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12 | 9TH - 15TH SEPTEMBER 2016 | UTILITY WEEK Policy & Regulation Market view I n the renewable sector, the past two years have seen solar capacity growth explode because of accelerated deadlines for sub- sidies. This has led to two decades' worth of build-out coming over the space of approxi- mately two years, while support for onshore windfarms has been almost entirely cut, cre- ating unstable booms and busts within the renewable industry. A similar pattern has been emerging for small distributed generators, with numerous projects le unsure about whether they can count on currently active income streams, or whether the rug will be pulled out from under their feet in coming years. This makes it hard for investors to back these schemes. Meanwhile, large power stations have seen carbon capture and storage (CCS) schemes curtailed early because of the sur- prise cancellation of a £1 billion government- funded competition. This le projects that had been progressing well with no viable future, when CCS would otherwise have potentially allowed the continued operation of some of these large stations into a low car- bon future with them providing reliable low carbon power. As the UK energy market evolves, there is a need to progress the system towards a more flexible and efficient approach that can work around low cost renewables with smart power solutions such as energy storage and demand flexibility. The combination of renewables and stor- age, which could be spurred by the devel- opment of heat networks and plummeting battery costs, could be the key to a flexible and efficient market. If complemented by nuclear plants this could provide a diversi- fied fuel mix. Right now the greatest issue in the market is managing the levels of uncertainty within the power system. Whether nuclear should or should not be part of the fuel mix, the back and forth over whether projects will or will not get agreements is affecting the wider industry. Ahead of the 2016 capacity mechanism auction we already have projects bidding in that do not have 100 per cent visibility or clarity over whether their revenue streams will persist into the future and this is creat- ing unprecedented uncertainty. Hopefully, with a final decision on Hin- kley Point C the market can start to plan ahead for a more certain future, and with the changed government we can only hope that levels of clarity within the industry can rise. On balance, we at EnAppSys believe that Hinkley C is likely to proceed, but this might come despite there being no long-term framework for nuclear power and no clear fuel mix or structural expectations for our power system, while technological develop- ments will drive the market in unexpected directions over the medium term. Hinkley Point C may yet go ahead and still be the last new nuclear plant built in Britain as other projects look to avoid the dif- ficulties it has encountered or if the subsidy regime changes once again, as has been the case for other technologies such as wind and solar. For obvious reasons, there is a clear advantage to power sources that can be com- manded to turn on and off in a reliable man- ner, but the erratic approach taken towards subsidies has not helped the industry as a whole. It might have been, and still might be, more prudent to have run a competition aimed at reliable clean power generation that can satisfy criteria such as coming on when required – and that delivers a required power shape, but in a low carbon manner. This would have allowed nuclear to com- pete against CCS projects and renewable/ storage/demand response combinations and could have demonstrated that nuclear was indeed the optimal approach to delivering clean and reliable energy. At the end of the day, if Hinkley Point C does not go ahead, then it will be these sorts of projects that will be required to ensure stable and clean generation into the future – ensuring security, sustainability and afford- ability as part of meeting the government's energy trilemma. The challenge for market participants and investors at the moment is that what is given out with one hand seems to be taken away with the other, with no clear idea of where the next cut or subsidy is likely to come from. Right now the industry is not able to point out the long-term technology that will win. Instead it can only chase the next wave being created by government policy. The government needs to decide whether it wants the market to decide, or whether it wants to pick winners itself, and then not change its mind. The current situation, com- pounded by Brexit, is that the only certainty is uncertainty, and in that case there is a distinct possibility that capital will look else- where than the UK electricity market. Phil Hewitt, director of EnAppSys It's make your mind up time The delay in the government's decision on Hinkley Point C is merely the latest example of government dithering over energy policy. Investors are being left in no man's land, says Phil Hewitt. ALL-INCLUSIVE UK GENERATION BY FUEL (EXCLUDES IMPORTS) 50 45 40 35 30 25 20 15 10 5 0 GW 1920 1926 1932 1938 1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 Source: Decc and National Grid estimates. 2016 is best guest from available data Nuclear Wind Solar Hydro Biomass Coal and peat Gas Oil