Written by Michael Zdanowski, Head of Energy at Madano
On any one day over the past few months you would have been hard-pushed to find a slow-news day as the UK edges towards its withdrawal from the EU (currently scheduled for late March this year).
Day-to-day Government business has been cast into the shadows and the major parties – often atomised – broken down into their constituent parts by the wrangling over the future of the UK towards its largest and most important trading partner.
Just this week the Chancellor synthesized the view that instability is the new norm stating that trade tensions and Brexit are “manifestations of fundamental pressures to reorder globalisation”.
Against this background turbulence, it might seem churlish to suggest that UK energy policy is becoming less opaque.
How can that be the case given the instability rooted in the political system and the lack of Government bandwidth due to Brexit?
Beyond the geo-political and macro-economic outlook, a number of conclusions can be drawn.
Firstly, momentum towards ensuring value for money for energy consumers and to seeking low carbon solutions to reduce our dependence on fossil fuels has accelerated.
Business Secretary Greg Clark’s recent speech, entitled “After the Trilemma”, spoke to these dynamics. He clarified the market principle – that the market must take the lead and that all consumers should pay their fair share of system costs (the “no free-riding principle”).
Clark acknowledged the “intrinsic uncertainty about the future” – a nod to the need for Government to be prepared to intervene in the energy market as it already has done with the energy price cap (see below).
While many already question whether the energy trilemma – the backbone of Government policy on energy for 10 years – is truly dead, it is apparent that recent Government thinking on value-for-money is consistent given the decision to postpone construction of the new Wylfa nuclear power station and can the Swansea Tidal Bay project.
Interestingly, Government has decided that there is an abundance of energy and that there’s scant danger of the lights going out soon.
Secondly, policy initiatives designed to shape the contours of the domestic energy retail market have become more firmly established in recent months and years.
It seems clear that the energy price cap – a Labour policy initiative borrowed by the Conservatives – is here to stay. Recent announcements of price rises have been made in response to a new cap set by Ofgem for the start of April.
On the demand side, the rise of tens of energy suppliers, stimulated by a commitment to the longer term policy of deregulation, has led to savvier energy consumers who are much more comfortable than ever switching supplier.
The fact that many smaller suppliers have hit the wall in recent months speaks to a better functioning market that is auguring a new, more sustainable paradigm for the retail market albeit not ideal for the other suppliers who pick up the tab as the failing suppliers leave the building.
Thirdly, the Government has committed further to clarifying energy policy in 2019 through a new Energy White Paper (release date TBC). It is anticipated that the paper will provide greater information on energy baseload in the future as well as the approach to new nuclear and the decarbonisation of transport.
When put alongside a 10 year commitment to developing low carbon technologies in generation and in applications for transport, heat and power expressed through the Climate Change Act, there is arguably more clarity on energy policy for many years.
I’m sure that many energy insiders reading this blog might disagree. They could point to very little happening because of the Brexit backlog. It’d be hard to argue against this.
However, the basic point here is to highlight the fact that energy policy is evolving even as the dark clouds of Brexit threaten to overshadow the economy.