In a desperate attempt to sell more dirty energy to a sceptical public, the UKGovernment is proposing cash bribes to households impacted by fracking.
INEOS has announced the first delivery of US shale gas to its Grangemouth petrochemical plant next month and used this as an opportunity to, yet again, make the case for exploiting indigenous supplies. Unlike the USA there is no commercial shale gas production in the UK as yet, although approval has been given for a site in North Yorkshire. In Scotland, development was halted by the 2015 moratorium, while expert reports are prepared.
The UK government has launched a consultation on plans to distribute payments to the communities affected by the drilling. They are proposing a Shale Wealth Fund, which would distribute 10% of all shale gas tax revenues to local communities. Unlike traditional planning gain, the UK government proposed that payments could be made to households directly – a straightforward cash bribe.
The problem for the government is that even cash bribes might not deliver public support for such a controversial technology. Surveys undertaken by the Department for Energy and Climate Change in April, showed public support for fracking stood at only 19%, while 31% were explicitly opposed.
In a more recent YouGov poll since the government announcement, only a third of those surveyed said they would support fracking in their local area “if individual households received a direct payment in exchange” of up to £10,000. More than 43% said they were opposed, 26% of them “strongly”. Another quarter said they didn’t know whether they supported it or not. The greatest opposition is in Scotland where 51% are opposed. Clearly the INEOS ‘summer offensive’ hasn’t had much impact!
Liz Hutchins for FoE said: “The government are desperate to show support for shale gas exploration, and recent headlines that offered cash payments were meant to bolster, not diminish, support. But when you look at the details of the scheme, any cash for households would only be after shale exploration, and would be derived from taxation on profits. It all seems a pretty unlikely and distant proposition. What we do know is that the more people learn about fracking and what it could mean for their health and environment, the more opposed they could be. And it’s clear from this survey that they haven’t been fooled by the government’s latest bribe.”
Joseph Dutton from the University of Exeter is even sceptical that significant household payments can be delivered. He argues: “that the ultimate value of the fund and therefore the payments it would distribute is wholly dependent on the tax regime in place when production begins, and the revenue a company derives from a shale gas site once costs are taken into account. Until actual gas production begins, it’s impossible to estimate how much tax the operating company will pay – or even if the shale industry would be a success in the UK at all.”
He also makes the point that as the price of oil and gas has plummeted in the last two years, the economic case for developing potentially expensive shale gas deposits has weakened.
The Ferret has highlighted further concerns over another unconventional gas technology, underground coal gasification (UCG). A new report says plans to set fire to coal under the seabed at up to 19 sites around the UK (including east central Scotland) would cause massive climate pollution, groundwater contamination and toxic waste. Cluff Natural Resources has licences for nine potential undersea coalfields amounting to 640 square kilometres, valid until 2018-2020. Two are off the coast near Durham, two off Cumbria, two off Wales and three in the Firth of Forth in Scotland.
Friends of the Earth Scotland says: “Given what we know about this technology’s terrible history around the world, Cluff’s plans to burn coal seams off English coasts are utterly reckless. The UK Government should stop this industry now before Cluff gets his foot in the door.”
So, we have had PR offensives, ministerial lobbying and now bribes to persuade us that these technologies make sense. The problem for the industry is that the public isn’t convinced on safety grounds. The UK is a much more crowded space than the UK, with less room if things go wrong, as they have in the US. It also assumes that unconventional gas is economically viable. Even if it is, should we really be relying on another dirty fossil fuel when renewable alternatives are available?
For now, the answer is no on all counts.
Despite the best efforts of successive governments to create an energy market, it remains notoriously uncompetitive. In Europe, municipal energy is commonplace and growing – we should do the same in Scotland.
The so called market is dominated by the big six utility companies, whose pricing practices have been criticised by the competition watchdog. Consumer trust in the market is low and they are reluctant to switch suppliers for a better deal given the hassle of switching. In fairness, the Big Six are often unfairly criticised and new entrants have been guilty of some pretty poor practices as well. The fault is in the system.
