Sustainability. Security and Resilience. Affordability.
The energy trilemma has been with us for many years. As a concept, its popularity over that time has waxed and waned. At an intuitive level however, the trilemma principles have always been more accessible and evocative than alternate policy summaries and clearly convey the policy conundrum and constant balancing act that Government has to undertake.
The trilemma also provides an excellent filter through which to view and assess the Government’s current energy policy deliberations. This includes the likely content of the Energy Security Strategy which is expected to be published imminently and which my colleague Emma Andrews has already commented on and the policy options that have been trailed in a number of newspapers over the past few weeks including:
- increased North Sea oil production, increased sourcing of oil and gas from alternative sources and leaving the door open to fracking in the UK;
- the running of coal plants past 2024;
- the Government taking minority equity stakes / providing funding packages in relation to new nuclear projects, acting as a cornerstone investor / debt provider to unlock wider private investment;
- the Government looking to support another new nuclear plant at Anglesey;
- the potential relaxation of the onshore wind planning rules in England that were introduced in 2015;
- the significant ramp up of deployment in large scale solar projects;
- a renewed focus on energy efficiency;
- smoothing Supplier of Last Resort costs and increased commodity costs over a number of years to reduce energy cost spikes for consumers and businesses and potentially injecting private finance to facilitate the smoothing;
- the reduction in VAT and/or fuel duty on fuel / energy;
- removing environment levies from energy bills and transferring them to gas bills / general taxation instead;
- a windfall tax on RO and FIT projects that are benefiting from the current market dynamics in a way that was “not envisaged” when the original regimes where implemented; and
- a windfall tax on oil and gas operators that are benefiting from the current market dynamics at a time when the focus needs to be on reaching Net Zero.
So applying the Energy Trilemma what is our prediction on the GB energy policy agenda for the next 5 years?
Perhaps unsurprisingly, energy security and resilience will always be the number one priority for Government. Borrowing from Amber Rudd’s 2015 speech, “It is fundamental to the health of our economy and the lives of our people. It underpins everything we need to do… it provides the foundation of our future economic success. It is our top priority”. Within this context, we expect the Government to focus in the near term on energy security at all costs. Boris Johnson’s recent trip to Saudi Arabia and the potential expansion of North Sea oil projects are a clear marker of this.
We anticipate the medium to long term policy narrative will however continue to focus on and acknowledge the climate emergency, the fact that it is arguably the greatest long-term threat to our economic security and the need for an evolution in policy to ensure that the UK can meet its energy demand largely from domestic, clean sources and are hopeful for positive long term policy developments in the nuclear, solar and wind sectors. So the outlook for clean energy and renewables is good.
In contrast, the Government’s response to the affordability principle is harder to predict. It is not clear how far the current Government is prepared to go (from a financial or ideological perspective) to protect its citizens and UK Plc from market fundamentals which are largely the same across Europe. It is also seems doubtful that the Government will be prepared to revisit the original financing solution implemented to decarbonise the UK’s energy sector at a time when general taxation is increasing. This may be a missed opportunity however as the current financing solution is already seen by many as being regressive and may end up being a future hurdle to overcome in the hearts and mind battle for Net Zero.
Disagree? Have another filter that you think is better to view the current policy developments through? Let us know and lets continue the debate.