A Bolt From The Blue - Inside Britain's Energy Revolution
7 min read
A 40-year consensus that the market could best predict and provide for the nation’s energy needs has been dispatched almost overnight and replaced by an all-knowing ‘system operator’. Illustrations by Tracy Worrall
It is not a typical state of affairs for an extraordinarily staid sector to be on the cusp of revolution. But that is exactly what the election of Energy Secretary Ed Miliband, and one supposes the other Labour Members of Parliament, has brought about.
Our energy system tends to only change how it works about once every 10 years. In the 1950s the ‘supergrid’ of high-voltage pylons was constructed, connecting the country to coal-fired power stations. In the 1960s the gas grid began to transition from coal gas to natural gas. In the 1970s a fleet of gas-cooled nuclear reactors connected to the grid. In the 1990s gas turbines began to take the place of coal. In the 2000s onshore wind began to be built out in earnest. And the in the 2010s we took wind out to sea.
But all of this stands in the shadow of the most significant change that our energy system experienced in the last half of the 20th century: being privatised over the 1980s. The post-war nationalised system, designed and run by engineers, was put to bed by Margaret Thatcher and then energy secretary Nigel Lawson, and replaced with a system run by accountants. Lawson, in his 1982 speech on the energy market, was quite explicit as to his intention: “I do not see the government’s task as being to try and plan the future shape of energy production and consumption.” The role of government in planning power was coming to an end.
This had quite a lot to recommend it, at least for a while. The big problem with any nationalised industry is the risk that the government fails to allocate capital properly. It can buy the wrong thing, over-index on politically favoured technologies, or focus on alleviating the most publicly salient challenge above everything else. Because the public own it, they remain on the hook for all of these mistakes.
And the government had both over-built and made poor bets; the bulk of the British nuclear fleet had been constructed on the premise that there would be a global market for our bespoke ingenious reactor design. In the outturn, there was not.
The role of the institutions that governed the system radically changed.
We therefore moved away from a system in which the government chose what was built and where, to a system where the private sector did instead. The role of private companies in this world was to look at the wholesale market – essentially the biggest chunk of revenue for any player – and figure out whether their next investment could make money. Along with this headline price, they had to take into account how much they would be charged for connecting to the transmission network in a particular place and how much they could potentially earn from keeping the system in balance.
The role of the institutions that governed the system radically changed. A Whitehall department that changed its name with the passing of the seasons, an independent regulator to take the flak for the misfunctioning of the market, and a system operator to keep the system spinning when private players made maths mistakes – all found their role diminished in their new world. Rather than the bold plans of the Central Electricity Generation Board, all three were very much in a subservient position to the market. Change was driven by entrepreneurs rather than the centre.
And, amazingly, the whole thing worked for a while. Private operators could indeed run power stations much more efficiently than the public sector, although they had a regrettable tendency to hang onto these savings rather than pass them back to customers as lower prices. Pylons were only built when all other options had been exhausted, best illustrated by there simply not being enough capacity to get electricity out of Scotland when it’s windy.
The private sector was only really motivated by money, and so government took on a slightly more assertive role when it came to tackling climate change. This involved paying for its preferred low-carbon technologies and seeking to restrict the running hours of coal plants especially. But still the market ran the show, and government was very much the backseat driver. In response to demands for climate action, the private sector demanded certainty of ongoing policy support. And they got it.
Without anyone really noticing it, all of this has changed since the election. Miliband has presided over an epochal shift in how the system works. Before the election, if you wanted to build a new addition to the power system you went through the financial calculus set out above, sought planning permission and a connection agreement with the power network.
Everyone would get connected eventually, although the queue for connection has grown and grown, now hitting about 500GW or the capacity equivalent of 150 nuclear power stations.
But now the government has radically empowered the system operator, called the National Energy System Operator (Neso). The role of this body on the day to day is to ensure we produce just as much power as we consume, switching generators on and off as necessary. Every year it gazes into the energy system’s navel and produces ‘future energy scenarios’, widely seen as the gold standard of prediction for the shape of the future system. This navel-gazing now has serious purpose.
This month Neso will give government a plan specifying what to build and where in order to achieve its 2030 clean power mission. Ofgem has recently published an open letter specifying that projects not deemed ‘strategically necessary’ are going right to the back of the connections queue. They can look forward to being built in the 2040s, if at all. The private sector has been given a response to its enduring request for certainty in the face of ever-evolving climate policy: the certainty of a firm ‘no’. The engineers are back in charge, and they will build a power system right-sized for 2030.
But politics does not stop, and the debate over how we deliver infrastructure at pace is only beginning. While the elder Tory Party will fight a frantic rearguard action against pylons in the Shires, the young thrusters on the right are asking how to deliver rapid change without the state getting in the way. Miliband is counting on engineered precision to lower bills, while the free marketeers demand an abundance of energy, an outright over-built system, in order to achieve the same outcome. They want to achieve this through, essentially, scrapping the planning system that acts as a de facto brake on development.
We thus have a new energy consensus – of more – but with very different ideas of how we get there. No planning versus the state plans everything; no restraints on development sponsored by the state versus no restraints on development by anyone. In opposition to both is an unlikely alliance of greens and conservatives who demand the British countryside continues to be preserved in aspic and the country accept its destiny as a heritage Disneyland.
If the government fails to deliver the reduced energy bills it promised in its manifesto, it stands a strong chance of losing this debate. If it spends the next five years locked in judicial review with people who faint at even the thought of seeing a pylon, it will have missed the opportunity its revolution could unlock. But even if it fails, Ed Miliband can be confident that he has overturned the Lawsonian consensus that has held for four decades. And he has done it in two months.
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