The IPPR, has made a convincing case for local authorities to set up municipally-owned energy companies that can supply electricity and gas at competitive prices and don’t have to distribute profits to private shareholders. By targeting those on low incomes, they can also help tackle fuel poverty. The local authority “brand” may also encourage otherwise reluctant low-income households to switch suppliers and save money. Nottingham and Bristol have followed this model and London, under a new Labour Mayor, looks likely to follow.
In Scotland a slightly different model is being adopted. Our Power is a community benefit society established and owned by a number of local authorities and housing associations. It too aims to tackle fuel poverty through the supply of affordable energy, focusing on social housing tenants, and seeks to buy a minimum of 30% of its energy from renewable sources. The Scottish Government is also at least considering setting up its own energy company, although details are limited.
The problem with these models is that they are simply playing the failed market and are relying on the same wholesalers. An alternative approach is for councils to establish genuine energy companies that generate renewable electricity and help households to install energy efficiency measures, funded from the long-term savings in their energy bills.
The APSE research paper, ‘Municipal Energy: Ensuring councils plan, manage and deliver on local energy’, found that:
- For every £1 invested in renewable energy schemes there is a further £2.90 in cashable benefits
- 17 jobs can be created from every £1 million in energy saving measures on building
- Energy efficiency and renewable energy can create 10 times more jobs per unit of electricity generated than fossil fuels
- The local government sector annual energy bill of £750 million could be reduced by up to half by leveraging in spending power and using readily available and low cost technologies existing buildings.
Fife Council has done some of this with its £1.3 million turbine at the council’s recycling and resource recovery facility near Ladybank. This is expected to generate enough electricity to power 200 homes. They also generate clean energy from garden and food waste at the council’s anaerobic digester and from landfill gas. Aberdeen has similar projects as well as the city’s district heating scheme. A number of councils use solar photovoltaic panels.
Glasgow City Council is in the process of setting up an energy services company which will oversee the creation of renewables and low carbon projects in the city. It has mapped sites, but progress has been slow.
A more radical plan for the city has been proposed by Jim Metcalfe, based on research carried out by the Energy Saving Trust. This would involve the creation of a locally-owned company which would be able to reinvest profits from power generation on improving building insulation and reducing fuel poverty. The council should be leading on this, using council bonds, available at historically low levels, to finance the plan.
While electricity generation is important, we also need to make progress on heating homes. This is where district heating schemes come in. The Energy and Climate Change Select Committee heard in January that the £300 million government scheme to develop district heat projects needs a “regulatory investment framework” during this parliament to support future growth. District heating is a 50-80 year long investment and so you want to attract the lowest possible cost of capital to ensure the lowest cost for consumers. Councils are again in the best position to do this. In Scotland, work has begun on tapping into geo-thermal heat from disused mine workings.
Governments could help more by making energy efficiency a national infrastructure project. In Norway, the introduction of legislation to support district heating has shown a 150% increase in the installed capacity over the last 10 years. This has helped make it possible for the city of Drammen to create a district heating network that supplies several thousand homes and businesses with clean, affordable heat. This system didn’t rely on Scandinavian engineering, but the expertise of Glasgow-based Star Renewables.
There are a number of interesting municipal energy projects in Scotland and the rest of the U.K. However, they are patchy, small scale and not nearly radical enough. We need councils to take the lead, establishing full scale energy companies that can provide energy efficient homes with cheaper electricity and heat. They would also generate desperately needed revenues.
This would be municipal enterprise of the sort councils in the 19th Century created to revitalise our towns and cities. We now need 21st Century municipal leadership to take this forward.
One of the first acts of Theresa May as Prime Minister was to abolish the Department of Energy and Climate Change and merge it into an expanded Department for Business, Energy and Industrial Strategy. There are differing views on the impact.
