Energy insight: Solving the UK’s energy ‘trilemma’

By November 19, 2014EU insight

By Joshua Eldridge, Consultant, London

It is important to recognise that there is no single technology, no ‘silver bullet’ that will deliver secure, affordable and clean energy. Political leadership, targeted investment and continuous innovation have the capacity to change the situation but currently clean energy and cheap energy appear to be mutually exclusive goals. Similarly, there are powerful geo-political, resource and environmental concerns that combine to make ‘affordable’ fossil fuels an unlikely candidate for providing long term security of supply. 

As more and more base-load power is scheduled to come off the grid, ever-present concerns about blackouts intensify. The Ukrainian situation has served to further deepen these concerns and give rise to wider debate about the UK’s energy dependency. At a recent energy policy debate, Matt Hancock MP, Minister of State for Energy, spoke of the challenge of balancing affordability, energy security and decarbonisation and described security of supply as “the first among equals”.

Whilst the ‘trilemma’ presents serious challenges it is crucial that the parties look beyond short-term political point scoring and avoid the temptations of energy policy ‘by announcement’ – a damaging phenomenon expertly documented by John Kay here. We have witnessed this unfortunate form of policy making on multiple occasions over the last year, from both coalition and opposition.

The Labour party, electing to zone in on the cost of energy and seeking an easy political win at last year’s party conference, announced an energy price freeze in order to ‘fix the market’. Single-handedly, Miliband managed to wipe billions off the stock market valuations of UK utilities and severely damage investor confidence at a time when unprecedented levels of private sector investment are required to meet carbon targets and secure sufficient new generation capacity.

On the other side of the house, whilst well-intentioned, the Green Deal programme has been poorly executed and the Tories’ renewed resistance to ‘green crap’ has further eroded their claim to be “the greenest government ever”. Energy efficiency is one of the few areas that has the potential to ease cost, carbon and demand pressures but the dilution of the ECO (domestic energy efficiency) scheme set back national efficiency aspirations in return for marginal, short term reductions to energy bills. The Labour party sought to use this year’s party conference to bolster their low carbon credentials and announced plans to make 5 million homes more energy efficient within 10 years. The prioritisation of efficiency measures is to be applauded but we will wait to see if such a programme materialises, without any additional government spending or by increasing bills, and whether the policy manages to avoid future categorisation as a ‘conference special’.

So where are we now? Climate change is never far from the headlines, second only to the national dialogue on the cost of energy. The cost of solar has dropped dramatically and continues to fall, and whilst the wind industry has not enjoyed such dramatic cost reductions, capacity has grown steadily. Indeed, this growing capacity contributed a new peak of 24% of the UK’s electricity on a windy Sunday last month (19/10/14). Long-term low carbon energy commitments are popular with many sections of the electorate but the physical manifestations of renewable development continue to divide politically, simultaneously eliciting blustering displays of conviction and hostility.

There is something approaching a consensus regarding the need to decarbonise the power sector, but there is disagreement over who should foot the bill; should it be Government, consumers or the industry? Bill payers are currently facing the brunt of decarbonisation costs but there is an interesting discussion to be had on whether a greater proportion of these costs should be shouldered by industry or transferred into general taxation.

The inability of any of the parties to develop a truly cohesive, long term energy policy that even goes some of the way to reconciling demands for green, clean and affordable energy is worrying to say the least. The energy ‘trilemma’ is a genuinely difficult puzzle which will not be solved neatly, but that does not mean that a comprehensive solution should not be sought. The unfortunate political reality is that issues deemed ‘too difficult’ can fall victim to inextricable delay, compromise and worse still, panicked policy making.