The IoD's View

Cost and competitiveness should be at the heart of the UK’s energy policy, in addition to the objectives of seeking security of energy supply and pursuing a low carbon economy. Decisions about the UK’s future energy mix must be taken – and implemented - as a matter of urgency in order to give the maximum flexibility over future energy supplies. This requires a balanced energy policy that leaves room for a range of energy sources – including both new nuclear and renewables - based on what the market can deliver.

Key Points

• The vital energy decisions facing the country have been put off for too long, and it is essential that a comprehensive policy for the UK's future energy mix is put in place as quickly as possible. Continued delay will put at risk the key objectives of government and business in the areas of competitiveness of energy costs, security of energy supply, and the impact on climate change.
  
  
• The IoD supports the future expansion of both nuclear and renewables capacity, based on their complementarity in electricity generation. Nuclear is primarily a base-load supplier (ie. it is economic to use it to generate fixed volumes of electricity, and not for marginal fluctuations in output that are required to meet peak variations in demand) whereas renewables, such as wind, cannot be relied upon for base-load supply because of the intermittent nature of its supply. In a carbon-constrained world, the virtually carbon-free emissions of nuclear and renewables are crucial to the energy debate.
  
  
• Nuclear power generation ticks all the right boxes – competitiveness, energy security and climate change – and should therefore be included as an option for investment by energy companies. Nuclear generating costs appear to be competitive with other forms of generation, especially if its emissions-free nature is recognised through the rational pricing of carbon. Failure to allow investment in new nuclear power stations will make it more difficult and more costly to achieve the Government’s climate change and energy security goals.
  
  
• The IoD supports the increasing use of renewable energy sources, but not at the expense of cost. It is sensible to give financial support to the development of renewable power and to kick-start technologies in new areas of research and development. But continued reliance on the Renewables Obligation (RO) provides a subsidy to electricity generation using relatively high-cost sources of energy. Long term decisions on renewable energy must not become detached from cost and competitiveness.
  
  
• The Government should be realistic about the extent to which renewable energy can meet the UK’s energy needs. Current renewables targets (to increase renewables’ share of electricity generation from 4% in 2006 to 20% by 2020) look unlikely to be met, and this should not be allowed to divert ever increasing support to expensive renewable energy in an attempt to achieve unattainable targets.
  
  
• a market-led approach to energy policy, including the construction of new nuclear plants, is best. But government has a role to play in removing some of the obstacles to private sector investment - by implementing proposed reforms to the planning system, by providing a solution to funding nuclear decommissioning and waste disposal costs, and by putting nuclear and other low-carbon technologies on an equal footing with renewables.
  
  
• Despite the fact that production has now passed its peak, the indigenous UK oil and gas industry should not be regarded as a declining industry of relatively little economic worth. The North Sea will be an important supplier of the UK’s energy needs for several decades to come, and its output will be crucial in alleviating concerns about security of supply during the next two decades. The North Sea should not therefore be treated as a cash cow for the Treasury. The broader contribution of the oil and gas sector to the economy should also be recognised. The experience gained in the relatively hostile North Sea conditions allows companies to maintain a wide range of international activities from their UK bases, contributing to the economy through corporate R&D, headquarters activities, etc.
  
  
• Improving energy efficiency should be in everybody's interests, and should therefore require minimal intervention from government. Government's main role should be to provide information, both about trends in energy efficiency and advice on good practice. There should be minimal need for a regulatory approach, except where the market does not appear to be functioning properly.

Q & a

Q. What happens to UK energy supply if the take-up of new nuclear investment is low and renewables fail to meet government targets?

a. Good question. The Government does not seem to have a 'Plan B'. It is far from clear that private investors will be persuaded to invest in nuclear power stations in view of the huge risks and uncertainties involved. and targets for renewables look optimistic. he UK may then be forced to fall back on greater reliance on either burning fossil fuels or importing energy from unstable regions of the world. So there must be a fair probability that the Government will fail to meet at least one of its targets for competitiveness, climate change, and security of supply - and possibly all three.