Article - Issue 58, March 2014

Shaping the UK energy system

Dr Scott Steedman CBE FREng

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Dr Scott Steedman FREng

Dr Scott Steedman CBE FREng

Energy policy continues to be one of those seemingly intractable issues that stump governments of all parties. Most recently, the political focus on energy prices has shrouded the future of the UK’s energy markets in uncertainty, stifling investment and diverting attention from the urgent task of developing the market structure and incentives that will lead to cost-effective and secure supplies.

Last October, in its report comparing levels of available electricity generation with expected demand, GB electricity capacity margin, the Royal Academy of Engineering margin, the Royal Academy of Engineering warned that a combination of market and political factors were putting the security of the system at risk. Among the report’s recommendations to government was one which is vital for the future of our energy system: that government should “work together with industry to foster a constructive dialogue with the public on energy policy”.

Over the past three years, delays in reforming the electricity market have prompted a hiatus in investment. In December, the Energy Act received its Royal Assent. The Act should have given industry the clarity it needed to begin building power generation plant again, but political wrangling has set things back.

Energy policy has to resolve three potentially conflicting objectives: security, affordability and sustainability. No one should be under any illusion that it will be easy to satisfy all three objectives, a challenge made even more onerous given that delivery of these UK government policy objectives will be in the hands of the market.

All political parties, along with industry, have a responsibility to be open with the public about the fact that our energy system needs a radical overhaul and that will not be without a price.

Assets in the energy system last for decades and justifying capital expenditure in a heavily regulated industry requires a clear policy framework. The Academy has long advocated taking a long-term, strategic, systems approach to energy planning. It will take well beyond the lifetime of any parliament to create modernised system, so cross-party political consensus is critical.

In its report Fourth Carbon Budget Review (part 2) –the cost-effective path to the 2050 target, published last December, the Committee on Climate Change (CCC), an independent, statutory advisory body, places the challenge in the context of the UK’s commitment to setting and meeting carbon budgets. However, the CCC’s definition of cost-effectiveness is restricted to costs against a projected carbon price over many decades. The level of uncertainty in this form of assessment is high, especially when considering the optimum contribution from each generating technology to minimise overall costs while maintaining continuity and security of supply.

The recommendations in the Academy’s report remain as valid today as they were before the Energy Act became law. Interim measures are already being considered to ensure short-term security of the grid, such as encouraging consumers to reduce demand and securing additional reserves from generation, and these are surely welcome.

To create a lasting solution, however, government must take on the responsibility for the strategic, long-term design of the total energy system, to ensure security of energy supplies at the lowest overall cost, suitably resourced and supported by appropriate technical expertise. A total energy system must include heat and transport as well as electricity, and must consider the interdependence of all these sectors. The direction of energy policy must be agreed by all the main political parties. The government must also talk to the public about the realities of our energy system in the UK.

The process would be most effectively managed by an independent expert forum that understands technology, systems design and operation, markets, finance and economics. This will not be easy, given that circumstances will change over time, but the health of the economy and the wellbeing of the population depend on our national energy system. We urgently need a national strategy that outlines the optimum blend of technology at minimum overall cost if we are to address the uncomfortable physical and economic realities facing the UK.

Dr Scott Steedman CBE FREng
Editor-in-Chief

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