Full steam ahead

A year ago, the CBI spoke out on the business community’s frustration with UK energy policy. In it, we called for a balanced energy mix to deliver security of supplies and meet emissions targets. This balanced energy mix, it was argued, should include renewable sources, nuclear power and fossil fuels. Yet businesses became increasingly sceptical, fearing that the then Government’s policy framework would not encourage the investment needed to deliver this secure and sustainable energy mix.

Now we have a new Government and a critical opportunity to get energy policy right. Businesses remain convinced that a secure low-carbon energy system at an acceptable cost is most certaintly possible. It is right that the early days of the coalition Government have been focussed on tackling the deficit, but the need for energy and planning reform must not be allowed to slip further behind.

The UK needs £150bn of private sector investment to renew ageing energy infrastructure, meet emissions targets and make the transition from being a net exporter of gas and oil to an importer. If the policy framework does not encourage investment, investors will look outside the UK for opportunities.

There remains considerable uncertainty about aspects of the Coalition’s energy and planning policy. A particular source of concern is the abolition of the Infrastructure Planning Commission and its replacement with a Major Infrastructure Unit, with decision-making powers returned to ministers.

There are also gaping policy holes around the investment framework for clean coal and nuclear power, and support for renewable energy. More details on electricity market reforms as well as further detail on the implication of the Emissions Performance Standard are also needed.

Within six months, the Government needs to achieve the following milestones to bring the energy supplies back on track. On planning, the Decentralisation and Localism Bill should contain a coherent structure for major energy infrastructure planning. The second consultation on Energy National Policy Statements on Energy Infrastructure should be completed and all outstanding Section 36 planning applications left over from the previous system should be determined.

The winner of the first Carbon Capture and Storage demonstration competition should be announced, and the remaining three projects’ competitions accelerated – one of which should be a gas-fired power station.

The Government should also press ahead with new nuclear power, including providing details on funded decommissioning and waste disposal agreements. Consultations on a carbon floor price and wider market reform is needed to resolve debates over additional market mechanisms.

Changing the system for North Sea taxation could undermine investment, so North Sea fiscal policy must recognise the mature age of most fields and the cost of decommissioning. The tax treatment of gas storage should also be reconsidered.

In addition, energy efficiency policies need to improved and simplified, for example, by implementing the ‘Green Deal’ financing mechanism and making it work for households and firms. The Government also needs to consult how to support the most vulnerable industries against the future costs of climate change.

Businesses need certainty to invest. And unless the Government provides comprehensive clarity on energy and planning policy, they will be reluctant to commit to the new energy infrastructure we need. Given the long lead times for many investments, any delay puts the goal of an affordable, secure, low-carbon energy system further out of reach. We need investment from companies now, not more delays from government.