Utility Week

UTILITY WEEK | 7TH - 13TH JUNE 2019 | 13 Policy & Regulation Brexit, May's exit and energy policy The turmoil in Westminster will also be a talking point at the summit. Nigel Hawkins sets the scene. U K politics is currently in complete disarray. The combination of the highly polarised European election results, Theresa May's forced exit due to a shambolic Brexit policy and the bal- lot for a Conservative party leader – and therefore prime minster – is causing profound uncertainty on many fronts. In the latter case, many hats have already been thrown into the ring, but Boris Johnson is asssumed to be the favourite of party mem- bers – assuming his name makes it on to the final two-candidate list. Brexit has consumed the government, and energy policy is wait- ing for key decisions from the new prime minister. Five particular issues are to the fore: renationalisation, price con- trols, baseload generation, nuclear power and renewables. Under Theresa May's premiership, energy price controls have been controversially introduced, despite strong opposition from many Conservative MPs. Indeed, since they were implemented in January 2019, the cap has already been raised by nearly 10 per cent – hardly an unequivocal demonstration of the ability of price caps to keep down prices. A Tory government headed by a right-wing candidate might well abolish the price cap and let the market be the ultimate judge. On the baseload generation front, much needs to be done. Currently, the UK expects to phase out its coal-fired plants by 2025. This policy will probably survive, especially because the UK no longer produces deep-mined coal. The gas-fired generation sector, whose CCGT plants were once hailed as the saviour of the UK power industry, has struggled finan- cially. The sector has to operate baseload to justify its heavy plant investment and its gas input costs. With a new prime minster in har- ness, it is likely that renewed attention will focus on the UK's base- load capacity, despite rising investment in interconnectors. Fracking, too, has big potential, little of which has so far been realised. Kick-starting it, though, will be controversial. Allied to this issue is the question of nuclear power. As prime minster, Theresa May eventually gave the go-ahead for Hinkley Point C. However, it does look as if aspirations to build other new nuclear plants have taken a real pasting in recent months. Two key nuclear projects seem to have hit the buffers – with both Moorside in Cumbria and Wylfa in Anglesey now seemingly con- signed to oblivion. Lastly, the arrival of a new prime minister may well affect the future of the renewables sector. It seems unlikely that major onshore wind projects in England will be given the go-ahead. But offshore the prospects are very different. Whoever leads the next government is likely to preside over a sharp increase in offshore wind investment. And the solar sector is also now delivering in the southern part of England, albeit from a low base. Any new UK prime minister will not be short of issues in his/her in-tray, with Brexit currently being paramount. But some issues, including energy policy, also need major politi- cal input. Nigel Hawkins is the utilities analyst at Hardman Research and a Utility Week correspondent What is the challenge of hydrogen? Switching from natural gas to hydrogen is seen as one of the more practicable means of decarbonising heat because it could harness existing infrastructure – but the CCC does not underestimate the challenge, particu- larly around perception. Says Joffe: "Hydrogen, you'd imagine, could be embraced by people as simply a low-carbon version of the natural gas already in your home, or it could be thought of as this dangerous new gas. Previous research shows there's quite a big generational gap on opin- ions on hydrogen. All it would take to hinder progress would be a media campaign saying we were advocating a dangerous gas, even though it's no more so than natural gas." Joffe says that disruption of switch- ing over could be minimised if new boilers installed by the mid-2020s could change over to the gas. However, it's not clear yet from the prototypes if that's possible, both from an efficiency and commercial perspective. What part does energy efficiency play in reducing emissions? The government has set ambitious targets for energy efficiency of new and existing build- ing stock in its Clean Growth Strategy, which the CCC has factored into its report. But the demise of the Green Deal and the reduction by the Department for Business, Industry and Industrial Strategy of budgets for insu- lating homes has created, as Joffe puts it, "an area of weakness". Joffe says that even if heat and power are decarbonised, it makes huge sense to reduce energy consumption as part of reaching that zero target, as a means of addressing fuel poverty. "Once you decarbonise the energy supply, it becomes about cost, and we don't think it's sensible to just burn loads of hydro- gen in 2050." He acknowledges that insulating the building stock again is not straightforward and there are particular difficulties for tack- ling properties built with solid walls – 28 cent of the building stock. "It is expensive to do, and it's not going to save you that money on your energy bill. And so that is a thorny one. I think there is potential for some new, innovative solutions that are either less inva- sive or lower cost." What is the role of decentralised energy supply and nuclear power? One of the criticisms levelled against the report is its focus on centralised generation. Joffe says this perceived leaning is a mis- conception. The report, he says, was dem- onstrating that zero carbon could be met by continued overleaf ☛ Out: Theresa May In? Boris Johnson "The arrival of a new prime minister may well affect the future of the renewables sector."

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