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utILItY WeeK | 6th - 12th June 2014 | 15 Policy & Regulation Market view T hese are challenging times for govern- ments when it comes to energy strat- egy. The difficulties are all the harder because of the reluctance of successive UK governments to grasp the nettle. Politics have got in the way and continue to do so. This is the case across the developed world so if there is to be any comfort at all, it is that we in the UK are not alone. Increasingly, the issue of cross-border politics playing a role in security of supply (or more properly lack of security of supply) can be added to the mix. It makes one won- der, just how complicated can it get? The UK government's strategy is built on three broad priorities: security of supply; reduction in emissions; and affordability for the consumer. The need to reduce emissions and the desire to have affordable energy are inevi- tably interlinked. Energy from fossil fuels has been historically cheap to produce (or at least it was until governments began a politically motivated campaign of relentless targeted taxation). We can all understand the need to develop carbon capture and stor- age technologies to ensure compliance with European Union emissions regulations. The failure to support that research and antici- pate the need to develop those technologies at the right time is a sad indictment of politi- cal resolve. The absence of a political will to pro- vide a short to medium-term place for coal and other fossil fuels in our energy strategy also means that we have lost, or at the very least are losing, the ability to use these fuels as bridging sources of energy as we move towards greener and more reliable technolo- gies. In other words, we simply did not buy ourselves any time. The consequences of this, when exam- ined in conjunction with the heavy-handed and unpopular current trading approach of the big suppliers, is uncertainty over medium to long-term supply and short-term pricing for the consumer, and pretty sub- stantial price increases over recent years. This places significant numbers of domestic consumers in fuel poverty. Oil and gas are diminishing resources but the North Sea still makes a significant contri- bution. This leaves us heavily reliant on that resource and the employment it provides, which makes this year's Scottish independ- ence vote all the more fraught with political tension and uncertainty. The government's position is that a yes vote could affect the energy sector profoundly because Scotland would lose the subsidies it currently receives for renewables. Given the SNP's very public commitment to green energy, it also leaves the observer to conclude that this is all shrouded more in political ambition than in a proper consid- eration of the relevant science and technolo- gies – and heaven forbid – consideration of the consumer. Nuclear energy is highly emotive, particu- larly since the 2011 tsunami-sparked catas- trophe at the Fukushima nuclear plant in Japan. The negative public perception of the industry has inevitably been exacerbated by the disaster. This sapping of confidence has played a significant role in energy markets in Spain and Germany, where there has been a shi to green energy away from nuclear power and fossil fuels. In Germany, the gov- ernment has sought to move the burdensome cost subsidies for green energy across to the consumer, resulting in a significant rise in energy prices – and much consternation. Inevitably there is a fear that this will result in the government seeking to impose some of the green costs on energy-intensive industries, which have so far been exempt. This runs the risk of rendering the German manufacturing powerhouse so uncompeti- tive that long-established manufacturers may have to leave and relocate elsewhere to remain in business. The irony is that Ger- many is in part securing its energy shortfall from France, which relies heavily on nuclear power. One wonders that the Germans can be fooled by these political manoeuvrings. Add to this the current pan-Europe crisis surrounding gas supplies coming out of Rus- sia, upon which Germany is also heavily reli- ant, and the political posturing in Ukraine. It is baffling how a sovereign power like Ger- many, so successful since the second world war in building its industry and as the con- summate European, could end up in such a compromised and unsatisfactory situation. Given the contribution to our energy sup- ply made by nuclear power stations, we in the UK are forced to acknowledge that they are coming to the end of their natural lives and a plan must be put in place to either replace them with updated nuclear technol- ogy or find a reliable alternative. The government recently signed an agree- ment with EDF and its back-up consortium regarding the construction of a new power plant at Hinkley Point in Somerset. However the guaranteed minimum price (or strike price) is currently being trawled over by the European Courts to examine whether such support falls foul of European state aid rules. It all adds to the argument that this is too politicised and not geared completely and unconditionally to the national interest. The arguments presented here focus on one or two big political hot topics and ignore the wider politics of the issues under discus- sion – but in many respects a consideration of the broader national and international politics at play would serve only to rein- force the view that energy security should be a matter of national interest not subject to short-term political influence. It is unset- tling and not a little bemusing that in these sophisticated times and against a backdrop of the history of the twentieth century, we and other nations should find ourselves in this position on something as critical to the national good as energy. Tracy Hall, partner, Watson Burton LLP Energy and politics don't mix Decarbonisation and supply security should be pursued based on the rational appraisal of the technologies available, but political posturing often gets in the way, says Tracy Hall. UK electricity mix by fUel, 2013* fuel type Share of total supply Coal 38.4% Natural gas 27.7% Nuclear 20.6% Renewables 11.3% Other 2.0% *12 months to 31 March 2013. Source: Decc