Government by announcement undermines UK energy policy


Government by announcement is now characteristic of British politics. The goal is to make statements that will receive favourable media coverage. There is little perception of any need to follow up on these announcements, or consideration of how they might interact with other similar announcements, and no concern for the effects of the uncertainty these initiatives create for people engaged in real business. The style was established under New Labour. After a brief interlude of more thoughtful government, the practice has continued under the coalition.

The panicked announcements on Scottish devolution come to mind. But nowhere has the approach been more damaging than in energy policy. The government has three laudable objectives – low energy bills, supply security, and decarbonisation. There are difficult trade-offs to be made, since these goals are not compatible.

In the meantime, none of these goals is being achieved. But we are assured that all will be. Rising fossil fuel prices will make otherwise uneconomic renewable supplies economically attractive, and dramatic increases in energy efficiency will keep bills down and limit the need for new capacity. There is, of course, no evidence for either of these propositions.

Gas is central to any serious British energy policy, reducing costs and carbon emissions by displacing existing inefficient plant. Current renewable technology makes little economic sense. Most wind power will never be cost- effective and may actually increase carbon emissions by crowding out gas plant and requiring back-up from old coal-fired generators. Solar technology is improving rapidly and may one day be economic but the real breakthrough would be advances in transmission to allow input from more sunny locations.

New nuclear plant is needed to replace existing stations. Longer term, low-carbon technologies may well be ones we do not yet know about, and fundamental research is a better investment than existing renewables, especially as it is carbon emissions in India and China, not Europe, that make a difference to levels of greenhouse gases.

The problem with such policies is that they require a couple of minutes to explain, and that is too long. It is easier to denounce rapacious energy companies, don green clothes and pose with polar bears. Also, although a degree of planning is necessary for an efficient electricity network, the word is anathema. So government feels obliged to pretend that the outcomes which it is prescribing in considerable detail are the result of market forces. This demands frequent policy changes when “the market” fails to deliver the required results. The pretence of reliance on the market also provides opportunities for those rapacious energy companies to profit by supplying the market which the government has rigged.

Although the ability of government to borrow at very low long-term interest rates makes the economics of nuclear power unusually attractive, the need to pretend that new-build is privately financed and off the public sector balance sheet means that this electricity is much more costly than it need be. Since the electricity is in effect being sold to the government at a long-term fixed price, the very real market risk to which suppliers are exposed is that of arbitrary changes in policy. Customers are paying heavily for this avoidable uncertainty.

Britain’s experience of a highly centralised electricity system before 1990 was dreadful. In energy, as in other policy areas, the need is to learn how to run hybrid systems which combine the benefits of competition with the need to plan for public policy aims and which put private capital at risk in the achievement of social goals. But that requires a more mature debate than is possible with government by announcement.

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