From disruptors to Hinkley: 7 things we've learnt about Greg Clark's industrial strategy
As Business and Energy Secretary Greg Clark fielded questions from the Business, Energy & Industrial Strategy (BEIS) Committee, edie round-ups seven key talking points that look set to form integral roles in the highly-anticipated industrial strategy.
With 2016 meandering to a close, Greg Clark was welcomed by the BEIS Committee on Wednesday (14 December) to reflect on the new department’s first few months of action and highlight what the UK would need to do to create a “prosperous” industrial strategy post-Brexit.
The sudden abolishment of the Department of Energy & Climate Change (DECC) in mid-July was met with concerns from the green economy that climate change was “slipping down the agenda” as a new-look Government attempted to wrestle with the uncertainty of Brexit.
But with Clark at the helm, BEIS has moved quickly to lay the foundations of the UK’s low-carbon agenda moving forward. The approval of the fifth carbon budget, which sets a 57% emissions reduction target between 2028 and 2032, and the recent ratification of the Paris Agreement both serve as examples of how Clark and BEIS are pushing the low-carbon agenda.
With energy now aligned alongside business in the Department, much of the private and public sector are waiting to see if and how BEIS is able to integrate low-carbon prosperity into business models as part of the industrial strategy.
For those tired of waiting, Clark had some good news to give during the Committee meeting. The Business Secretary revealed that the Government would be outlining proposals and policies for the strategy “in the next few weeks”, but stated he would wait “as long as it takes” to review responses to these proposals in order to hear the opinions of the private sector.
“I won’t unveil something to an unsuspecting world,” Clark said. “It won’t be something which has been pre-cooked by the Government. In the next few weeks I’ll publish a paper which proposes various policies and components and to set them out and then have a period of consultation to whether this is the right approach. I won’t create a strategy that picks half a dozen sectors and puts them up in lights and the changes will cover a lot of different sectors."
“I’ll be having roundtable discussions in all parts of the country. [We’ll wait] a few months, as long as it takes, before we’ll produce a response, maybe in the form of a whitepaper, later in the year. People will know what to expect for the long-term.”
.@gregclarkmp: consultation paper on the industrial strategy to be published in a few weeks; to be followed by a white paper later next year— Research Fortnight (@ResFortnight) December 14, 2016
But, with proposals for the industrial strategy set to be released in the early months of 2017, what can businesses expect? What areas will form the cornerstones of this new strategy? And what low-carbon technologies will BEIS champion to ensure the strategy is aligned with national and international climate commitments?
To answer these questions, edie has pulled-out seven key topics that Clark honed-in on during the Committee meeting, and how BEIS hopes to place them at the heart of the industrial strategy.
1) Dawn of the Disruptors
Clark has previously claimed that Britain's industrial strategy needs an upgrade fit for the future. The rise in technology and growth in new business models such as the circular economy has placed external pressures on companies. New disruptors are finding their feet in the market and the companies are now being faced with the choice, in the words of Forum for the Future founder-director Jonathon Porritt, of “disrupt or die”.
Eager to seize the economic opportunities tied to these new companies and business models, Clark claimed that the UK would welcome disruptive companies who could enter into markets and ensure that UK businesses didn’t stand still during a time of transformation.
"We need to insure that we are the best place in the world for the disruptors, and that we are a competitive jurisdiction that is not just about protecting incumbents," Clark said. "We can’t put barriers in the way of growing businesses and need to provide ways that challenge incumbents and get the regulatory regime right."
“Disruptors should look at Britain as a pretty good place to locate. We can’t stand still. There are important regulatory aspects to consider such as the competition environment, quality of the environment for start-ups entering the market and giving growing businesses the access to financial means to move from one step to another to challenge some of the incumbents with deep pockets."
In 2015, peer-to-peer delivery service Nimber entered into the UK market. A little over a year later, the presence of this new business model has seen incumbents Amazon and Sainsbury’s forge new path to optimise logistics and deliveries. If Clark is embracing disruptors with open arms, history suggests that businesses will have to adapt.
2) Nissan in pole position for post-Brexit competition
One sector that is already feeling the impact of disruption is transport. The introduction of Tesla has inadvertently seen Japanese carmaker Nissan turn to electric vehicles, and more recently battery storage, as a new key area for sales.
Nissan’s biggest European manufacturing plant – which is also solar-powered - is located in Sunderland, and the firm recently received assurances from Clark about the UK’s trade and working environments post-Brexit.
A confidential letter was sent to Nissan from Clark, and resulted in the company agreeing to build two new car models in the Sunderland facility, potentially protecting around 7,000 jobs. Clark came under scrutiny, and an enquiry from the European Commission, over the letter but has finally shed some light on the details.
Clark confirmed that the letter contained “information that could be beneficial for [Nissan’s] competitors” and that, as part of the Brexit negotiations, the UK would look to secure the continued, tariff-free, access to the single market to “avoid the bureaucratic impediments that will disrupt trade”. Clark also claimed that he might publish the Nissan assurances once they were no longer commercially private.
.@gregclarkmp says he made it clear to Nissan the government would be seeking tariff-free access to the single market post-Brexit.— Richard Moss (@BBCRichardMoss) December 14, 2016
Clark claimed that BEIS would act as “activists” that would talk to all business that want to invest in the UK. The fact that Jaguar Land Rover (JLR) wants to create 10,000 new jobs in the Midlands in order to catalyse battery and research and development (R&D) production suggests that the role of activist is already bearing fruit.