The New Economic Foundation (NEF) argues it’s a bad idea along with most environmental groups. When Gordon Brown first created the Department it was a signal that the UK at last recognised and understood the dangers of climate change – an issue that will define the 21st century and the future of our global society. The least it deserved was a strong dedicated government department.
They also argue that tackling climate change should not be just an adjunct to other policy issues. It requires a central co-ordinated strategy; if we leave it to the afterthoughts of various departments then we will fail. DECC gave strategic direction and emphasised the opportunities, whereas May seems more focused on costs. Adapting our economy for a clean future would be an opportunity – a chance to nurture new industries, improve health and wellbeing, and rebalance our economy.
Abolishing DECC also raises the question, is the 2008 Climate Change Act safe? Including the commitment to an 80% reduction in emissions by 2050.
Matthew Bilson from the University of Sheffield, while accepting the positive role DECC played in climate change negotiations, can see some advantages. He argues a focus on business is necessary if the UK is going to continue to reduce its emissions: the switch from coal to low carbon sources means electricity supply is doing its bit, but other sectors – notably heat and transport – need to up their game. The country needs new policies, and the restructuring should help move low carbon thinking into the business and industry mainstream.
The business department has traditionally championed key sectors, including the aerospace, automotive and construction industries. Aligning those sectors with the low carbon energy priorities could ensure greater progress on electric vehicles, zero carbon homes or alternative aviation fuels. Somewhat more optimistically, he also argues that it could result in more stable energy policies on renewables, heavy industry, modular nuclear reactors and even getting CCS back on the agenda.
What really matters is the direction of government policy, rather than where the civil servants sit. The new business secretary, Greg Clarke, clearly stated the importance of clean energy and tackling climate change. However, the acid test will be the UK’s approach to the EU 2030 climate targets, and ratification of the Paris Agreement. This will keep up momentum, confidence and commitment going into COP22 in Morocco.
For now, the jury is still out.
Ineos is using the Brexit uncertainty to make a new push for fracking in Scotland.
Their CEO has called for an overhaul of UK energy policy and for manufacturing to be placed at the heart of the economy as Britain faces up to life on the outside of the European Union (EU). He urged Scottish ministers to review its current moratorium on granting consents for fracking in Scotland, declaring that industry would be transformed if companies such as Ineos were free to tap into indigenous shale resources.
This follows Ineos’s decision to send their fracking team down south, much to the joy of campaigners here, but less so in Lancashire and Yorkshire. This is partly to take advantage of the more favourable policy position and because the Scottish government’s line appeared to harden when the new energy minister Paul Wheelhouse said he was “deeply sceptical” of proposals to exploit shale gas reserves beneath the ground.
The fracking industry has spent years watching lengthy slumps in both international gas prices and public support for the technology. These trends aren’t about to turn around quickly despite the planning decision in North Yorkshire. As Howard Rogers from the Oxford Institute for Energy Studies puts it, “there could not be a worse time to embark on challenging gas projects.”
The UK Government would like to emulate the US shale bonanza, however, the UK has no equivalent to the plains of the USA. Fracking in the UK will be done near populations, if not right under people’s houses. The USA is also a growing source of evidence on the worrying economics of fast-depleting shale wells – not to mention flammable water and other industry misbehaviour. The climate impact of shale may be far higher than first suspected.
It’s also not cost free for the taxpayer. New figures reveal that capital allowances for fracking infrastructure will cost the UK taxpayer £25 million.
Few would dispute that the UK economy needs to be rebalanced with a shift from services to manufacturing. However, fracking isn’t the way to do it.
Keeping the lights on at a reasonable price and meeting decarbonisation targets is a complex business and not without controversy.
The Future Energy Scenarios (FES), launched today, is National Grid’s view of plausible and credible pathways to 2050. This drives planning and investment decisions in the system. It’s also probably the best look at where the energy industry is going in the foreseeable future.
