I’ve been reported in one or two places allegedly fulminating about the decarbonisation target that may (or may not) go into the Energy Bill when it surfaces. The inclusion of any target in the Bill still looks a little uncertain, with the ‘quad’ meeting with Ed Davey (the ‘quint’?) today to ‘iron out’ the final detail of the Bill, which may or may not include a target, flexible or otherwise. This should be a long meeting, bearing in mind the sketchy nature of the Draft Bill, but that’s another issue.
I’ve been just a little worried about my small area of reporting on the Bill. I’m fully in favour of having a target of 50g per kwh of electricity placed on the face of the Bill – and I don’t really see the merit of a ‘flexible’ target as is, I understand, being floated by Ed Davey past the disapproving nose of George Osborne. A flexible target of between 50 – 100gms doesn’t sound a big deal now, with emissions from electricity production running at about 490gms per kwh, but as emissions come down across other sectors would require a big effort from somewhere else to make up for what, by then, would look like the generating sector’s profligacy – and we’re still having trouble getting aircraft and shipping emissions into the ring in the first place.
The point of exception is the suggestion that all this might just be a ‘distraction’. I don’t think a firm target on the face of the Bill is a distraction, but campaigning noisily for a target and then just walking away from the consequences of the rest of the Bill certainly would be, and that is what I have been fulminating about. If we end up with a target, flexible or otherwise in clause 1 of the Bill, whilst we let slip in the rest of the Bill measures that will institutionalise high carbon generation up to and beyond 2030, then I think we might have missed the point somewhere along the line.
The biggest thing we might let slip into the Bill, is of course the institutionalisation of gas as a preponderant part of the energy mix not just until 2030, but probably beyond that. This would in part come about if we use among other things, market-wide capacity payments to ‘incentivise the market’ to build enough gas to balance the system, a notion that I think has been given some wings by the recent Ofgem electricity capacity report.
Yes, of course we need sufficient reserve capacity in the system, and it needs to be robust in the face of higher penetration of variable power sources. But here’s the central problem with gas: it’s essentially a ‘goldilocks’ solution that we’ll be looking for. We need to have just enough on the system over the next twenty years to help it work optimally, and not so much that it swamps the purpose of putting renewables on the system in the first place. But one of the best ideas I know for delivering just that ‘swamping’ effect is the operation of a market-based incentive system which will be grabbed by gas developers, some of whom will be necessary to a balanced system and some of whom won’t, to oversupply the market with ‘incentivised’ gas, which will already have happily been ‘grandfathered’ as to its emissions by a Department worried about security of supply. I think this is what the European Union are referring to in their recent communication on renewable energy when they warned against capacity payment systems that, if ‘poorly designed..could ’lock in’ solutions focussed on generation that frustrate the introduction of new forms of flexibility’.*
I couldn’t have described better what I think may well happen with the current design of capacity payment arrangements that may, almost as I write this be in the process of being signed off by the ‘quint’. If you want the ‘goldilocks’ solution, you simply can’t rely on the market to produce it. What I think we need to be working towards, in tandem with a clear target on the face of the bill is the means to achieve it through the control of a strategic reserve OUTSIDE the market, whilst allowing the market to do what it does best, which is trading in supply and demand such that we get the best match between the two at the best price, within the overall rules.
That entails, almost literally, buying up mothballed plants to keep in reserve at a far cheaper price that building new plants not to produce, and holding them ready to intervene when the market gets beyond itself. That, and a ‘pool’ arrangement for trading would allow us to get much closer to the ‘goldilocks’ outcome that present instruments are likely to. So campaigners, get on with campaigning on the target, but just spare a thought for the three bears whilst you do.
* You can also read some of my previous analysis on problems with ‘gaming’ in such a system here