1 October 2018

Will Chequers leave us short of power?

By Tony Lodge

Few areas of policy surrender better exemplify the failure of the Government’s Chequers proposal than its plan to keep the UK tied to EU energy rules after Brexit.

Though it has received little attention amongst the sound and fury of the wider debate, the Chequers plan to maintain “continued and broad co-operation on energy” with the bloc should concern those who hoped to see the UK deliver more secure and cheaper energy in the future. The proposals as they stand are dangerous, unaccountable, expensive and risk undermining the security of Britain’s supply after Brexit.

First, it is important to detail the damage which bad EU policy has already inflicted on the UK’s energy infrastructure, aided throughout by a subservient Whitehall, and why it is so vitally important that Ministers and Parliament regain full control and accountability.
Since 2000, EU diktat has forced the UK to close more than 15 large power stations and build thousands of wind turbines and solar panels. Though many of the older and polluting power plants would have closed over time regardless, this should have been done when the market was ready to replace their contribution.

The dash for renewables has led to reduced Whitehall budgets, rising consumer bills and the absurdity of the grid struggling to cope with long bouts of wind-free days. During the recent heatwave – with its high-pressure windless conditions — electricity generated from wind was 30 per cent lower than the same period last year.

Perhaps renewables are important for the future, but they should be proportionate to a balanced energy portfolio in the national interest. It was gas-fired plants and ageing nuclear reactors which met the soaring demand.

Remaining aligned with EU energy policy, as set out in Chequers, will entail a series of important concessions and cross-Channel supply commitments which will primarily benefit the European market and generators.

These include proposals from the European Commission for the mandatory sharing of gas supplies. This could lead to gas rationing in the UK following a severe weather front in Europe alongside a gas supply crisis. The drive for more interconnection on gas and electricity is a leading pillar in the EU’s new “Energy Union” proposals. New renewable energy targets for 2030 are also being finalised on top of those which we have wrestled with for years — and accepted — at a huge cost to British consumers and energy-intensive industry.

The closure of old coal, oil and nuclear power stations left a gaping hole which has been increasingly filled by new undersea cables, known as interconnectors, to import more and more EU electricity; nearly 8 per cent of UK electricity this year and growing.

Two weeks ago at Prime Minister’s Questions, Theresa May pledged to ensure “that we see an increase in the number of interconnectors with Europe”. This is the wrong policy in the current context. The priority must be to build more firm generation here in the UK to better prepare the country for future international shocks, interruptions and price rises, and only then think of trading from a position of strength.

The Government’s support for the EU’s interconnection strategy is flawed because older fossil fuel and nuclear power plants across Europe are closing. This means that the spare electricity generation margins in these countries is falling and the excess electricity which will be available to supply the UK becomes limited and, in some cases, non-existent. Consequently, as margins get thinner and supplies more scarce, prices will rise.

More interconnection is the wrong strategy for post-Brexit Britain – new power plants at home, embracing smart technology, renewable storage and digitisation must be the new priorities. This will strengthen the UK’s status and record as having grown low carbon power while slashing carbon emissions faster than any other member state has in the last 20 years.

Britain will need to become more competitive after Brexit and lower energy costs will be a crucial part of that. Over the last six years, EU manufacturing has seen the highest increases in energy costs relative to those of the US, China and Japan. End user gas prices are now nearly twice as high in the UK than in the US. The European Commission accepts that medium-sized companies in the EU pay about 20 per cent more for their electricity than companies in China and about 65 per cent more than companies in India.

The legacy of the EU’s energy policies and regulations is one of lost jobs and lost sectors. The Commission has admitted that their policies have led to “carbon leakage”, which is when firms leave Europe, relocate and continue polluting.

A disturbing and vaguely presented point in the Chequers proposal is for the UK to remain committed to regulatory EU environmental standards through a “non-regression requirement” and that the UK would not let standards fall below “current levels”. To many this is regarded as unclear and probably deliberately so; but it should be assumed that it involves continued acquiescence with existing and future higher mandatory targets for renewables and full compliance on new directives, including interconnectors.

This goes to the heart of the problem with Chequers: the UK would become an EU rule-taker without any ability to influence those rules in the future. It would also needlessly bind the UK to EU state aid and competition rules, when we can easily do better ourselves.

An independent energy policy is one of the key tools to help make the UK more attractive to global investors after Brexit. This means diverging from the worst of the EU’s policies and directives and reforming Whitehall’s failing Capacity Market to get new gas-fired plants built especially as new nuclear plants are still years away. It is not too late to chuck Chequers.

The proposal as it stands leaves us entangled in poorly designed EU climate change policies that suit Germany, but no one else. By dumping such policies we could avoid the absurd costs that fundamentally undermine any prospect of a more competitive future.

Tony Lodge is a Research Fellow at the Centre for Policy Studies.