Grid updades, long duation energy storage and electricity market reform should be pillars of any green growth plan, writes Conservative MP Mark Garnier.
Vladimir Putin's illegal invasion of Ukraine two years ago demonstrated the fragility of global supply chains and, in particular, the risk of our reliance on fossil fuels. Despite Russian gas imports making up just four per cent of our energy supply in 2021, the energy price cap increased by over half in value in April 2022. Ofgem planned to increase the cap by a further 80 per cent that October, as global demand spiked.
The government's Energy Price Guarantee prevented the bulk of this increase from being passed on to consumers, with the government effectively subsidising half of households' energy bills. But this came at a cost and the average energy bill still stands at over £2,000 per year.
At a time when the government's fiscal room for manoeuvre is increasingly tight, we simply cannot afford to take this risk again. Instead, we need to transition to new, cleaner, and cheaper forms of energy to bring bills down.
We have already made good progress. The world-leading Contracts for Difference regime means the UK will soon host five of the world's largest offshore wind farms. The government's recent announcement of new unabated gas-fired power stations, while necessary to shore up our energy security, should not overshadow the real progress we are making on tackling climate change and rolling out clean energy.
Earlier this year, it was confirmed that the UK had become the first country in the G20 to halve its carbon emissions and at the same time, our economy grew by 79 per cent. This is a significant achievement and demonstrates that efforts to decarbonise our economy do not need to break the bank.
But the UK must now go further and increase investment in renewable technologies and smash the barriers preventing new grid infrastructure from being built to boost our energy security.
Curtailment costs are paid to renewable generators, like offshore wind turbines, to compensate them when they are ordered to power down to prevent the national grid from being overwhelmed. This inflates the cost of energy and could be prevented by speeding up the rollout of new grid infrastructure. One of the major barriers to doing so are delays in the planning system.
Extending and mandating community benefits, so that communities which host new transmission and generation infrastructure receive lower bills as a result, could help to quell opposition to construction.
Another key issue to resolve in the pursuit of energy security is the supply of power when the wind doesn't blow and the sun doesn't shine. Long duration energy storage (LDES) could help meet this demand. LDES refer to technologies like pumped hydro, compressed air, or batteries that are capable of storing energy for up to 200 hours. Unfortunately, high upfront costs, long lead times, and lack of revenue certainty are limiting their deployment.
The government is consulting on the future of LDES. We need to use this opportunity to inject confidence into the market. The simplest way to do this would be to move forward with proposals for a ‘cap and floor' regime to lower investment risk while ensuring storage providers won't be able to gain windfall profits.
With an expanded grid and greater LDES capacity, the UK could reduce its reliance on fossil fuels, saving cash and carbon and minimising the need to keep gas power stations on standby.
But, the government can also do more to cut household bills and encourage people away from volatile gas markets. On top of the price of energy and standing charges, households face a series of environmental and social levies to fund fuel poverty alleviation schemes and invest in renewable energy. These levies are disproportionately applied to electricity bills. Around 13.5 per cent of a household electricity bill consists of levies, compared to only around 3.6 per cent of a household gas bill. This effectively disincentivises dual fuel households from switching to electricity which could cut carbon emissions and support British industry.
By rebalancing levies away from electricity bills and towards gas bills and general taxation, electric-only households could benefit from substantial savings. For example, if the Renewables Obligation, Feed in Tariff, and Energy Company Obligation were shifted away from electricity to gas bills, an electric-only household with a heat pump could save nearly £260 per year. This saving would provide a real incentive for households to move away from gas boilers and fit heat pumps.
Of course, it is important that with any change dual fuel households are not penalised, or end up paying more for their energy, so a cap on their bills should be introduced by the government through a small grant.
Labour has revealed its latest plan to deliver this change. It is now time for Conservatives to prove that there is a pro-market alternative to their Green Prosperity Plan which can drive more private investment into green industries without increasing government borrowing or taxes.Â
First published by BusinessGreen. Mark Garnier MP (Wyre Forrest) is a member of the Conservative Environment Network.