UK's Energy Future: letting sparks fly

Energy & Commodities
  • The UK has ambitious targets to increase the share of its electricity from renewables and to reduce carbon emissions. Many of its coal-fired and nuclear plants either face regulatory restrictions on their use or are coming to the end of their working lives.
  • The latest iteration of a policy framework to achieve those goals is set out in the UK Electricity Market Reform Bill which has been described as the biggest shakeup of energy generation in the UK since its privatisation twenty years ago. The bill’s key reform is the proposed introduction of contracts for difference intended to guarantee the price of energy generated by low carbon technologies over a fixed period, along with the introduction of a carbon price floor to better capture the carbon “cost” of fossil fuel power generation.
  • The new policy framework reflects a cross-party consensus in support of renewables and tackling climate change that is now fraying as concern about high energy prices has risen, the salience of climate change as an issue has ebbed and protests against new onshore wind turbines have increased. There is also a growing and articulate lobby in support of greater use of gas as an energy source which is more cost effective than renewables and less carbon intensive than coal.
  • There is a clear assumption in the Electricity Market Reform debate of the role for state intervention. It is striking how little commentary this has received, given that it constitutes a rolling back of the liberalisation that defined UK energy policy for many years.
  • There is now a growing risk that the complexity of the bill, and an evolving political scepticism about renewables, means that the hope of creating a durable policy framework will not be realised. Meanwhile, the UK’s need for new generating capacity in the second half of this decade remains.

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