• Sat. May 18th, 2024

Government can do more than industry to keep energy prices down


Aug 20, 2022
Government can do more than industry to keep energy prices down


The writer is chief executive of SSE

Fast forward to the early 2030s, and I believe that the UK will have solved virtually all the big energy problems it is currently facing. By then, we will have an abundance of cheap offshore wind generated in Britain and will have built the network superhighways to transport it to areas of demand.

The UK will be able to balance the system with zero-carbon hydrogen, carbon-abated technologies and flexible sources of storage. We will have reformed our energy markets and successfully uncoupled the cost of homegrown technologies such as wind and solar from the international gas price. Energy will be affordable, supply will be secure and we’ll be well on the way to net zero.

The destination is clear, but the journey — thanks largely to Russia’s invasion of Ukraine — will unfortunately not be smooth.

The challenge facing the next prime minister requires a twin-track response: first, ensuring household bills remain affordable in the near term given predicted price rises and widespread concern over how people will manage this winter. Second, figuring out how to get to cheaper, more secure, homegrown energy even faster. The energy industry and government must work together on both parts of this equation.

Government can smooth energy costs for households beyond what industry can do alone. It could artificially keep prices down for a period, providing payments to suppliers to bridge the gap between this capped price and the costs they actually incur.

Rather than being a handout, this is essentially a mortgage, secured against the cheap future energy system I’ve described. As with Covid emergency support, it would rely on relatively cheap government borrowing, but with a plan to pay down this debt as we complete our energy transition and prices fall. I am sure the retailers will step up and help make this solution work — indeed many have been calling for it.

As one of the UK’s largest investors in low-carbon electricity infrastructure, SSE is focused on delivering the long-term solutions to today’s problems. However, short-term measures are needed too, and we are exploring with government how we can help smooth costs for households.

One idea is a voluntary scheme through which generators of non-flexible, low-carbon power such as wind and nuclear could sign up for contracts to deliver at a fixed price any power they haven’t already “hedged” or sold into the market ahead of time. This fixed price would be far lower than current wholesale rates. Generators would pay the difference back into a pot that could then help pay down any debt created by capping prices.

Offering these contracts for 15 years would spread costs out over a longer period, bridging the gap until other policies delivering cheaper, more secure energy take full effect. It is vital we don’t do anything in the short term to treat the symptoms of this crisis that will slow down delivery of the solutions that will address the underlying cause.

We need huge capital investments in low-carbon energy infrastructure. These are delivered most cheaply when stable, long-term policy reduces risk. That’s how the UK became a global superpower in offshore wind.

For SSE’s part, our plans could see us investing £24bn by the end of this decade. We plan to invest far more than we expect to make in profit and have cut our dividend policy to prioritise investment and growth. Money we make is being ploughed straight back into infrastructure that will boost Britain’s energy security and cut costs.

This is a critical moment for the UK. Nobody yet has all the answers and the ideas we’re putting forward need work. But when new ministers take office in September they will find an electricity industry willing to help in the short term, while delivering a future energy system that will prevent us ever being in a similar predicament again.


Image and article originally from www.ft.com. Read the original article here.