Jul. 22 2019 — Energy policy will probably be the last thing on Boris Johnson’s mind if he becomes the next UK prime minister. Navigating a successful Brexit will be his top priority and this means devising an economic plan for future generations.
A new energy policy should be at the heart of his vision for Britain outside Europe, but it is going to be expensive.
One of his first decisions after July 23 could be to accept the recommendations of a long-awaited government white paper aimed at overhauling the energy industry. The document – likely to outline root-and-branch reforms to new nuclear funding and flesh out green energy policies empowering consumers – was due to be published ahead of the summer recess of Parliament.
Expectations for what will actually be contained in the white paper when it is eventually published are high. Carolyn Fairbairn, director general of the Confederation of British Industry, wrote to Business Secretary Greg Clark last month urging him to ensure it meets the long-term needs of cleaning up the environment, while keeping the lights on. It is unclear if both objectives are even possible.
“A major challenge that we must address is the need to secure long-term investor confidence needed to deliver new technologies, and support major shifts in consumer behavior, while maintaining the competiveness of our industries,” wrote Fairbairn.
To achieve this, a new model for nuclear funding will be essential. The near £20 billion bill for building the Hinkley Point C power station and the terms offered to developer EDF and its Chinese partner are rightly controversial.
The government has guaranteed a fixed price for the plant’s electricity in the future. Hinkley’s strike price today stands at £102 per megawatt-hour, versus a S&P Global Platts Analytics‘ forecast of £57.30/MWh for 2025 – when the plant is due to start. This level of subsidy has set an unaffordable precedent for funding future reactors and is political dynamite unless it is addressed somehow in the white paper.
Catch me if you can
Another ruinously expensive net-zero tech being bandied about by government is carbon capture and storage. The technology to suck emissions from industrial processes and store them underground in old oil and gas fields is commercial suicide without significant subsidies, or sky-high carbon prices. The industry itself agrees carbon would have to trade at around €60/metric ton of CO2 captured, compared with the current European cost of carbon set at around €28/mt.
Energy and clean growth minister Claire Perry has committed the government to getting its first large-scale carbon capture project running by the middle of the next decade. But, the government’s budget is minuscule, with just £20 million to be spent on CCS technologies at industrial sites and £315 million for decarbonizing facilities. Without a long-term increase in funding, further initiatives to reduce industrial emissions could flounder.
Then there is the energy transition in transport, which needs to be addressed in the white paper. The government is under pressure to ban sales of conventional petrol and diesel passenger cars by 2040 and further incentivize consumers to adopt electric vehicles with additional subsidies to those already received. More importantly, the forthcoming white paper will have to address viable solutions to charging and providing adequate base-load capacity to prevent blackouts when drivers plug in their cars at the end of the day.
What won’t be addressed in the white paper is the North Sea. The UK still produces around 1 million b/d of petroleum liquids and significant volumes of natural gas. Tax and royalty revenue from these carbon-intensive resources will be vital for any future government, despite commitments to reach net zero emissions by 2050. However, current policies aim to maximize income from the North Sea, while attempting to both greenwash its existence and economic importance.
Johnson may decide to reject the findings of the Energy White Paper for a lack of ambition on meeting emissions targets. As mayor of London he built a reputation on backing projects like the cycle superhighway and tougher regulations on vehicle pollution, while cutting the congestion charge. He has also backed the UK’s bid to host the UN Climate Change Summit 2020, known as COP 26.
A visionary energy policy could give him the economic platform he needs to hold center stage, but it won’t be cheap.