An unexpected victory has delivered David Cameron a second term as Prime Minister and the first majority Conservative government for nearly 20 years. What are the implications for UK energy policy?
No New Energy and Climate Targets
The Conservative Party has specifically pledged that they will not support any “additional distorting and expensive power targets,” which effectively rules out bringing in any new CO2 targets. Both Labour and the Liberal Democrats were committed to a 2030 power decarbonisation target, which would have set a target of 50-100g of CO2 per kWh and added additional costs to consumer bills.
Shale Gas Northern Powerhouse Strategy
The Tories view shale gas development as a key plank of their “Northern Powerhouse” plan, proposing the creation of a north of England sovereign wealth fund from the proceeds of shale gas.
No New Borrowing Powers for Green Investment Bank
The Labour, Liberal Democrat and SNP political parties were all committed to increasing borrowing powers for the Green Investment Bank (GIB). This would have been in addition to the £3bn of Government money that has already been allocated to the GIB. The Conservative Party made no such pledge in their manifesto.
No to Energy Market Intervention Proposals
The Labour Party was committed to a series of interventions in the energy market, including the imposition of an energy price cap and the forced separation of the Big Six’s generation and supply businesses. Again, the Conservative Party made no such commitments in their manifesto.
No More Subsidies for Onshore Wind Industry
The Conservatives are committed to eliminating subsidy payments for newly constructed onshore wind farms, whereas the Liberal Democrats and SNP specifically pledged to promote this form of renewable energy.
Key Upcoming Issues
Shale Gas Development
Although the Government is committed to promoting shale gas exploration, there are still a number of issues that remain. This includes the issue of excessive delays occurring in the granting of planning permission by local councils, which is of particular concern in the Lancashire County Council area that covers the Bowland shale.
Energy Capacity Crisis
National Grid has highlighted that the UK’s energy supply will continue to deteriorate until 2015/16, where capacity margins could fall to as low as 2% this winter. A series of conventional and nuclear power plant closures have been a major contributor to this crisis, and the further postponement of plans for nuclear development at Hinkley Point is likely to further exacerbate this issue.
Global Climate Summit – Paris 2015
In December, the United Nations will seek an international agreement on global CO2 emissions at the Paris Summit. However, it is likely that the agreement will be based on voluntary pledges that are not legally binding, which would lead to the UK’s post-2020 unilateral climate targets under the 2008 Climate Change Act becoming unsustainable. Furthermore, there has already been a delay in the distribution of contributions to the UN’s Green Climate Fund. This has resulted from the US, Japan, Canada and Australia failing to meet the deadline for ‘fully executed contribution agreements’.
Commitment to Expensive Renewable Projects
The Conservatives’ commitment to remove subsidies for new onshore wind farms could lead to investment in much more expensive alternatives such as tidal power. It is estimated, for example, that a tidal Lagoon project at Swansea Bay could cost consumers over three times the level of wholesale prices on a 35 year contract.
Renewable Energy Subsidies
The Levy Control Framework sets out limits for renewable energy subsidies to 2020/21, where they are set to reach £7.6 billion (2011-12 prices). There are concerns that, as a result of an unexpected fall in wholesale electricity prices, these subsidy limits may be breached at some point during this parliament. Over the next few years, the Government will also have to make a decision on the pathway of renewable energy subsidies over the 2020s.
North Sea Oil and Gas
The North Sea oil and gas industry faces the inevitability of downsizing. The industry is struggling to compete in an economic environment where oil and gas prices have collapsed. Oil and gas production has fallen to less than a third of its 1999 high and traditional producers are rushing for the exit.