The UK electricity sector is at an uncomfortable juncture. The market is subject to greater state intervention than at any time since privatisation and yet there is no overarching system architect to decide the overall direction of travel.
One of the central themes that emerged from Cornwall Energy's Electricity Market Reform: Apocalypse When...? conference on Tuesday was the trend of escalating government intervention—at times ad hoc—without a clear vision from Westminster as to what is required from the private sector, nor how this should be delivered.
Keynote speakers at the event in central London highlighted the strange dichotomy of growing energy powers bestowed upon the secretary of state in recent legislation—now totalling more than 2000, according to Keith Maclean of the Energy Research Partnership—and the increasingly complicated institutional landscape for decision-making in the energy sector.
The overlapping remits of DECC, BIS, the Treasury, National Grid and other arms of government have diluted institutional competency behind key energy policy decisions, and conflated the issues of power and control: Ministerial power is increasing but government does not appear to be in control of the market. Unintended consequences abound: witness Drax's decision to pull out of White Rose, one of DECC's flagship CCS projects, citing heightened policy risk associated with surprise cuts to renewables supports since the General Election. Or the reported doubts surrounding Carlton Power's ability to finance the Trafford gas power station for similar reasons.
Simon Skillings of consultancy Trilemma UK warned that the era of energy policy double-speak is here to stay because there is "no narrative for a hands-on government in the energy market". Ministers and officials will insist they "believe in markets" while devising new levers for controlling the terms of private investment. Participants should get used to the current state of affairs because "we are not going to have a benign energy dictator who decides how we move forwards", Skillings said.
Curiously, one corollary of heightened state intervention is absolute reliance on government support. Numerous speakers highlighted how market and policy factors have conspired to create a situation where no new generation assets can be built without some form of government contract or subsidy, as the wholesale power price is insufficient to justify capital investment when set against the backdrop of acute policy risk.
And so the renewables lobby is forced to campaign to retain some share of support from the overspent Levy Control Framework despite wishing this were not necessary. Alex Murley of RWE Innogy set out the case for allowing onshore wind to compete in Contracts for Difference (CfD) auctions on the grounds of cost effectiveness, auction liquidity and competition. The arguments are so compelling that consumer groups such as Citizens Advice seem to agree.
In terms of future policy, DECC director of clean electricity Michael Rutter confirmed that his department was looking in detail at a raft of feedback on the first CfD auction, including the proposal--recently the subject of a report by think tank Policy Exchange--for a "subsidy-free CfD" as a "stabilising mechanism" for onshore wind.