FES uses four scenarios to model changes to the energy system. They start with the optimistic ‘Gone Green’ which assumes high prosperity and high green ambition, with carbon targets met through investment and innovation. Then ‘Slow Progression’ which assumes a still ambitious, but a less prosperous economy, with compromises on carbon targets and less investment. Next is ‘Consumer Power’, still a prosperous economy but one driven by consumer desire for innovation, with high levels of distributed generation and storage. The worst scenario is ‘No Progression’ in which business as usual prevails with low growth and limited innovation.
Scenarios are not about predicting the future. Just as well, because the track record of energy scenarios since the 1970’s is not great. They are about giving us some numbers under different economic and policy circumstances. More a planning tool than a crystal ball.
Given past forecasts, it is surprising that all the scenarios now assume a continued reduction in electricity demand until around 2025. Partly due to the slow climb out of recession, but also due to more efficient appliances and the collapse of heavy industry. However, demand starts to rise again under the more prosperous scenarios. Gas demand, after an initial fall, looks likely to maintain a significant part of the mix. The prosperous scenarios assume moving away from carbon intensive sources and/or more local generation.
There is a little more regional analysis this year, something National Grid is weak on. They map the regional sources of generation and identify some regional differences in demand.
The key message for me from this year’s FES is that energy supply is becoming increasingly diverse. Fossil fuels will continue to decline with an extra 5GW closing by 2016. Potentially 18GW of additional storage could be available by 2040. The constraints appear to be more market and regulatory than technological, although this is still more about short term storage than addressing seasonal imbalances. They assume a big increase in imported electricity and gas, from 4GW at present to 23GW by 2040. 54% of gas could come from alternative sources by 2040, including shale, biomethane and bio-substitute natural gas.
More action is needed in the next decade if the UK is too achieve the 2050 carbon reduction target. None of the scenarios indicate that the UK will meet the 2020 target of 15% of energy coming from renewable sources. Progress is reliant on key technologies, nuclear, renewables and CCS. It can be done without one of these, but becomes more challenging. In practice two of them are looking dodgy and renewables suffer from investor uncertainty. However, it is heating and transport that needs to do much more.
Gas is seen as vital to facilitate decarbonisation. It’s flexibility can be used to balance the system and they assume there will be 11GW of CCS enabled gas plant by 2040. It will still be important in heating homes, with 70% of households still using gas in 2030. Hopefully district heating will play a bigger role, although heat pump take up so far is slower than anticipated. While shale gas has been delayed, they are still assuming it will play an important role, in particular under the consumer power scenario. The was some scepticism about this amongst today’s audience, many of whom doubt the economic viability, never mind political and environmental factors.
With the greatest minds in the energy industry present at the conference, only a handful, on a show of hands, thought we would meet 2050 decarbonisation targets! That doesn’t mean it isn’t desirable, but it does reflect scepticism about government taking the necessary actions. It certainly looks challenging. National Grid are rightly also concerned about security of supply and keeping energy bills down, so balancing objectives is an additional complexity.
The external speaker, Professor Jim Watson, emphasised the importance of doing more on energy efficiency, something we should be aware of in Scotland as we will miss the statutory fuel poverty elimination target this year. He was also not convinced that shale gas will be economically viable or the case for gas bridging the gap on carbon reduction. Relying on CCS when the UK government has pulled the plug on funding seems pretty optimistic as well. He also made the important point that we need to look more carefully at the distributional impact of scenarios on different income groups. National Grid can be a bit fixated on technology rather than people.
Some wonder if there is a disconnect between the scenarios and the market mechanisms that will be needed to deliver them – my own view is that they never will. National Grid take the view that they will change to meet demand. Unsurprisingly, they are not keen on an independent system operator as recommended by the Commons Energy Committee. They don’t think there is a significant conflict of interest, or if there is, they can manage them. They claim their scenarios are not driven by commercial interest of National Grid, but they do use them for their business planning.
