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UK energy policy: Atherton's 10 thoughts after 10 years

28 November 2014 | Mentions of Liberum

Liberum Utilities Analyst Peter Atherton will speak Monday at The Spectator Energy Forum where political leaders, investors, analysts and advisors involved in energy policy and business will meet to explore how to fix Britain’s energy market. Those wishing to attend can click on the image below to book tickets.

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Here's Peter's overview in advance of the event.

IN 2003 the EU, including the UK, decided to lead the world in decarbonising its economy in an attempt to combat climate change. To achieve this, the UK has adopted a radical energy policy that seeks to move from a power system that is today overwhelmingly based on fossil fuels, with some nuclear and a small amount of renewables, to one overwhelmingly based on renewables and nuclear power. 

What’s more this transformation is to be achieved by the year 2030 – a breakneck pace for an industry such as power generation.
The UK’s climate change-focused energy policy has now been in place for over a decade and there are 10 conclusions that can be drawn from the experience.

  1. UK/EU policy makers grossly underestimated the engineering, financial, and economic challenges posed by the drive to de-carbonise the electricity sector by 2030.
  2. Policy makers have failed to take into account the huge changes in the economic, commodity and financial environments since 2003 and adjust policy accordingly.
  3. The policy framework does not, and cannot, take proper account of security of supply and energy affordability.
  4. The gigantic £350bn investment needed by 2030 cannot be financed at a cost that the public is willing to bear.
  5. The policy requires the building of fundamentally uneconomic assets and therefore the government has had to intervene in the market in ever-more aggressive ways. Intervention has begotten intervention.
  6. It is now impossible for any power station to be built unless government underwrites the economics.
  7. The economic case for being in the vanguard of decarbonisation looks very poor and was based on two false premises, namely a) that fossil fuels prices would rise to unaffordable levels, b) being first mover would result in considerable industrial benefits. Both of these assertions have been found to be wrong so far.
  8. The worst effects of the policy lie in the future.
  9. A client state of rent seekers has been created by the over-€50bn per annum of largely renewable subsidy stream across the EU. The lobbying power of the rent seekers greatly outweighs that of the consumer, meaning that necessary policy corrections are not made.
  10. To deal with the affordability issue, either the policy needs to be restructured to lower costs, or the British public need to be convinced this is a price worth paying."

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