Bringing Europe's Leaders Together

Energy implications of Brexit

John Roberts writes that more than ever Britain will need a coherent strategy to guarantee its energy security.

Maybe what Britain needs right now is a cold, hard winter. One that creates misery as the power fails and the government suddenly discovers that the cost of importing gas is shooting up because the UK has suddenly turned into a sellers’ market.

But why pitch for chilly homes and frozen railway tracks? It’s not the consumers’ fault if things go wrong, unless, of course, consumers are equated with voters who have voted in successive elections for governments that really never wanted to develop coherent energy security policies for the UK.

It’s a problem that’s exacerbated by the Brexit vote. Britain is a net importer of energy and has largely placed its faith in a curious mix of market forces and government direction to keep the lights on. The market forces particularly relate to gas. Although UK North Sea production looks to be stabilising and should hold steady for the next two or three years, the UK still needs to import close to half of the gas it consumes. And gas-fired plants account for just over half of Britain’s power production.

There’s nothing particularly wrong with a dependence on imported gas – not least since the UK is in a position to secure supplies from a wide variety of producers – but it does mean that the government needs to address the gas problem directly. Does the UK’s ability to access gas from multiple sources mean that it should increase its reliance on gas or does the anticipated longer-term decline of domestic gas production mean that Britain should reduce its reliance in gas-fired generation?

As a trading nation, the former approach should be the one to adopt. Moreover, turning from coal to gas is the quickest way to reduce carbon emissions. Sure, nuclear would eliminate them altogether but how long, oh Lord, how long to our next nuclear plant?

That brings us to the government’s controversial decision on Hinkley Point C, or rather to its two controversial decisions on the project to build two European Pressurized Reactors (EPRs) with a combined capacity of 3,200 MW on the Somerset coast at a construction cost of £18bn and with the UK’s National Audit Office estimating that future top-up payments to the EDF-led development team look set to reach £29.7bn over the length of the contract.

With a cluster of nuclear power plants approaching the end of their life, and with coal-fired power plants quite rightly due to be phased out, there is clearly a need for a proper look at energy policy.

But the government’s current – ostensibly post-Brexit – Energy Bill seems something of a dog’s dinner. For one thing, parliamentary debates in the summer came after the government’s first Hinkley Point C surprise: its decision to order a review of the project, thus casting in doubt a core element of its supposed energy strategy at the very time that it was attempting to argue that its Energy Bill did, indeed, constitute an energy strategy. Then came the second surprise: the government’s 15 September announcement that Hinkley Point C should proceed. Yet Hinkley will continue to generate controversy for many a year in view of its reliance on untried technology, on Chinese investment (an issue with potential cyber security implications), and over concerns that it will divert cash from new forms of renewables such as tidal power.

In addition, there is the great post-Brexit question: Will the UK’s de facto 20% devaluation impact on either or both of the costs and profits of this very expensive project?

More than ever, Britain is a country that favours saving pennies over investing pounds. Energy efficiency, for all the lip service paid by government, is no longer in fashion. Likewise the Energy Bill calls for closing the obligation to subsidise renewables, notably wind energy, a year earlier that previously planned, potentially saving the government a potential £1.1bn. But what is required is not a blanket end to subsidies, but the ability to develop a system that ensures a predictable and sustainable stream of subsidies that can be directed to whichever technology currently shows the most cost-effective way of contributing both to power production and to the reduction of carbon emissions.

We don’t know, of course whether we will have a really bad winter this year, next year or at any point between now and the coming on line of Hinkley Point C. But as the former Scottish Secretary Helen Liddell, now Baroness Liddell of Coatdyke told the Lords in July: “There are real concerns about security of supply. A major outage in the United Kingdom could put us in an extremely perilous position and that is a strategic issue. The last thing we need at the moment is uncertainty around energy investment.”

We do have certainty regarding investment in Hinkley Point C. The question is whether that is the right kind of certainty given the UK’s somewhat uncertain overall energy situation.

John Roberts is a senior partner at Methinks Ltd, a consultancy specialising on energy, economic development and politics. He has lectured widely on a variety of energy topics, including Bosporus bypasses, boundary disputes in the Caspian Sea and the development of Arctic oil and gas. His books include Caspian Pipelines (1996) and Visions & Mirages: The Middle East in a New Era (1995).

Published in October 2016