The elephant in the room today was of course Brexit. How it will impact on the energy industry depends on your view of the economic and political impact of leaving the EU. If you think it will mean lower/higher growth and less/more green ambition, then this will impact on the energy scenarios. In particular, the big assumptions of additional electricity import capacity may depend on staying in the EU energy system. With the U.K. voice gone from the table, it remains to be seen what impact that will have on EU policy. Maybe less market oriented?
While some of the assumptions made in FES may be controversial, it remains the the most comprehensive study of future energy planning for the UK. There is lots of detail in the documents that can downloaded. Perhaps one to dip into, rather than a bedtime read!
The Scottish Government has finally admitted what has been obvious to everyone – they will not meet their statutory target of ending fuel poverty this year.
Under the Housing (Scotland) Act 2001 the Scottish Government has a statutory duty to; ‘ensure, so far as reasonably practicable, that people are not living in fuel poverty in Scotland by November 2016’. The latest figures for 2014 show that around 35% of Scottish households remain in fuel poverty and some argue the true figure is even higher.
Norman Kerr of Energy Action Scotland said: “Given the Scottish Government’s recognition that its fuel poverty target will not be met this year, we are calling on them to widen discussions to include key stakeholders and for there to be public consultation in order to reset the target as soon as possible. The problem of cold, damp and expensive to heat homes must be addressed and there should be no fuel poverty in Scotland.”
EAS has set out six recommendations (see below).
Housing minister, Kevin Stewart defended the missed target, saying: “This government has allocated over half a billion pounds since 2009 and this year we are making available more than £103 million to tackle fuel poverty and improve energy efficiency. Two out of five homes are now in the top three ratings for energy efficiency, an increase of 71 per cent since 2010 and 11 per cent in the last year alone.” He also argued that above-inflation energy price increases were “beyond our control”.
It is certainly the case that not all the levers are under the control of the Scottish Government. However, it is less clear that they have done everything they could have done with devolved powers. Either way, it is important now that they work with all the stakeholders to develop a new plan.
Key Recommendations on Fuel Poverty from Energy Action Scotland (May 2016)
Reset the Target to End Fuel Poverty
Discussions on how to eradicate fuel poverty in Scotland must be opened now. A new target that is realistic but ambitious must be set. It must be accompanied by a fuel poverty strategy and action plan with costs and timelines. It is essential that there is not a hiatus following the passing of the 2016 target date, which is now widely regarded as being unachievable.
Fund Fuel Poverty Programmes
In 2006 Energy Action Scotland estimated that £200 million per year each year for ten years would be required, from a variety of sources, to tackle fuel poverty. This level of expenditure has not been achieved and must now be re-evaluated. It is acknowledged that the Scottish Government does continue to fund fuel poverty programmes with a positive impact. Programmes designed to reduce fuel poverty across all parts of Scotland must continue to be funded. However, more timely and more comprehensive public reporting to ensure progress is being made is also required.
Consult Early on Energy Efficiency in the Private Sector
Moves to improve energy efficiency standards in private sector homes were shelved by the Scottish Government in 2015. Energy Action Scotland believes it is important not to lose momentum on this initiative and urges the Scottish Government to act early in the new parliamentary session. In particular, tenants in the private rented sector, where high levels of fuel poverty are experienced, should have similar support to that given to tenants in the social rented sector.
Pledge to make Fuel Poverty a Central Pillar of SEEP
As a result of making energy efficiency a National Infrastructure Priority, the Scottish Government says it will create Scotland’s Energy Efficiency Programme (SEEP). Energy Action Scotland believes the Scottish Government must pledge from the outset that a sizable proportion of SEEP will be directed at home energy efficiency and at the poorest households in particular. Reducing fuel poverty must be at least equal in priority to reducing carbon.
Review New Devolved Powers in Relation to Fuel Poverty
Carry out a review of new devolved powers for Scotland in light of their contribution to tackling fuel poverty in a comprehensive new fuel poverty strategy.
