies invest in money saving and decarbonising technologies. But I want to stress that I very much accept Dieter’s vision that that we should move to mechanisms that give businesses more decisions and governments fewer.”

Capacity Market and Contracts for Difference

In response to the EU Court of Justice ruling on the suspension of the UK’s Capacity Market yesterday, Mr Clark said the judgement was on a “procedural matter”, i.e. the European Commission’s process for granting state aid approval, “rather than on the policy on Capacity Markets per se”.

He added the government will announce the details for the next contracts for difference (CfD) auction round that will be held by May next year and hopes to move to the next stage of the Sector Deal in the coming weeks for offshore wind.

Carbon capture, use and storage (CCUS)

Mr Clark confirmed a CCUS Action Plan, setting out the government’s approach to deploying the technology at scale in the 2030s, subject to costs coming down sufficiently, will be published at the upcoming Summit in Edinburgh in an effort to reduce uncertainty.

He said: “I am currently considering new missions under the Clean Growth Grand Challenge of the Industrial Strategy, looking at areas where we face the most acute decarbonisation challenges such as reducing our industrial emissions in particular industrial clusters.”

Networks regulation

The business and energy secretary believes the transformation of distribution and supply should deliver domestic energy efficiency improvements, among other things.

With new technologies enabling consumers to become producers, “the distinction between supplier and distributor may no longer hold in this new world”.

He is, therefore, launching, along with Ofgem, a review of supply licenses to ensure “unnecessary regulatory barriers” are removed.

Four Principles

Mr Clark has set out four principles moving forward:

The Market Principle: Using market mechanisms that take full advantage of innovation and competition

The Insurance Principle: The government must be prepared to intervene to provide insurance and preserve optionality

The Agility Principle: Energy regulation must be agile and responsive if it is to reap the great opportunities of the smart, digital economy

The ‘No Free-Riding’ Principle: Consumers of all types should pay a fair share of system costs

The government is also working with Ofgem to determine whether new protections are necessary for SMEs and microbusinesses, many of which pay too much for their energy.

Written by

Bruna Pinhoni

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