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Is the government's energy policy fit for purpose?

A question of trust

Is the government's energy policy fit for purpose? That was the question posed at a Prospect seminar in November that brought together key stakeholders from across the industry spectrum.

Outlining the scale of the challenge facing the UK, energy minister Charles Hendry said £200bn in investment was needed to fund new infrastructure, "or twice as much every year over the next 10 years as was spent during the last decade."

While the market had delivered price advantages to date, a new structure was essential to attract investment and that was at the heart of the government's policy proposals.

Although regretful over the collapse of the Longannet carbon capture and storage project, Hendry was full of praise for the UK's energy workers: "The people working in the nuclear fleet now are the people we want to be carrying out the decommissioning work on some of the old plants and using those skills to build a new fleet of nuclear power stations."

EDF Energy's chief executive Vincent de Rivaz (pictured) put the issue of trust at the heart of the nuclear industry post-Fukushima; other key issues were consumer disquiet over prices and the financial crisis facing Europe.

EDF's response to Fukushima had been to re-open visitor centres and invite the public to visit plants, with daily reports via websites on the status of the stations and the choices to be made over future energy generation.

This "greater transparency, honesty and openness" was necessary, because "I recognise that people do not always believe the energy companies even when we give the facts, which is why I said some time ago that trust must be rebuilt."

Trust was also vital to productivity, so the company wanted to create "a new social covenant between us, our contractors and unions.

"Too often in the construction industry there are divergent and entrenched positions on working conditions with management on one side and unions on the other."

A panel session heard Prospect's deputy general secretary Mike Clancy warn that if the UK is to succeed in creating decarbonised and diverse energy generation sources, then reform of the electricity market had to answer the question: "Why invest here and why invest now?

"At present we have good relations with the current generation of owners. But if the investment cycle in their home market is at odds with investment needs in the UK, if the policy of their home government is different to the UK, can we be confident that the investment will come here at the right time?"

Guy Johnson, from RWE Npower, said the success of any reform would depend on:

  • affordability for consumers
  • developing economic growth in the UK and ensuring the benefits reach the supply chain
  • avoiding a hiatus in investment
  • encouraging new investors to the market.

But a more critical viewpoint came from former energy minister Alan Whitehead. Speaking in a personal capacity, he said the reform proposals were distorted.

"Capacity payments, the arrangements for contracts for difference, the carbon price floor and energy performance standards are not necessarily the pillars of reform which one would choose if one was to start from a blank form.

"They have arisen because a number of assumptions about policy priorities are not related to market reform itself. They are there because a coalition document says they should be there and that concerns me."

In particular, he pointed to the issue of nuclear subsidies. The government needed to decide whether there should be a subsidy or not, "debate that up front and place it squarely into the mechanism rather than have distortions such as a renewables obligation of the future."

A full report is in December's Energylines, the newsletter for members in energy and decommissioning.