Create a Fuel Poverty Cross-Departmental Group and a Cross-Party Group
Fuel poverty is a cross-cutting issue encompassing housing standards, energy affordability, low income, health impacts, advice and debt support services among others. Energy Action Scotland therefore believes the Scottish Government should set up a cross-departmental group, chaired by a Minister, to ensure a better understanding that tackling fuel poverty achieves positive outcomes and cost savings across government. Moreover, the creation of a Cross-Party Group on Fuel Poverty and Domestic Energy Efficiency is long overdue in the Scottish Parliament.
If anything is growing post-Brexit, it has to be an industry in predicting the implications. However, this is largely meaningless speculation until the terms of any new UK relationship with the EU has been negotiated.
For example, will the UK be able to cherry pick which EU schemes it remains in. The current government might seek to remain a member of the EU Emissions Trading Scheme (ETS) because it views it as a “cost-effective” way of cutting emissions. However, it was less keen on the EU Renewable Energy Directive, which requires the UK to source 15% of its energy from renewables by 2020. Osborne was much happier doling out tax breaks for fossil fuels – creating investor uncertainty across the renewable sector.
Security of energy supply in the UK is increasingly reliant on interconnectors with Europe. Therefore it seems likely that the UK will try to remain part of the EU’s Energy Union, that also seeks to open up energy markets to private competition. Disrupting the current energy arrangements is not in the interest of the EU either. Given the level of investment by European firms in the UK, it could harm investor confidence not just in the UK, but in Europe as a whole.
Whatever the Brexiteers may have claimed, our climate policy is not all determined by Brussels. The UK and Scotland have their own Climate Change Acts, that are more ambitious than the EU targets and were passed with cross-party support. It remains to be seen if ministers like Osborne will use Brexit to argue that cutting carbon faster than the EU is bad for business. His early announcements on Corporation Tax would indicate that his strategy may well be to create a dirty, off shore Britain, that offers a race to the bottom on climate, tax dodging, workers rights and much else. The irony would be that first-mover advantage in green goods and services could and should be a precious lifeline for the UK in these troubled economic times.
There has been early speculation that Brexit could be the final nail in the coffin for a new nuclear power station at Hinkley Point. French unions are already unenthusiastic about the investment and the Chinese may regard the UK as a less attractive investment destination, without full access to the single market. UK unions regard EDF’s decision on whether or not to proceed with Hinkley Point C as a ‘litmus test’ for investment in big infrastructure projects post-Brexit.
We shouldn’t forget that Westminster had already created much uncertainly before Brexit by scrapping renewable energy subsidies. Experts have warned the cuts could see a loss of up to £3 billion in investment and put more than 5,000 jobs at risk. As Niall Stewart of Scottish Renewables put it; “The many questions thrown up by Brexit just add to the huge uncertainty that was already surrounding Scotland’s renewable energy sector following numerous changes to support by the Westminster government over the last 12 months.”
For the water sector, much of the current capital investment programme is driven by the need to meet EU regulatory standards. However, while that may have been the driver, this investment was long overdue in the UK and Brexit is only likely to change decisions at the margins and over many years. Other concerns will include the loss of EU research and the impact, particularly on the supply chain, of the U.K. losing the AAA credit rating.
Many other aspects of the wider negotiations will impact on the energy sector. The free movement of labour is important, particularly for specialist skills. Will the UK still be bound by State Aid provisions? If not this could lead to new decisions over support for different types of energy. The same applies to procurement law. Without EU rules, would the UK introduce local sourcing requirements?
While second guessing the Brexit implications is difficult, there is a great deal of uncertainty around – never a good thing for investor confidence. A full trade deal will probably come with most of the current EU provisions. If that doesn’t happen, the case will need to be made for a cleaner, greener UK. Without that, Scotland may have to consider its own future outwith the UK.
Issuing bad news on a busy news day is a a pretty common ploy. This time it’s the Competition and Market Authority (CMA) report on energy market pricing, slipped out last Friday amongst the post-Brexit row. On reading it you can see why. A two year investigation has resulted in few significant actions and won’t solve the problems in the energy markets.
