Utility Week

UTILITY WEEK | 21ST - 27TH JUNE 2019 | 9 Policy & Regulation Jo e played down concerns about the Treasury's intervention at last week's sum- mit. He said: "It's not unreasonable that the Treasury should be thinking about it carefully rather than rushing into setting targets." "We think the target is a ordable and the right thing to do. There's no getting away from fact that some of the costs are big." Paul Spence, director of strategy and regulation at EDF Energy, agreed. "I would much rather have a government ƒ nance department paying attention to the fact that 1-2 per cent of GDP needs investing in the low-carbon infrastructure we need and mak- ing sure we are doing it right. There are really big questions for the ƒ nances of the UK. "Doing that in the most a ordable way is entirely possible. The important thing is that the Treasury is engaged and thinking carefully about how we transition to a low- carbon future." Eon UK's Lewis observed that the blunt ƒ gure quoted in the Treasury letter must be put into context. "A trillion pounds is a lot of money but it's over 30 years. To bail out the banking system was £1.16 trillion including all the contingent liabilities. It's a number but we must absolutely make this investment and make this transition. "It sounds like a big and scary number, but when you break it down there are also huge beneƒ ts." The Treasury may have lost the battle on setting the net zero target but it has secured a concession in the form of a pledge that the 2050 net zero target will be reviewed in ƒ ve years' time. Jo e expressed concern that the existence of the review could "dampen the signal" of setting net zero in legislation. But he stuck up for the Treasury's right to carry out the exercise. "It's not completely ridiculous, if nobody else is doing it, that it could be appropriate to reconsider level of ambition. It's not completely da— as long as it doesn't undermine ambition." A 'just transition' Closely linked into this exercise, the Treasury is examining how the costs of decarbonisa- tion will be spread across society and the economy to help achieve what is increasingly described as a "just transition". Sam Williams, director of consultancy economic Insight, told the summit that the transition to net zero will have poten- tially far-reaching ramiƒ cations, going beyond power to other sectors like auto manufacturing. "All those things imply fairly fundamen- tally structural changes to the economy, where structural change occurs, we get a dis- placement of economic activity and jobs." And the UK doesn't have a "great track record" in managing such transitions, he said, noting the experience of his native Wales following the closure of the deep coal mining industry. Lewis warned the summit about the political risks of not managing this transition well. "You have to look really hard at redis- tributing the e ects of investment so that costs are not all born by people who are una- ble to bear costs. If you go down that route, it won't happen and sooner or later political pressure will build. "If you load costs into energy, it will cre- ate a backlash because it is regressive. "We can't keep on loading these costs into energy bills," he said. Noting that removing policy costs from energy bills would beneƒ t 70 per cent of con- sumers, he said: "We're going to have to look at these redistributive e ects if we are going to take this transition where it needs to go." Chris Stark, Jo e's chief executive at the CCC, was relaxed about the review when giv- ing evidence to the BEIS select committee last week. "Done well, it needs that level of engage- ment and we know Treasury does these things well," he said, drawing the commit- tee's attention to the Treasury's role in com- missioning the Stern review, the 2006 report on the economics of climate change. The Treasury could bring a "big strategic focus" to the debate, he added. Another vexed issue is the government's decision not to exclude the use of interna- tional carbon credits to help achieve the 2050 target. Jo e drew comfort from a statement by Greg Clark in parliament last week that the government aims to achieve targets without use of credits. "The intention ought to be to reach targets without credits if possible," he said. Taking a sideswipe at the Extinction Rebellion protest group, Jo e said there was "a lot we need to do simply to get to 2050". "It's not impossible to achieve an earlier date but extremely stretching to get to 2050," he said. "We need to be realistic about chal- lenges we set ourselves. The call from Extinc- tion Rebellion for 2025 indicates to me they don't really understand the complexity of the challenge. "We could have a conversation about 2045, but to anyone who says it can be done earlier, it is really important that they acknowledge the scale of the challenge." The requirement to build an extra 5 to 8GW of low-carbon generation capacity per annum is a "staggering number", said RWE's Glover. But while it is easy to be daunted by the scale of the challenge, he reminded del- egates at last week's summit that the 2050 target is a "great opportunity" for utilities. "It's amazing to be in an industry where the demand for the product is going to double." Scottish Power's Anderson agreed. "We have all the technologies to deliver zero car- bon, so let's get on with it," he said. "Unfortunately, it [the energy white paper] is going to be kicked down the road and will be caught up in the new prime minister and furtherconversations around Brexit." Keith Anderson, chief executive of Scottish Power "Doing it in the most aff ordable way is entirely possible. The important thing is that the Treasury is engaged and thinking carefully about how we transition to a low-carbon future." Paul Spence, director of strategy and regulation at EDF Energy

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