3) Research and Development primed for ‘big upgrade’
JLR has voiced its willingness to boosts R&D in the UK, but Clark still feels that there is a “productivity gap” in regards to the commercialisation of ideas stemming from universities and research institutions.
As part of the Autumn Statement, the Government confirmed that the National Productivity Investment Fund (NPIF) would provide an additional £4.7bn by 2020-21 in R&D funding. This extra £2bn a year by the end of this Parliament is an increase of around 20% to total Government R&D spending, and more than any increase in any Parliament since 1979.
However, Clark still feels that the UK is good at producing ideas, but still lags behind other European countries in regards to commercialising them. To tackle this dilemma the Business Secretary claimed that a “big upgrade on education and skills” is essential.
Greg Clark on industrial strategy at BEIS committee: if UK to succeed industrially, socially, needs 'big upgrade on education and skills'.— John Morgan (@JMorganTHE) December 14, 2016
“One area where I think we could do better is the commercialisation of researchers with brilliant ideas from universities and other research institutions,” Clark said. “We’re very good at producing ideas, but other countries tend to be better at commercialising them. We want to develop the right regime with universities for the translation of intellectual property into industrial practice. R&D is an area where other countries are investing more and we need to commit and react."
4) Decarbonisation of heat and transport needs accelerating
Clark spent some time at the Committee meeting reflecting on the UK’s “pretty good” energy record, which saw more than half of the UK’s electricity sourced from low-carbon generators for the first time in 2016.
With issues over fracking still up in the air, Clark revealed that the industrial strategy would have to look at the “long-term context” of the UK’s energy mix in a way which could withstand numerous Government and policy cycles.
Two areas that Clark was keen to improve were heat and transport. The UK is not even halfway towards achieving the target of 12% of energy needs for heat generation coming from renewable sources, while the proportion of renewable energy used in transport has fallen, from 4.9% to 4.2% over the past year.
“A lot of progress has been made on power generation and we’ve exceeded our requirements so far. The progress that we’ve made with energy generation needs to be made in other sectors,” Clark said. “Our commitments on clean energy are very important. They are there, we will meet them and we will launch the Emissions Reduction Plan early next year to give us a chance to look at the longer- term context.”
The permanent secretary for the Department for Business, Energy and Industrial Strategy (BEIS) Alex Chisholm expects an emissions reduction plan to be published by the end of February 2017.
5) Hinkley will be monitored closely
Much of the UK’s low-carbon generation, more than half in fact, has derived from nuclear sources. The approval of the Hinkley Point C nuclear plant in Summerset has proved that nuclear will play a big part in the UK’s energy mix, despite concerns from green groups.
The £18bn cost issue aside, Clark claimed that EDF, the company constructing the project, should seek him out if they had any Brexit issues in a similar vein to Nissan’s worries. The construction of Hinkley Point C will create an estimated 25,000 jobs, with completion scheduled for 2025. It will provide 7% of Britain’s electricity, enough power for six million homes, for almost 60 years. With an agreed strike price of £92.50/MWh, the 3.2GW facility has a 35-year tariff that could see costs spiral to £82bn if not monitored carefully.
“What I would say to EDF, if they tell me what their priorities are in terms of what we should get out of Brexit, they should know they can talk to someone who will listen and we’ll reflect that in our talks with the cabinet committee,” Clark said.
6) Potential subsidy tweak for wind energy
In March this year, the Government confirmed that £730m will be dedicated to the next wave of Contracts for Difference (CfD) auctions for offshore wind and "other less-established technologies" - double the amount put into the first CfD auction.
Currently, all 39 CfD renewable projects in the UK have past their delivery milestone requirements as part of the second round of CfD funding. But onshore wind was pulled from subsidies so that it could “stand on its own two feet” and as a result, more than half of the major sources of project finance for renewable energy developers say they will not lend to onshore wind projects in the UK.
Despite the lack of investor confidence, Clark announced that there were no plans to subsidise onshore wind in the future. However, Clark revealed that BEIS is still reviewing whether Remote Island Wind projects – which could add £725m to the Scottish economy alone – should be treated differently to traditional onshore wind projects.
A consultation is running until January to gather views and information on whether Island wind projects – which are currently ineligible for CfD support – would benefit from being included in future auctions. Clarke claimed that his department would be visiting the relevant Isles, but claimed he would hold-fire on a CfD decision until he was “personally informed”.
7) Door still open for CCS
The decision to axe the £1bn fund to commercialise carbon capture & storage (CCS) in the UK was one of the key talking points of 2015. The National Audit Office (NAO) has since warned that the cancelation could cost the UK an additional £30bn to meet its 2050 carbon targets, and is also likely to delay deployment of the technology until 2030.
When quizzed on whether the re-introduction of the CCS competition could form part of the industrial strategy, Clark suggested that the technology was “unlikely to deliver the value for money required”, although £11m has been spent on CCS projects and research since the cancelation in November 2015.
“The particular cancelations were because value for money wasn’t right at the time, but I’ve always been interested in the technological aspects of CCS, but the particular proposal seems unlikely to deliver the value for money required,” Clark said. “But it is by no means closing the door to CCS and I think any proposals that can offer value for money will be important.”