There will be no action to challenge market domination by a “big six”: Centrica, SSE, EdF, EoN, Scottish Power and Npower – who control around 90% of the sector.
Despite championing switching as the solution, the CMA found that more than half of customers never switch their suppliers and around 70% are on the most expensive tariffs. This is apparently all the customers fault, ignoring market domination and switching abuses. There will be a price cap for vulnerable customers. However, only for prepayment meters (just 16% of domestic users).
According to the CMA it’s also the fault of the measures introduced after Ofgem’s Retail Market Review in 2010 that they claim made markets less competitive. These aimed for “simpler, clearer and fairer” conduct in pricing energy, including lowering the number of tariffs each supplier could offer to four. Ofgem also required price comparison websites to provide full rather than partial information about available offers.
The CMA have ignored the widespread dissatisfaction when each supplier offering a large number of tariffs which many customers found complex and confusing. Their approach prioritised “competition” over social and consumer welfare. It’s competition at any cost, be it through artificial complexity created by extra tariffs or information withholding by comparison websites.
The GMB union has slammed the report for being “toothless” and “watered down” and has called for the CMA to be abolished. GMB national secretary Justin Bowden said: “The CMA is a toothless waste of space that should be abolished and replaced by government itself taking over the regulatory role with powers to cap prices subject to control by Parliament. And as for the CMA report, it spends over a thousand pages simply tinkering with a broken and failed model for the UK electricity supply sector.”
Martin Cave a CMA panellist on the investigation has expressed concern that the remedies do not go far enough to fix the market, and called for wider price controls to protect consumers. He said that the proposed remedies will take time to come into effect and are untried and untested, which makes it “risky to rely on them”.
This dismal report fails to recognise the market failure of privatisation. In 2014 British households spent 75% more for electricity and 125% more for gas in real terms than they did in 2004. This is despite the fact that gas consumption declined by around 30% in the same period while electricity consumption went down by around 15%.
It is high time that the public sector takes control of the UK’s energy through nationalising the industry progressively over time. This would not only eliminate abuse of market power by big players, but also secure the UK’s future energy supplies and reduce its carbon emissions.
Like so many aspects of our economic life, the EU is an integral part of our energy and water systems. That’s why almost everyone you meet in the industry will be voting Remain on Thursday. They are joined by most environmental campaigners, in a rare alliance. Why? Because in an interconnected world, both groups recognise that action at the level of the nation state is no longer enough.
It is not well known that the UK imports around 6% of its electricity through undersea cables linking it to the European mainland. Some of this electricity will even reach Scotland, as we increasingly rely on our interconnector with England when the wind isn’t blowing. Such interconnectors would be possible outside the EU, but wouldn’t be priority for other states. Being connected to Europe’s energy networks is also an important element of energy security in an unstable world.
Having an EU energy policy does involve some sharing of sovereignty. Britain has had a significant influence on that policy. Admittedly not always positive, such as liberalising EU energy markets, but more positively in the shift from fossil fuels to renewables. I would argue that British sovereignty in respect of energy and climate change policy has been expanded, not diminished, by EU membership. And in the language of Brexit, they’re not “imposed” by “Brussels”. They are subject to voting and a range of checks and balances. In addition, the UK has flexibility on how policies are implemented.
Renewables and energy efficiency rely heavily on new technologies. The EU offers a larger market and harnesses economies of scale so that products are cheaper. They are also developed to similar standards and regulations, making it easier for companies to trade and create jobs.
If we vote for Brexit on Thursday the UK will either exist in an energy isolation that is both more expensive and less secure, or it will be a second-tier member of that market, bound to accept the rules made by EU members but having no influence over how they are agreed.
There could also be an impact on energy bills. I am a bit sceptical about the suspiciously round number of £500m a year claimed by the energy secretary, but the basic premise is sound. Her claim was based on a report, commissioned by National Grid, which found that leaving the EU, and exiting the internal energy market, could cost consumers £500m or more each year. This is the equivalent of £20 per household – or about a third less when business consumption is taken into account.
