Investing in the UK’s energy generation infrastructure is a confirmed priority for the coalition government. Antony Oliver talks to energy minister Charles Hendry about his plans to turn rhetoric into reality.
Last week saw the launch of the new Green Deal as the centrepiece for the government’s proposed Energy Security and Green Economy Bill expected in December to boost energy efficiency and the move towards a low carbon economy.
Energy minister Charles Hendry reckons that alongside this legislation, the policies planned for UK energy generation, and which will be rolled out this Autumn, will prompt “the biggest change in the market in a generation”.
Consultation on reform of the electricity generation and distribution markets is about to start with the results feeding into a new White Paper setting out the reforms in the spring. Similarly consultation is planned on reform of the gas market.
Meanwhile, the Treasury is consulting on what is the appropriate floor price for carbon, again with results feeding into potential legislation in 2011.
The fundamental aim of all this activity, he explains, is to establish “how we find other ways to incentivise investment so all developers of low carbon technologies understand how they will get a return on their investment”.
And it is this pressing need to come up with better and more attractive ways to help the private sector drive forward the UK’s long under-invested energy market in an era of public sector austerity that is really getting Hendry excited right now.
“We need £200bn of new investment and [private sector investors] need to be certain that they will get a return on their investment,” he says. “Investors need to know the level of return that they are going to get so we are looking at ways to provide people with greater security of the income that they will receive. We have to make a stronger case to investors.”
Hendry is clear about the need to kick start the huge task of rebuilding the nation’s ageing energy infrastructure.
Compared to France and Germany, the UK’s generating infrastructure is significantly older and with so many coal and nuclear power stations scheduled to be decommissioned over the next decade, our energy security is under threat.
However, he also points out that one benefit of the economic downturn has been to reduce demand, thereby reducing the risk of the nation’s lights going out. Yet there remains a significant gap to be filled before the promised investment in new nuclear or coal with carbon capture and storage (CCS) comes on line.
“Probably we think that there is a greater role for gas than the previous government had accepted,” he says, raising the spectre of yet another short-term, “dash-for-gas”.
“We want to see more local say in decision making about how local areas develop, but also see real financial benefits coming to areas that allow development”
“We are going to have much more emphasis on what actually drives investment,” he adds. “If you look at the areas of potential investment coming through we see a mixture of technologies. Nuclear, coal with carbon capture, a big roll out of renewables and gas, we think, will have a role to play going forward.”
Last week’s announcement of the Green Deal to help to kick start a nationwide programme of energy efficiency and insulation improvements is a key step in the future energy policy, he says, as the reality is that in future UK electricity prices will have to rise to pay for infrastructure investment and the higher cost of carbon.
The critical factor, he says, will be to help consumers reduce radically the amount of electricity they consume and so cope with a future of higher unit prices.
“We have to have an honest debate with consumers and say that if we don’t rebuild our energy infrastructure then we do face an energy crisis,” he says.
“We are moving into a world where we are increasingly dependent on imported sources of energy.”
Investment in a range of technologies - including new nuclear, coal with carbon capture, renewables and gas - will, he says, provide the nation with capacity and a more secure energy balance.
And of course, as the UK moves towards a low carbon economy, it is likely that electricity demand will rise through increased use of electric heating and electric vehicles.
The challenge and opportunity facing civil engineers, he explains, is not just to replace existing capacity but also build new energy plants.
The recent Comprehensive Spending Review highlighted the government’s commitment to renewable energy with £200M earmarked for offshore wind development.
Of this, £60M is specifically targeted at port improvement to ensure that the industry has the required on-shore facilities to support offshore development.
There was also a £1bn commitment to the Green Infrastructure Bank, which should go some way to helping the UK to meet its very challenging targets to generate 15% of energy from renewable sources by 2020.
Yet for all the financial incentives, Hendry is also aware of the need to tackle, simplify and streamline the UK’s planning regime - the number one issue affecting any new energy development proposed by an investor.
“An awful lot of the big renewable projects are getting stuck in planning,” he explains.
“We are looking at a whole range of ideas to deal with [bringing forward renewables]. On the local planning side for smaller developments it’s about how you get a relationship between the wind farm and the local host community so that you actually get people locally saying ‘looking at the benefits I am happy to have it’”.
The government remains committed to dismantling the Labour-inspired Infrastructure Planning Commission and replacing it with a new system, still based around the use of National Policy Statements, but with ministers making the final decisions on major schemes.
“We want to see more local say in decision making about how local areas develop but also see real financial benefits coming to areas that allow development to take place,” he explains, pointing out that for smaller energy schemes below 50MW the decision will still be a local one.
“But the larger scale developments still need to be done strategically - hence the need for National Policy Statements - and those decisions will come to ministers because we believe that provides a greater degree
of democratic accountability,” he adds.
“We have got to have a process that is holistic - so that local communities really see what the benefits will be.”
Of course, bringing forward private investment in new nuclear is also a key part of the coalition’s energy strategy and an area that Hendry maintains is very much on track and still set to be delivered without public subsidy.
October’s announcement by the government to cap the private sector liability for nuclear waste and decommissioning costs was, he says, simply a mechanism to give investors absolute clarity around the level of their future liabilities rather than any back-door subsidy by government.
“We have a huge responsibility for the legacy waste and those are costs that will naturally and appropriately fall to the government,” he explains referring to the ongoing plans for deep geological disposal.
“But any new waste that is created - the spent fuel - the companies responsible must pay their additional cost. We look at what we think it will cost, add a multiple factor … that makes us comfortable that the taxpayer won’t end up subsidising.”
Hendry is also very clear that the days of bespoke and expensive nuclear power station designs are over. The future will be about building a number of a single design type with the economies of scale reaped in construction, operation and maintenance.
“We have to have an honest debate with consumers and say the if we don’t rebuild our energy infrastructure then we do face an energy crisis”
Alongside nuclear, Hendry insists that coal will continue to play a huge role in energy generation worldwide and so carbon capture and storage technology will have a massive global part to play.
The £1bn investment to bring forward this technology announced in the spending review will, he says, help the UK be the lead player in its development.
“We think that we are in a unique position to lead the world,” he says highlighting the fact that the plan is to have four plants by 2020. “We have got fantastic sequestration sites in the North Sea and the skills of people used to working on those conditions.”
Similarly, Hendry believes there is a massive opportunity for the UK to be a world beating developer of renewable energy, not least given the geography of the UK and its successful history of marine activities.
“We have 40% of Europe’s wind, often in some of the most inaccessible regions and we have some of the highest tidal reaches in the world and 11,000km of coast line,” he explains.
“There is a whole range of areas where we have an opportunity to lead and what we are doing is putting in place the mechanisms to attract that investment in.
“We ought to be developing these technologies here.”
Now: Energy minister
Before General Election: shadow energy, industry and postal affairs minister
2003-05 Deputy Conservative Party chairman
2002-05 Shadow Minister for Young People
2005 Shadow Minister for Industry and Enterprise
1992-97 MP for High Peak
1995-97 Conservative Party vice chairman
1992-96 Chairman, All-Party Parliamentary Group on Homelessness
Hendry has also worked in public relations for Ogilvy & Mather
and Burson Marseller. He also founded the Agenda Group, which advises chairmen and chief executives about how to get involved in corporate networking. Hendry’s political interests include trade and industry, youth policy, rural affairs and agriculture. He is also a patron of the UK Youth Parliament which aims to involve young people in the political process from an early age. In addition, Hendry is a patron of the Big Issue Foundation, which helps homeless people.