December 29, 2016 By FTI Consulting
In some respects, 2017 could be the year that energy policy gains the government recognition it deserves.
After twice being subjected to cuts in government spending, the Department for Energy and Climate Change (DECC) was reduced to little more than a Treasury-run proxy office. With its diminished powers and status came plummeting investor confidence in the UK’s energy sector.
Fast-forward to 2017, part of a new, reinvigorated Department for Business, Energy and Industrial Strategy, paired with what is hoped is a genuine industrial strategy, the sector has reason for optimism in these uncertain times. Specifically, a genuine industrial strategy that tackles the short-termism which has plagued not only the energy sector but many other areas of government policy over the last decade, has long been called for.
With the government’s industrial strategy due to be announced on January 23rd, we will wait to see if the Business Secretary Greg Clark has the antidote to the industry’s long-term ailments.
On a more micro level, there is a genuine sense of “unfinished business” between the government (and in fact all political parties) with the domestic retail energy market and its suppliers. What has already begun will undoubtedly develop in 2017. Indications show that the Prime Minister, Chancellor and Business Secretary have no qualms about naming and shaming energy suppliers in a marketplace it views as not working for those families that are “just about managing.” Tougher measures to crack down on excessive bills are widely expected.
The planned Contracts for Difference (CfD) auction in April is expected to provide an indication of how successful the government has been in pushing down costs for offshore wind, the one renewable energy technology it still strongly supports. Bids are expected to be below the £92.50 strike price that was set for the still controversial Hinkley C nuclear project.
As we enter 2017, changes could also be looming in respect of the Capacity Market mechanism. After three attempts at procuring the right capacity for the future, the market mechanism has failed to attract much-needed investment in the gas-fired power stations the government so desires. As a result, investors are slowly losing confidence in the mechanism’s ability to choose the right outcome and it would not be a surprise if more alterations to what can no longer truly be considered a “free market” in energy are made.
Big questions, however, are looming. After several years planning and developing new interconnectors to the European single energy market, what kind of future and potential tariffs can these vital pieces of infrastructure expect? Can, and will, the UK remain part of the expanding and developing EU energy market? If not, what might this mean for the reliability and cost of our energy supply?