The arguments against Brexit are confirmed in a survey of industry professionals by the Energy Institute. On eight out of nine issues, from supporting renewable energy to improving energy efficiency – the majority of respondents said leaving the EU but remaining in the single energy market would have a “negative” or “very negative” effect on Britain’s energy system. Supporting innovation and research was the issue for which the most respondents thought Brexit would be detrimental, followed by addressing climate change and sustainability.
Energy Institute president professor Jim Skea said: “An overwhelming majority of contributors to the Barometer foresee negative effects on the UK energy system in the event that the UK were to leave the EU. In terms of securing energy supplies, renewable energy development, climate change and sustainability, and air quality, about four times as many respondents anticipate negative effects.”
There are similar arguments in relation to water, an industry that has benefited from common regulatory standards. Those who support Brexit often point to the constraints of such regulation. This reminds me of the ‘Yes Minister’ sausages episode, when EU regulation demanded that sausages should actually contain some meat! Wastewater regulations that limit the pouring of raw sewage into the sea, ruining our beaches, are a definite plus for me.
The seriousness of water-related problems is recognised in the EU, in a way that simply wasn’t the case before. So is the need for better ways to manage water resources and the water environment. Heavy fines for polluters are supported. These measures and more are made possible by EU water policy. Yes, we could do these things outside the EU, but the fact is we didn’t.
In summary, for Scottish utilities the EU has been largely positive and Brexit could result in lower standards, higher costs and put energy supply at risk. That’s why the industry and those who watch it, support Remain.
Ofgem are in the news this morning, warning energy firms to deliver on the Competition and Markets Authority (CMA) recommendations. If they don’t he warned of very un-Ofgem consequences including price regulation.
The Ofgem boss said: “If the industry doesn’t deliver on the CMA remedies, if it doesn’t get competition back on track, in my view plans to regulate electricity and gas prices more widely may go back on the table. I don’t believe it can be regarded as a regulatory ‘pick and mix’”. It’s time to finalise the details of how best to implement the remedies and make them work.”
The CMA’s recommendations include the creation of a database of disengaged customers and a temporary ‘safeguard tariff’ for customers on pre-payment meters. Some companies have hinted at potential legal action.
Perhaps surprisingly, Labour’s new shadow energy minister could be an ally on safeguarding tariffs. Alan Whitehead argues that vertical integration is a problem and suspects the investigation was hampered by assumptions around switching. That assumption is the basis for the CMA’s headline remedy of a safeguard tariff for customers languishing on expensive variable tariffs. Whitehead argues this has the potential to silo-off customers even further from market participation before attempting to bring them back. His preferred remedy would have been safeguarding through transparency, with clear breakdowns of tariff costs in a manner that would allow customers to make direct comparisons, but such a remedy was discounted by the CMA.
He told Utility Week, “I was rather disappointed that the CMA didn’t look rather more carefully at that, and concluded in the end that basically you just annoy people for three years in terms of possible switching, and then if they still don’t switch, you start metaphorically shouting through the letterbox and banging on the windows, and it still probably wouldn’t work after that point.”
This squabble between Ofgem and the energy companies comes on the back of Ofgem fining Scottish Power £18m for customer service failures. Ofgem, said the firm failed to treat its customers fairly, with inadequate call handling, complaint resolution and billing. More than 300,000 customers across the UK received late bills. The £18m will go to vulnerable customers and charity.
Public confidence in energy suppliers is also falling. The Dept of Energy (DECC) has published its latest annual public attitudes on energy and that shows significant reductions in two key elements of customer service. Half of people do not trust their energy provider to inform them about the best tariff for them, down from 54%. There was also a 3% fall in the number of people who trust their energy provider to give them accurate and impartial advice on energy efficiency measures – dropping to 54%.
It is clear that there is still plenty wrong with the energy market, but still no consensus on how to fix it.