Written by Tom Reynolds, Account Director in Madano’s Energy Practice.
The strong turnout of business at the Labour Party Conference in Brighton this week lends credence to the idea that the Party really is being viewed more and more as a “government in waiting”. However, it also serves to remind the leadership that it now has even greater responsibility to outline what a future Labour Government would bring to the table, particularly when it comes to Brexit.
Watching from the side lines at the Bloomberg Economic Briefing on Tuesday morning, the tensions between CBI Director-General, Carolyn Fairbairn and Shadow Chancellor, John McDonnell were plain to see.
Fairbairn almost appeared to roll her eyes as McDonnell confirmed that Labour’s Private Finance Initiative (PFI) policy was in fact as radical as the CBI had first interpreted. In response to McDonnell’s speech outlining the policy the day before, the CBI’s view was that a move to bring billions of pounds’ worth of PFI projects back under state control would send investors “running for the hills”.
While Fairbairn failed to see eye-to-eye with McDonnell, she clearly had more joy with the Shadow Brexit Secretary, Keir Starmer. And it is on the issue of Brexit where businesses may align with Labour more closely. Starmer’s line, which highlighted the Conservative’s “extreme” interpretation of the vote to leave the EU, was met with unequivocal support from Fairbairn.
If Labour can continue to articulate their attack on the “Tory Brexit”, they may win favour in some business circles. However, this will not be enough for the Party to shake their current “anti-business” tag. PFI is just one example of Labour’s broader state interventionist agenda, which includes nationalisation of railways, water, energy and even Royal Mail – all of which is a big turn off for business.
Perceptions of Labour may be moving towards “government in waiting”, however, if they can’t (or are not willing to) win the confidence of British business, they may be left waiting for longer than they’d like.
Written by Evan Byrne, Senior Account Executive in Madano’s Energy Practice.
Last week’s Contracts for Difference auction results show offshore wind at its lowest ever cost. This reflects the trend which will see more and more renewables put on the system.
In the years to come, we can expect to see a range of new grid technologies deployed to enhance distribution and transmission as well as the emergence of micro-grids. These developments could theoretically enable a 100% renewables energy system – a system that does not have to resort to massive overcapacity to meet demand, but what about in the short and medium term?
The most critical issue is ensuring an overarching strategy that clearly outlines the necessary steps to deliver the energy transition successfully. Any successful strategy will need to identify where the pressure points will emerge in the system.
The biggest issue renewables have is intermittent generation and the variability of energy output. Renewables require extensive back-up sources to ensure security of supply. This back-up power has to come from dispatchable energy, namely coal, gas or perhaps even micro-nuclear in the future.
The South Australian Example
If this back up is not in place, or is vulnerable to disruption, there is a risk to security of supply. A good example is South Australia, where generous incentives were awarded to encourage the development of renewable energy generation. Consequently, its network carrying capacity now exceeds 40 per cent. It is expected that this number will rise to 67% by 2025. .
In the South Australian example, baseload quickly became uneconomical, and was effectively forced out of the market. South Australia became dependent on gas, diesel and coal from Victoria (brought in via interconnector) to provide whatever electricity renewables did not. In September 2016, the interconnector to Victoria failed during a storm, and there was a black out affecting the entire state because the renewables generation was unable to meet the demand.
The German Example
Another pressure point that can emerge as part of a push for 100% renewables is the increased dependence on fossil fuels as backup. Germany has one of the highest renewables penetration in Europe, with some of its Bundesländer states using 100% of renewable energy on a regular basis.
However, since the advent of its Energiewende (Energy transition) policy, Germany’s emissions have increased, despite the record level of renewables on the network. This is largely due to the phase out of nuclear in the country, which followed the 2011 Fukushima incident. But it is also likely due to Germany’s drive to introduce renewables quickly onto the system.
It is easy to point to the failures of the South Australian energy market as an argument against the rapid introduction of renewables. In the case of Germany, those opposed to renewables claim with some justification that more renewables have indirectly led to rapidly growing emissions.
In reality, South Australia failed due to the lack of a long-term strategy. An unsustainable level of renewables penetration was caused by overly generous incentives, which simultaneously rendered other energy sources commercially non-viable, rendering the energy market dysfunctional.
The Energiewende maps out a clear long-term strategy to 2050 and therefore makes the policy easier to defend. While there is an increase in emissions in the short-term, public support for the Energiewende remains high.
The transition of our energy systems to integrate renewables wholesale requires a clear strategy that will anticipate the major issues arising from this process.
There is a pressing need to communicate not just the objectives of the new approach but also the possible issues that could emerge.