Energy journalists were treated to not one but all three DECC ministers – Secretary of State Ed Davey, Energy Minister John Hayes and Climate Change minister Greg Barker (plus two senior civil servants) at today’s Energy Bill press conference in the bowels of Whitehall Place. Here are the juicy bits.
1. On nuclear strike price negotiations
Ed Davey: The negotiations for Hinkley Point C are ongoing. EDF would like to conclude by the end of the year and we’re working with them to try and do that. It’s a major negotiation and it’s going very well.
Jonathan Brearley (Director of Energy Strategy and Futures): When deciding strike prices we have to compare the levelized cost of electricity with what happens to the gas price. As this so uncertain we have a range of scenarios. For nuclear the levelized cost estimate is around £80/MWh by 2020. This doesn’t necessarily feed directly into the strike price as we have to factor in the cost relative to the future price of gas, which is very uncertain, and the length of the CfD contract.
Simon Virley (Director General for Energy Markets and Infrastructure): The EU State Aid talks are ongoing, we have a good constructive dialogue with the Commission and we have done so for many months. We’ll have to wait and see what the Commission comes back with when they finally make their views known.
2. On the Levy Control Framework
Davey: We have full flexibility over how the Levy Control Framework is spent to make sure we can meet our 15% Renewable Energy Directive target. We haven’t decided what the mix could be. It’s unlikely to [be spent entirely on wind] but clearly wind is going to get quite a lot as our Renewable Energy Roadmap envisages a great deal of offshore and onshore wind by 2020.
I will write a letter to National Grid next year to give them guidance over their first CfD delivery plan. Within that I will give them guidance to make sure we’re on the least cost pathway to 2050. Many consider the MARKAL model to be the least cost pathway with significant power decarbonisation. I will not be mandating them but I will be giving them clear guidance. This is what I agreed with the Chancellor.
3. On a decarbonisation target
Davey: I’ve made the case for a target and as part of our agreements with the Chancellor we’ll be bringing forward amendments to give powers to set that. But the target will be set in 2016 when the Fifth Carbon Budget is set for the whole economy, not just for the power sector.
Linked to the guidance I’ll be giving to National Grid, I think this approach will give the signals the industry are looking for. Our central modelling, which is the least cost path to 2050, is 100g/kWh in 2030, but we are modelling 50g/kWh and if you had an endgame of 200g/KWh.
4. On energy efficiency ‘negawatts’
Greg Barker: It’s very difficult. The concept of the negawatt – that the cheapest unit of energy is the one you don’t use – is very simple. But actually creating an at-scale system which places value on that, which can be verified, traded and brings genuine additionality at scale is really difficult.
Britain could be a ‘World Leader’ in this and I want us to go beyond California and Japan and establish a new benchmark for delivering energy efficiency. But don’t let anyone tell you it is easy. Getting down to the nitty gritty is really, really difficult and I don’t underestimate the challenge.
5. On onshore wind ‘targets’
Davey: There are no targets in the Renewable Energy Roadmap, there are pathways and aspirations. We don’t micro-manage where all those private investors put their money.
Both John and I have been saying that we will meet our onshore wind aspiration but different people like to report our words slightly differently.
We are not dictating the mix of renewables now or in the future. This is not a statist approach saying ‘We’ll have 5 GW of this, 6 GW of that and 7 GW of the other’. We are moving towards the market deciding the amount of onshore wind in the 2020s.
6. On whether the Energy Minister dislikes onshore wind
John Hayes: There are issues about community consent and I’ve always said that there are issues about the aesthetics and the relationship between localities. The planning system takes into account the concerns between any development and its locality.
7. On shale gas
Davey: The Chancellor will have a number of things to say about shale gas in next Wednesday’s Autumn Statement. The Cuadrilla decision [to permit the resumption of hydraulic fracturing, aka fracking] is mine to make on an almost quasi-official basis and we haven’t set a date for that, and I’m not prepared to give a date for that.
There are certain things I have to have and things I have to go through in the proper process before I make that decision. I am going through that process now.
8. On a capacity market
Davey: We think the evidence for a capacity market is extremely strong. If you don’t have intervention we will have very expensive peak prices. A capacity market would reduce those peaks and offset the capacity payments.
We haven’t yet decided to introduce it because we want to see more evidence before we make a final decision next year. This is a major intervention and it’s absolutely sensible we wait for further advice from National Grid and Ofgem.
9. On the impact on consumer bills
Davey: By 2020 the impact on consumer bills will be £94 a year. Our latest estimate suggests our energy and climate change policy will see bills down £95 by 2020 than they otherwise would have been. The cost of exempting energy intensive users from CfD levies would be socialized across the rest of business and consumers.
Barker: There’s a difference between prices and bills. It is misleading to focus only on price. In Germany, prices are higher but bills are about the same as the UK because they use less energy. In the 21st century you have to incorporate usage and efficiency alongside price.
10. On whether an exemption for energy intensive users disincentivizes investment in on-site power
Barker: We are the early stages of a renaissance of industrial CHP. Yesterday I had a meeting with Business Minister Michael Fallon and the Economic Secretary to the Treasury [Chloe Smith] to think at a strategic level specifically to drive CHP and embed on-site generation in the economy.
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