When it comes to energy, we as a country and as a planet are presented with a choice – embrace the disruptive technologies that will change the way, and likely the price, at which we produce and consume energy or continue with established technologies that will fundamentally change our planet and our economy. In Paris last year, the world’s leaders came together to sign the historic climate agreement to limit global warming to 2°C, with a more ambitious aspiration of limiting it to 1.5°C.
Closer to home, the challenges facing the UK energy industry are significant. Ageing infrastructure, tightening supply margins and a move to a more distributed supply system are not the kind of thing that a government minister would like to see in their in-tray. And that is just electricity supply. Add heat and transport into the mix, each delivering their own complications, and there can be few greater challenges facing government.
As a leading proponent of a strong deal in Paris, the UK government must now take action to ensure that its deeds match the ambition of its diplomacy. To put it mildly, the scorecard is mixed. On the one hand the UK has strong climate change legislation, including long-term carbon budgeting and a commitment to end coal generation, and it has made good progress on renewable electricity deployment to date.
On the other, renewable subsidies have been cut, investment in energy efficiency has stalled and projects like Carbon Capture and Storage in Yorkshire and North East Scotland have been scrapped with no notice and little justification.
Scotland has felt the brunt of these abrupt changes more severely than anywhere. Peterhead, in Aberdeenshire, was set to become home not only to the world’s first commercial floating wind farm, but also the first gas-powered CCS plant. The decision to scrap the £1bn CCS competition on the eve of the Paris talks was the worst sort of short-term politics.
Without CCS, meeting carbon reduction targets will be not only far more difficult, but far more costly. At the same time as investment in low-carbon generation hit a wall of government-generated antagonism, the other great success story of the UK energy sector has been thrown into turmoil. The oil and gas industry, based in Aberdeen but with a presence the length and breadth of the UK, has felt the pain as global oil prices have fallen from in excess of $120 a barrel in 2014 to the low $20s earlier this year.
This has put huge pressure on the industry and has led to the loss of tens of thousands of jobs. While the government did come forward with tax cuts in the budget this year, it contrasts sharply with the rush to support the steel industry in its hour of need.
Both these industries are vital to the UK economy, but only one has received the appropriate support from government. The vote to leave the EU has added to the already substantial complexities facing the energy sector.
Like all areas of policy, huge uncertainty shrouds government thinking on its approach to the energy sector post-Brexit. Will the UK remain in the developing Energy Union? What about the European Emissions Trading Scheme?
If we leave these, too, what will be the impact on business? Will the UK continue to seek greater reliance on interconnectors to the continent to supply the electricity that is no longer produced domestically?
Individually, these are large and complex questions. Taken together, they represent a challenge that is unprecedented. When it comes to the energy trilemma, there is a strong case to be made that the UK government is failing on all three.
So, how do we move forward? Consensus, stability and flexibility across devolved government will be key. Before its demise, the Energy and Climate Change Committee completed an investigation into investor confidence, the results of which were damning.
One of the key concerns was the lack of a long-term strategy, which combined with sudden and numerous changes to policy had created a climate of uncertainty, making investment decisions more difficult. The upcoming publication of the Emissions Reduction Plan and the government’s industrial strategy both present opportunities for a long-term vision to be put in place.
To be successful, these must be developed in conjunction with both industry and civic society. They must also be flexible, to enable different parts of the UK to pursue differing policy objectives. The SNP has a long-standing objection to new nuclear generation based on the costs, concerns over safety and unresolved questions on decommissioning. The Conservatives have an objection to onshore wind deployment, which has led to its exclusion, along with solar, from the forthcoming Contract for Difference auction.
This means that the two cheapest forms of generation will not be able to bid. Common sense suggests that new nuclear energy be developed in England, where it has support of the government, and onshore wind continues its development in Scotland, where it continues to enjoy cross-party support.
Allowing the different parts of these islands to pursue different policy objectives was the whole point of devolution. A flexible approach would allow the development of a diverse and resilient energy system capable of meeting the challenges that face the sector.
There are new ministers in place and the early noises suggest they may be more willing to compromise than their predecessors, but industry has been through the mill in recent years and confidence in government is in short supply.
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