Utility Week

UTILITY WEEK | 17TH - 23RD NOVEMBER 2017 | 11 Policy & Regulation Helm, in his own words: On the key problems: "The scale of the multiple interventions in the electricity market is now so great that few if any could even list them all, and their interactions are poorly understood. Complexity is itself a major cause of rising costs, and tinkering with policies and regulations is unlikely to reduce costs. Indeed, each successive intervention layers on new costs and unintended consequences." "In the current decade, the government has moved from mainly market-determined investments to a new context in which almost all new electricity investments are determined by the state through direct and often technology-specific contracts. Government has got into the business of 'picking winners'. "Unfortunately, losers are good at picking governments, and inevitably – as in most such picking winners strategies – the results end up being vulnerable to lobbying, to the general detriment of household and industrial customers." On the carbon price: "The most efficient way to meet the [Climate Change Act] target and the carbon budget is to set a universal carbon price on a common basis across the whole economy, harmonising the multiple carbon taxes and prices currently in place. This price should vary so as to meet the carbon targets. It would be significantly lower than the cost of the current multiple interventions. "As experience is gained, the carbon price can be varied to hit the carbon budgets. This is a key role for government, and one option is for the [Committee on Climate Change] to advise the government on how it should be revised, analogous to the way the Monetary Policy Committee looks at the interest rate necessary to meet the inflation target." On equivalent firm power auctions: "What would be revealed in EFP auctions is that different renewables have very different system costs. Solar would have lower intermittency costs than wind, and both would have higher costs than biomass. Solar would need to address the problem of night-time hours and longer and darker periods during winter, whereas wind would have to address much more varied supply intermittency in order to achieve higher returns from the EFP auctions. "These renewables would then have a strong incentive to do deals with those that offer back-up, to engage with customers on demand-side management, and develop storage options and other innovative ways of managing the variances they create through the market or by direct investments." should fall to the generators that are caus- ing those costs and it should be priced pretty efficiently," he says. By contrast, University College London professor of international energy policy and climate change Michael Grubb argues that such an arrangement "risks making the sys- tem less efficient, because backup should come from the cheapest source and only as much as the system overall needs. "We don't expect other generators to pay directly for backup should their own tur- bines fail." His view is shared by Solar Trade Associa- tion head of policy Chris Hewett, who says it is "obviously cheaper and more efficient for renewables variability to be handled at a systems level rather than on a plant by plant basis. "Furthermore, the cost of variability depends very much on the surrounding sys- tem, which is in flux." Renewable Energy Association policy manager Frank Gordon falls somewhere in the middle, telling Utility Week that "in prin- ciple we would not be against a combined auction for all forms of power, which argu- ably should include nuclear projects as well, as long as recognition remains of the need for some support for emerging renewable technologies… So, for instance, minimum capacity set aside in the auction for emerg- ing technologies, as has happened in the past with the CfD auction. "The proposals on self-balancing might support a more whole-systems approach to bidding, which could be welcome if it helped unlock new energy storage and flexibility capacity," he adds, "but system balancing is likely to be most efficient on a national scale." Overall, Helm's proposals do provide an elegant solution as to how to decarbonise the energy system in the most cost-effective way. But, it only appears to work once low- carbon technologies are sufficiently mature. The problem is that it is not clear whether we have reached that point yet. Immature technologies will still need support in the meantime. Intermittency does need to be priced into investment decisions and an equivalent firm power auction would provide a way to do this. Whether this is the best solution is open to debate. Some would certainly disagree. There is also the issue of whether his pro- posals can even be implemented in the first place. Maybe the UK can overcome the chal- lenges that have stumped other countries in trying to introduce an economy-wide carbon price. For the moment, at least, it appears unlikely.

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