Utility Week

8 | 2ND - 8TH NOVEMBER 2018 | UTILITY WEEK Interview around that. Unless there is some extraor- dinary breakthrough I think that is prob- ably more medium and longer-term territory. It makes the challenges they [the IPCC] highlight even more serious." Progress on nuclear has also been slower than Hutton believed would be the case when he was secretary of state. He says: "When we did the white paper ten years ago, all the major utility companies came and said they would put nuclear on their balance sheets. Six months later, the crash happened and those balance sheets were no longer strong enough to support investment on that scale." He remains a passionate supporter of the industry, which he got to know well through his role as MP for the Cumbrian coastal town of Barrow. "It's a trump card for nuclear that it has the abil- ity to make a very profound contribution to challenges both here and round the world," he says. The issues for nuclear power are not technical but economic, he argues, specifically the large amounts of upfront capital that new-build projects require. "We've all come to understand in a way we didn't fully appreciate a few years ago just what an investment challenge it is in current market conditions," he says. The 63-year-old sees a role for the state in providing support for nuclear projects through loans and equity stakes. He also says the government should look "very carefully" at whether the regulated asset base model (used to support the construction of the Thames Tideway tunnel) can be applied in the nuclear sector. He says it could be a key to unlocking institutional interest in the sector. "It would permit investors to get earlier returns on investment. It's asking a lot of even experienced infrastructure investors to lock up a lot of money for a long period with not much return. "Their risk appetite is limited, but it's quite clear that in many jurisdictions pension funds and other institu- tional investors are having to take a little bit more risk. "If we want the nuclear project to keep on track, and we must for decarbonisation, we have to have an open mind about how to secure investment." But the peer's call for more government intervention falls well short of the current Labour leadership's plans to renationalise utilities. Although he retains the Labour whip in the House of Lords, he is clearly no Corbynite. "It [Labour[ is part of my DNA but I am profoundly unhappy and unimpressed with the direction the party has taken. The answers they come up with are the wrong answers to the wrong questions." Exhibit A for this is the party's pledge to restore pub- lic ownership of large chunks of the utility sector. Hut- ton makes clear he is no ideologue, counting himself as a member of the "what works" club. He showed his centrist credentials by agreeing to undertake a review of the public sector pension system for the coalition government. He says: "I'm a much more middle of the road. I want my government to be open to new ideas. I don't want to elect a bunch of automatons that repeat clichés and par- rot old ideologies." And he is clear that this includes nationalisation, which he believes won't work and would lead to "lack of investment, capital flight and return to pretty sub-opti- mal ways of generating and supplying electricity". He says: "On the far le of British politics there is a romantic attraction to the notion of public ownership that doesn't find any resonance with reality. "I don't want to repeat failed poli- cies. There are much bigger things to worry about, such as decarbonisation. That's what we should be focusing on." In particular, he draws on his expe- rience of sitting round the Cabinet table arguing that investment in energy infra- structure would end up being crowded out by shorter-term pressures. "The idea that the tax- payer is going to provide the investment for that [energy infrastructure] is for the birds. "In government you have spending choices to make and must be pretty clear about how those choices are made. They are made for the here and now and the short term, not for 25 years down the line. Obviously if we go down the road being proposed by Labour that's exactly what might happen to the energy sector. "It's not worth it. Leaving aside the ideological ques- tions, this is a risk we can't afford as a society, and why run it if we can operate an effective and efficient cus- tomer-focused energy sector that is an attractive proposi- tion to investors? "It's ridiculous to put all that at risk in pursuit of an ideology – and let's be clear that it's a failed ideology. It's not a recipe for success and it's not a policy I can accept. It risks throwing a bucket of cold water over investors when we should be encouraging them to step up." Added to that is the fact that nationalisation would be "extremely difficult" to implement, Hutton argues, potentially tying up in knots whoever holds the energy portfolio when they should be focusing on other issues such as decarbonisation. "I'm not a fan of nationalisation because it runs all sorts of risks of delivery and obfuscation. We can make the market work better for everyone and not put at risk wider objectives for misplaced short-term objectives." Equally, he's no fan of the recently introduced price cap on standard variable tariffs, arguing that the policy has been "oversold". "It won't work out in the way that supporters of the policy expect it to. People think they will see their bills fall but that's not going to happen any time soon, and if it happens at all it will be because the wholesale price is falling. It's very likely that the price of energy will rise next year." Like Labour's renationalisation plan, he believes it will send the "wrong signal" to investors and could make them question whether they want to be in the market. And while he believes the energy system is becoming more decentralised, he dismisses as "happy clappy" the notion that the grid can be decentralised. "There is no realistic proposal for moving from a cen- tralised to a decentralised system any time soon. I don't think it would be a sensible thing to do." In broad terms, the direction of energy policy is right, he says, and both Ofgem and the government are doing work on meeting the UK's energy challenges. He also name checks Energy UK's Future of Energy study, due to be published in the New Year. But the peer believes there is still a case for a stock- take by the government, like the white paper that he piloted in government. "To avoid that risk of incoherence, there needs to be a clear and regular articulation about where we are going, particularly in a market system like ours where you have to send signals not only to customers but investors." For this political veteran, there's still a lot of unfin- ished business in the energy sector. "On the far left of British politics there is a romantic attraction to the notion of public ownership that doesn't find any resonance with reality."

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