It’s been a busy media weekend for renewables. First up, Emily Gosden dug behind the exchange between Energy Minister Andrea Leadsom and Peter Lilley MP at DECC Questions on Thursday 11th February.
Peter Lilley asked the Minister about work on a no subsidy contract for difference, and asked if this will reflect the value of the electricity. For him the value of the electricity depends on the time that it is produced, where it is produced and how reliably it is produced and he is sceptical of the ability of renewable electricity to deliver.
In reply the Minister said “On the subsidy-free CfD, he is also right that we must take into account all the various costs. We are looking at the matter very closely. I am not making any promises here, but, alongside other subsidies and other CfDs, we are looking carefully at the proposition.”
Emily Gosden’s incisive Telegraph article looked at this issue in detail. What is interesting for me is how some are mistakenly thinking this is a debate about future support for wind. But it isn’t – it’s about how to make sure our energy market works properly to deliver a reliable, diverse supply at lowest cost.
My brief appearance in the article was to highlight that an energy market which excludes technologies like wind or solar would be anti-competitive. And if you look at the different views in the article you can see there is a lot of common ground hidden behind the contrasts.
The UK’s energy challenge is how to keep the lights on at lowest cost, while keeping within carbon reduction commitments. This means moving away from dirty coal toward low carbon options like renewables, CCS and nuclear.
One problem Government has is that wholesale energy price is a weak price indicator not strong enough to encourage new investment. It is effective as a “dispatch signal” in the day ahead and hour ahead markets; making sure that the lowest price options are used first each day. But it cannot work as a long term price signal to encourage the construction of any new power plants. Anyone who insists that only new power plants which can build at this wholesale cost is wishing on the UK an era of power station blackouts and instability. Instead Government is using an auction system to provide longer term price certainty for new power plants in a way that minimises cost to the consumer.
Everyone in this debate agrees that subsidies must end. They would like to see markets strengthened rather than undermined, so that competition forces innovation and reduces cost better than it is doing now. And they would like to see the market recognise the full costs of that energy system. Where the parties differ is that renewable generators want to see the cost of carbon, and the full system costs of different energy types both factored in. Others though only want to talk about the latter.
We can see that there is a lot of agreement on the principles, but disagreement on how to embed these into the market in practice.
The last five years have seen some significant changes in the energy market with auctions introduced to contract for new generation and subsidy programmes such as the Renewables Obligation all now scheduled for closure. This shift is necessary, but not complete. Innovation is transforming how we use energy, and there is no going back to a time when we simply relied on big power stations providing power via big energy utilities.
And this shift is what Danny Fortson lays out in his excellent piece about the future of energy utilities. It’s quite a coup to get two Big Six CEOs saying that the model needs to change, and they echo the views of National Grid CEO Steve Holliday who said last year that “The idea of large power stations for baseload is outdated.”
Both Emily Gosden and Danny Fortson are sketching out the fast evolution of our future energy market and the debate we need to have about this. Advocates of renewable energy want to see their technologies able to compete, and are confident they can deliver on cost and performance. They will do this because renewables costs are falling and new innovations are coming to market which better price in different system benefits and costs. They are also making energy generators and users more responsive to price signals. The question then is: why stand in the way of greater competition?
We already use the Capacity Market to ensure capacity adequacy and Contract for Difference auctions to provide low carbon power. Some further tweaks to these will make sure we can deliver lowest cost power free of any subsidy.
Commentators like Policy Exchange and the Conservative Environment Network are clear that onshore wind and solar are already cheaper than new gas plant. If we make sure that new gas plant pays its way and is not subsidised, then there is no reason not to continue these capacity and power auctions. Leadership from Government means action to ensure a stable power market: we can then be confident that consumers have the lowest cost route to a secure and low carbon source of power. This is something everyone wants.