Greg Clark: The electricity trilemma is almost over

Business Secretary Greg Clark has today declared that the electricity 'trilemma' - the competing tension between the cost, security and carbon impact of energy - is "coming to an end" thanks to rapid reductions in the cost of clean power.

Clark this afternoon delivered what had been billed as a major speech as part of the government's response to the Cost of Energy Review published last year by Professor Dieter Helm.

Shrugging off on-going Cabinet chaos over Brexit and a shock EU court ruling this morning that forced the government to suspend the Capacity Market, Clark said "cheap power is now green power…The policy dilemma known as the trilemma is coming to an end".

The controversial Helm Review had concluded energy prices were being pushed up by years of government policymaking distorting the market and shackling consumers with hefty legacy costs. It called for a radical simplification of the energy policy landscape to allow market forces to find the most cost-efficient route for delivering decarbonisation.

During his speech Clark broadly welcomed the review's analysis, but stopped short of announcing sweeping reforms to the current energy policy framework.

He did, however, set out a suite of fresh principles to govern his department's approach to the energy sector and announced plans for a new Energy Bill next year. 

Clark said the government's new philosophy includes provisions for businesses to have more control over the market, but, where necessary, for government to be prepared to intervene on issues of insurance and optionality. 

He also announced a series of regulatory reviews to make the market's complex system of rules more "agile", allow new technologies to flourish and drive greater competition across energy networks.

And in a boost to the carbon capture industry, he promised that the UK would develop a new Carbon Capture, Utilisation and Storage (CCUS) strategy to deliver mass deployment of the technology from 2030, dependant on the success of cost reduction efforts.

CCUS is widely seen as crucial for decarbonising heavy industry and enabling negative emissions techologies in order to meet the UK's climate targets. But the sector has been dogged by cost concerns and an inability to secure commercial insurance for long-term operations. It has also been hit hard by previous policy changes, including the Cameron government's controversial decision to axe a £1bn demonstration project. 

Clark also used the speech to confirm the department is looking at alternative nuclear financing options, including the government taking a stake in new nuclear projects.

As it stands the government's plans to develop a fleet of new large-scale nuclear power stations are looking shaky following Toshiba's decision to wind down NuGen, the UK-based nuclear business leading on the Moorside nuclear project.

The speech came as uncertainty continues to engulf the UK energy market. With the threat of a 'no-deal' Brexit looming, large operators are unclear what rules they could be subject to beyond March 2019, including whether the EU Emissions Trading System will continue to apply. Meanwhile, the demise of NuGen has fuelled fears of a major hole in the UK's low-carbon generating capacity for the late 2020s onwards as existing nuclear plants close.

Meanwhile, the surprise suspension of the Capacity Market this morning has sparked fresh fears of a winter demand crisis, at the same time as fuelling hopes that reforms to the market could usher in new opportunities for clean technologies, such as Demand-Side Response services and battery storage systems. 

Clark sought to reassure the audience over today's ECJ ruling, which effectively annuls the UK's State Aid approval for the Capacity Market, citing fears of a potential bias towards fossil fuel generators. 

Clark said the European Commission and UK government are already working together on the ECJ ruling and stressed that National Grid has already confirmed the suspension will not create a risk to the security of the UK's energy supply this winter.

He added that the ECJ ruling dealt with the process rather than the principle of the Capacity Market, suggesting that the mechanism could be up and running again soon. "The implication of that is the capacity markets that we operate will continue," he said.

However, when pressed on whether generators contracted to provide additional capacity this winter would have to do so for free - and whether the government had any contingency plan should such generation not be forthcoming - Clark said his team are still looking at the detail of the ECJ ruling and could not comment further.

In response to the speech Nick Molho, Executive Director at the Aldersgate Group, said Clark's new principles give "a better sense of the government's long-term energy policy direction" but more is needed to boost prospects for green power deployment. "If the UK is to have an affordable and low carbon power system, the government's upcoming policy paper needs to tackle how cheap and mature forms of renewable energy can have a route to market, how interconnection links with the EU will continue to grow after Brexit, what the carbon price trajectory will look like in the 2020s and how large consumers of electricity can be rewarded for providing flexibility services to the grid," he said. 

Dr Nina Skorupska, CEO of the Renewable Energy Association, said she was "reassured" by Clark's decision to deliver his speech despite the other urgent demands on his time. 

"His recognition about the need to move towards a smarter, more decentralised market is key for our members and gives a clear signal of the where we need to move as an industry," she said. 

"The most welcome part of the speech was the end of the trilemma and the unambiguous acknowledgement that renewables are cheap and will bring down consumers bills. We look forward to seeing the white paper and working with government to drive forward deployment of a smarter, cheaper and cleaner energy market."

This story was amended on 15/11/18 to change 'energy trilemma' to 'electricity trilemma'