Electricity and the UK’s “Industrial Strategy”

The UK Government has today released its much trailed Green Paper, a consultation document, on Building our Industrial Strategy. No substantial revisions to the UK’s energy and climate policies are proposed. The continuing downward trend in UK electricity consumption suggests that this may be a mistake and a missed opportunityIn its Green Paper, Building our Industrial Strategy, government proposes ten areas of focused action, referred to as the “pillars” of the strategy: 1. Investing in science, research and innovation, 2. Developing skills, 3. Upgrading infrastructure, 4. Supporting businesses to start and grow, 5. Improving procurement, 6. Encouraging trade and inward investment, 7. Delivering affordable energy and clean growth, 8. Cultivating world-leading sectors, 9. Driving growth across the whole country, 10. Creating the right institutions to bring together sectors and places.It goes without saying that all of these areas are in one way or another relevant to the energy sector, a fact which makes the unexciting seventh pillar, “delivering affordable energy and clean growth”, and its still limper gloss (“we need to keep costs down for businesses, and secure the economic benefits of the transition to a low-carbon economy”) all the more disappointing.Indeed, there is nothing close to an admission in this document that the electricity sector in the UK is in poor health or that government policies are to any degree positively responsible for this malaise. In fact, and rather strikingly, the Green Paper explicitly blames the uncomfortably tight capacity margins on “the lack of a long-term energy strategy over previous decades”. That is simply incorrect. Far from being the result of a strategy vacuum, the lack of firm generation capacity is one undersirable product amongst many of a very detailed but mistaken energy strategy. That failed strategy was for rapid decarbonisation grounded in the broadscale adoption of renewables against the cost gradient, ahead of the learning curve and without sufficient recognition of the consequent market distortions destroying investment signals for the still indispensable conventional generation, such as gas turbines and nuclear, required to guarantee security supply.On these topics the Industrial Strategy has nothing to say, except to give numerous indications that very little will actually change. Yes, Sir Mark Walport will be advising government on whether to create a new Institute to concentrate research on energy storage and grid technologies (one assumes he will endorse the idea); yes, the document contains a veiled threat, harking back to Amber Rudd’s “reset speech” of November 2015, that the renewables industry will have to do without subsidy (though only at some unspecificed time in the future), yes, the need for “affordable” energy is repeated frequently and government is promising a new “roadmap to minimise business energy costs” (how this can be done without transferring the cost to domestic consumers remains to be seen). But behind all these details and offsetting any degree of originality they may contain, which is not great, lies the continued commitment to the Climate Change Act:

On climate change, the settled policy position is reflected in the Government’s commitment to meeting its legally-binding targets under the Climate Change Act. How we will continue to meet our legal obligations will be set out, as required, in the forthcoming Emissions Reduction Plan and we have an exemplary record of meeting our obligations.

Perhaps this promised “Emissions Reduction Plan” will contain the detailed energy policy reforms so obviously lacking in the Green Paper, but the strangely masochistic tone of the final boast does not give ground for hope. However, if the Prime Minister really wishes to see “a stronger economy and a fairer society” such reforms are indispensable.There are, after all, good reasons for thinking that in a vigorous economy consumption of electricity, at least, and probably energy over all, will rise. Electricity is far and away the most flexible and effective energy carrier available, and further electrification of processes and activities is almost certainly an improvement and a step towards greater productivity in the system. However, the general trend of consumption in the UK, since 2005, has been for de-electrification, with consumption falling across all sectors not just industry, now standing at levels last seen in early 1990s. 

Figure 1. UK Final Electricity Consumption (TWh) 1986 to 2015. Source: Drawn from data in Digest of United Kingdom Energy Statistics, Table 5.1.2.Some will argue that these declines are the result of efficiency measures leading to conservation. However, the, timing, the scale and the pace of the fall suggests that this may not be a sufficient explanation, and that there is a deeper current manifesting itself in these data points, a current that cannot be reversed by well-intended government enthusiasm for EVs, however desirable electrification in that area might be. If the electricity sector itself is highly productive and the electricity it generates is very cheap, electrification of all processes will be spontaneous. As it stands, the government’s strangely timid and yet deeply illiberal Industrial Strategy is set to inhibit exactly those positive developments that it claims to desire.