Mixed Messages Make Energy Muddle
Waves of announcements from energy companies, policy makers and regulators have been crashing in like Atlantic storms over the past few weeks. This always seems to happen when I’m on holiday. Our summer holiday saw Ed Miliband’s price freeze announcement to the Labour conference, which has now given way to a Spring break punctuated by an actual price freeze from SSE.
That sounds like good news.
But within SSE’s announcement was a rowing back on its commitment to offshore wind that will see it slash its large pipeline of projects. The following day we saw Ofgem refer the big six to the Competition and Markets Authority, which was followed by a warning from Centrica boss of a ‘power generation investment hiatus‘.
Yet Siemens clearly don’t agree. They announced a £160m investment in a new port facility in Hull on Monday, heralding a ‘favourable framework for the expansion of offshore wind energy’. On that upbeat note, Green Investment Bank announced investments totaling £460m in two massive offshore sites.
And just when it became safer to go back into the water, there was trouble on land. The Tories are planning an arbitrary cap on onshore wind development, forcing Nick Clegg to block the policy creeping into the current government’s programme.
For me there seem to be three lessons to take from this flurry of announcements:
1. Commitments to investment in new UK generation capacity by the integrated utilities is unlikely to be on a significant scale in the medium term. The exception could be EDF with Hinkley C, but RWE and Eon are struggling for capital as a result of the German energy transition. Big plant will only be built with large chunks of capital from outside the big six. Expect to see some unfamiliar names on the sides of the next generation of power plants and wind farms.
2. Energy will remain highly political, with security of supply and cost of renewables as the primary sub-plots. UKIP will push the anti-wind arguments about renewable subsidies and the Tories will tack right. Labour will claim that the lights are about to go out next winter and the big six will say their hands are tied by the CMA investigation. Lib Dems will continue to champion renewables. Fracking (like CCS) is likely to remain a conveniently far-fetched solution that allows all parties to claim it as the answer they support. 3. It is still not clear where the investments in 2016-2020 are coming from. It may be correct that the UK can manage supply through the interconnectors and capacity mechanism, but there does seem to be a rather long period when not much energy plant will get built in the UK. That could have an impact on jobs and skills in the UK, particularly in offshore, where despite Siemens’ announcement the supply chain looks vulnerable if key projects do not progress. If the longer term projects also get delayed as a result, keeping the lights on could become an even more difficult issue.