The middle of last month was Christmas for electricity market reform. We had the intention: to make the decarbonisation of our energy supplies a reality backed by measures to shape and make it happen. We had the advent calendars of consultation papers, we had a white paper and we had the appearance of the draft Energy Bill itself on 22 May. And mighty disappointing it is too.
Instead of a Christmas present we’ve got something like a letter wrapped in a box, telling us where we can find the clues to another box, which might (or might not) contain the actual keys to the real box marked ‘electricity market reform.’ We can see only palimpsests of what a successful Energy Bill might look like, because much of it consists of very general powers, which may lead to secondary legislation, which may lead to a policy being shaped.
We are assured that energy and climate department (DECC) officials are working overtime to bring elements of the bill to some semblance of shape in time for the actual legislative process. For example, how exactly will contracts for difference, which guarantee generators a long-term price for their electricity, work?
In the meantime, the Energy and Climate Change Select Committee, of which I am a member, has been given the task of scrutinising whatever currently exists, in a little over five weeks. The bad news is that pre-legislative scrutiny of a bill normally takes about three months to get right, so I suspect that at best a hasty job will have to be done. The good news is that, for the reasons I mentioned, there really isn’t much to scrutinise right now, so maybe the process can be completed in time.
The bill, which claims to be about electricity market reform, is remarkable in providing no measures at all to reform the electricity market. Whatever else might happen we are clearly to be stuck with the now largely dysfunctional process of bilateral and opaque electricity trading and all the paraphernalia of the British electricity trading and transmission arrangements.
However, what is truly remarkable is the omission from the bill in any way shape or form of anything that actually provides measures to assist demand reduction or demand-side response in energy management, both of which I think will be vital to managing a low-carbon power economy effectively.
I am doing the bill’s authors a very slight injustice, in that the preamble to the draft includes the following statement, the only mention of demand-side measures as far as I can see: “We are currently reviewing the potential for incentivising further demand reduction in the electricity sector. This work will report over the summer, in time to fit legislative timetables, should it be required.”
So it is possible that, in the fullness of time, something might arrive. But even this, I am afraid, betrays an intention at best to add some bits and pieces onto the bill, instead of, as I think necessary, to bind demand-side management firmly into the architecture of the overall measure. It really should have been thought about at a much earlier stage of the process.
We need, of course, to distinguish between response – managing whatever power is produced so that it is used to best purpose and fits the new variable supply landscape that renewable energy will bring in – and reduction – permanently lowering demand for energy across the country in the long term, so that we need to build less capacity in the future and use our energy supplies in a far more efficient way and less intensive way.
Both mean that we should be able to live with lower capacity for generation in the future. And in the end both mean that we make the very best use of the increasingly expensive and precious sources of non-renewable energy, while transitioning to secure and ultra-low carbon sources of a predominantly renewable-powered energy economy.
This is a challenge that cannot be ducked if, as is universally claimed, we are signed up as a country to climate change targets, now enshrined in the fourth carbon budget, which predicate success in achieving them on energy production emitting as little as 50 grams of carbon dioxide per kilowatt hour by the early 2030s, compared with the current average of about 500gCO2.
So what might such measures consist of? Demand-response is relatively easy. We need to shift the ‘peaks’ of demand, which at the moment bring high CO2-emitting plant briefly onto the grid to meet it, or substitute at least some of it with the products of (mainly offshore) wind, which sometimes produces large amounts of energy when demand is not there.
Encouraging the development of smart grid management, electricity storage (such as presently exists in small amounts through pumped hydro plants) and interconnection with Europe, Norway and Iceland can all be underpinned through the capacity mechanisms already outlined in the bill. These are presently dedicated to ensuring that there is sufficient capacity to meet whatever it is we might demand in the future.
Reducing demand permanently
It must be acknowledged that demand reduction is more difficult, because it needs to be permanent and not merely some temporary fixes that fade as soon as the initial impetus behind them subsides. And it is not really sufficient to rely on programmes such as the Green Deal to suppress electricity demand. The Green Deal is primarily a heat reduction programme, which, if successful, will suppress energy demand substantially but not necessarily the electricity that primarily drives lighting and appliances.
Ironically, contracts for difference, which may prove not to work well for renewable energy in the future, could work for demand reduction programmes through aggregators, by securing a reliable income stream for sustained and verifiable demand reduction programmes and as a method of passing on rewards to participants in addition to savings from lower electricity bills.
It may be that these thoughts are parallel to those going on in the corridors of DECC as they seek to bring forward measures to make electricity market reform a balanced supply and demand programme. I would like to think so, because if we fail to include realistic and workable demand-side measures in the new legislation just because we have run out of time, we will all regret our haste for a long time to come.
Alan Whitehead is Labour MP for Southampton Test and member of the Energy and Climate Change Select Committee