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on Sep 25, 13 • posted by rhoggett •

New Thinking Blog: Managing the Political Nature of Energy

Managing the Political Nature of Energy

Catherine Mitchell, IGov Team, 25th September, 2013

About Catherine: http://geography.exeter.ac.uk/staff/index.php?web_id=Catherine_Mitchell

Britain is now in the unexpected position of having the Conservative, Labour and Liberal Democrat parties all agreeing on the need for nuclear power.

Lib Dem delegates overturned their historic policy at their recent conference and supported a motion to allow new nuclear power plants as long as questions on safety and cost are answered. Given that the arguments against nuclear power are becoming stronger rather than weaker this was a political vote rather than one based on evidence.

At some point there may well be interesting (and probably critical) discussion about the energy security of non-British builders and operators of nuclear power plants or what was actually meant by the ‘no public subsidy’ for nuclear that Ed Davey, the Secretary of State, stated in his speech. But another interesting question is why the Lib Dems, the political party which has always been proud of its green credentials and which has always supported localisation rather than centralisation voted for a technology so completely at odds with its hitherto stated underlying philosophy?

The political reality is, of course, that a Lib Dem Minister is overseeing a chaotic and unsuccessful energy policy and it will be a very useful area for the other political parties to showcase Lib Dem incompetence in the run-up to the next general election. No doubt party bigwigs argued that at the very least the Lib Dems needed to get their policy in line with their actions – hence the need for the Lib Dem members to vote for nuclear power, which they dutifully did.

This raises a number of questions about how Britain makes long term decisions for energy policy with its large, long lived infrastructure.

Firstly, it showcases the inevitability of politics in energy policy decisions. It is simply not possible to divorce energy policy from politics, and this counters the very premise that current energy policy is based on. At best, a process can be put in place which increases transparency and legitimacy of decision-making. Arguments for an ‘independent’ regulator simply ignores reality and de facto allows a small technical /economic viewpoint to make momentous societal decisions which have major impacts on distributional impacts. At some point, politicians have to take responsibility for energy policy decisions, whilst others (such as a Regulator or an Independent System Operator) can oversee those political decisions.

This leads to the second point – what is the appropriate process to enable legitimate, evidence based decision-making by politicians which sets society’s good above the individual private good of various companies? There are two key strongly linked areas which need to be implemented simultaneously.

The first area relates to the relationship between Politicians/Government and Ofgem, the Energy Regulator. Discussion tends to revolve around how politicians (through various means) set out Duties (which have a legal basis) and Guidance (which has no legal requirement) on Ofgem, which then executes them. The problem with this is that legislation has to be broad and this therefore allows latitude in the way that Ofgem interprets those Duties. Guidance is only guidance. Ofgem is de facto making decisions which have a major impact on the way the energy system develops (and costs) but is only evaluated in the narrow legal sense of meeting its Duties, including ensuring the financial stability of the system. There is no wider evaluation of ensuring an energy system suitable for the needs of society, nor does Ofgem have any incentive to act in that way.

The answer therefore has to be that the Duties and Guidance on the current model of Regulator needs to be augmented by (1) a legally based but more nuanced web of guidance including mission statements, goals and aims which more clearly set out the desired energy outcomes, including the role of energy within society, and (2) needs to be focussed on a new regulatory model (discussed below). This would enable the new regulatory model to be more effectively monitored for effectiveness in societal terms.

The second key area which needs to be changed at the same time as the web of guidance is that the current regulatory structure of the energy industry and its rules and incentives need to be fundamentally changed. They, in effect , keep the current energy system going and are not fit for purpose for the new challenges facing the energy system. Climate change had not become a major issue in 1990 when the fundamental restructuring of the energy system took place. Moreover, energy security concerns of a multipolar world where powerful emerging economies suck up energy did not exist while resource concerns focussed on the geopolitics of oil rather than cost and availability of all fuels, materials, rare metals, water and food as now.

The wording of a mission statement , the choice of the aims, the choice of the regulatory model etc is, of course, an inherently political process which needs to be recognised as such and preferably should be undertaken in a cross-party manner to give it some longevity. Whilst not perfect this should, at least, help move away from the hidebound letter-of-the-law approach currently in place.

Britain is going through ‘Electricity Market Reform’. The outcome has been zero reform (if reform is taken to mean making the system more fit for purpose) albeit many changes have occurred. The process again illuminates how hard it is to change the energy system, because of its vital position in society. Any new process of reform has to recognise this ‘up front’ and implement a plan to counter it, otherwise it also will find itself pulled and pushed off its path. Whilst restructuring will cause more uncertainty (and much outcry, see forthcoming blog on Ed Miliband’s speech to 2013 Labour Conference) within the energy industry, the actual disruption may well be less than expected. Much can be learned from other countries and their different models of regulation. Moreover, many in the energy industry, and customers, have watched for 20 years as the Government have proposed new policies only to be thwarted by the Regulator or incumbants. Many will be pleased when the necessary changes are finally made.