Dieter Helm: EMR will need full review to address issues
The Government's Energy Market Reform (EMR) is supposed to "solve our energy problems" but is it a solution for the next 25 years and is it going to make sure that we achieve our low-carbon transition, keep the lights on and ensure prices are affordable? Leigh Stringer talks to professor of energy policy at Oxford University Dieter Helm
According to Helm, the EMR is "probably not going to achieve any of these things". He projects that the Government will do little before the general election "but after the general election we'll need a full energy review to sort the problems out".
The much anticipated EMR, which includes the Energy Bill, has received a barrage of criticism. UK businesses recently said that they are "confused by the complex nature" of the EMR and are concerned about the impact on competitiveness.
Meanwhile, campaign groups have warned that the EMR delivery plan lack's "a clear picture" for investors beyond 2020.
Speaking to edie yesterday at The Energy Event, which runs alongside RWM, The Renewables Event and The Water Event in Birmingham, Helm's latest opinion on the Government's reforms will hit a sore point amongst DECC ministers, particularly the Secretary of State who has lauded the delivery plan, claiming it will "provide investors with further certainty of Government's intent, so that they can get on and make crucial investment decisions that are supporting green jobs and growth".
It is estimated that due to plant closures and the need to replace and upgrade the UK's electricity infrastructure, over the next decade the UK electricity sector will need around £110bn of capital investment.
The UK needs to reform the electricity market to attract the investment needed to replace Britain's "ageing energy infrastructure" and meet the projected future increases in electricity demand from the electrification of sectors such as transport and heat.
In response to this, the Government's EMR is its "initiative to make sure the UK remains a leading destination for investment in low-carbon electricity".
Helm is less convinced. According to projections from the National Grid and Ofgem the margins of capacity for electricity are going to become extremely tight.
And Helm believes it could in fact be even tighter than what is being predicted. "Demand may turn out to be considerably higher than they have anticipated and on the supply side nobody can build anything between now and 2015.
"If you look at the 2015/16 period all the possible shots are asymmetric. Demand will probably be higher, with economic growth picking up quite quickly now, and supply will probably be lower. The Ofgem figures are showing that the margin could be as low as 2% on those demand forecasts and on those supply forecasts".
Helm says these predictions will cause concern amongst the public about whether the lights will stay on but he warns that the problem is actually what happens before the lights go out.
"What happens when supply and demand come closely together is prices go up - they go up and they're volatile and that is the real cost of where we've got to. And this will trigger a rethink".
"How could a major industrialised economy, which has suffered an enormous fall off of demand as a result of the recession, get itself in a position where it has high and volatile fuel prices and at the same time isn't delivering on current renewables. The coal burn has gone up, the carbon emissions are no longer falling and so you have this outcome where supply is less secure, prices are higher and more volatile and carbon is higher rather than lower," says Helm.
Helm does agree with Davey, however, that gas must play a part in the UK's low-carbon transition but is adamant that fracking will not be the saviour to the rocketing energy prices.
"If people think that the reason we should do shale gas in the UK is because the gas price in Britain will be lower than it otherwise would have been in terms of level then that's an illusion. But what is true, is our balance of payments will be very different, our security will go up and from that follows the scenario where we would not have to experience the kind of volatility that we're currently experiencing," he added.
Leigh Stringer is edie energy and sustainability editor