New Boy

Written by on 26 September 2014 in Interviews

The new UK energy and business minister on the balance between costs and growing the industry

When news broke of David Cameron’s major summer reshuffle, it should have come as no surprise that his energy ministers would be among those affected.

The Department of Energy and Climate Change already carried a reputation as having a notoriously high turnover rate, even before Greg Barker and Michael Fallon joined the list of former energy ministers since the Coalition was formed.

Replacing them were two MPs from the 2010 intake. Amber Rudd came in for Baker, who resigned from the government and Michael Fallon, promoted to Defence Secretary, was replaced by Matt Hancock in his dual role as business and energy minister.

While the appointments were part of wholesale changes across the Conservative members of Government, there were also suggestions this was a sign the Treasury would be looking to see a tighter grip taken on energy spending.

Hancock was economic adviser to George Osborne when he was Shadow Chancellor of the Exchequer, eventually becoming his chief of staff, while Rudd had previously served as Osborne’s parliamentary aide. With previously well-publicised tussles between the two departments, over spending on low carbon energy in particular, two Osborne allies within the department could mean a greater concentration on cost reduction.

At a time when the price of energy bills is still high on the political agenda Hancock is clear when he speaks to Holyrood Renewables, that keeping the costs to consumers down is very important but it is “one leg of the three-legged stool of energy policy.”

“That leg is vital,” he says. “As are our international climate commitments and maintaining security of supply. 

“Yes, of course, I’m going to be challenging to get the best possible deal for consumers but [will] do that within the need to get the enormous amount of investment that is necessary landed and also make sure that we have a secure supply and keep within our international agreements.”

He adds: “It seems to me that the vital goal of providing energy at a decent price with secure supply in a way that meets our international climate obligations is the most important balance in this job, within that, renewables play a crucial role because they both increase security of supply and help reduce carbon emissions.

“Over time, especially as technology advances, I hope that they will also make a contribution on cost.”

Hancock, who was skills and enterprise minister before the reshuffle, may have taken on his role after the passing of the Energy Act, and with only months until the next General Election, but still joins at a crucial time – not least as the applications round for Contracts for Difference gets under way in October.

Speaking shortly after the confirmation of the MeyGen project in the Pentland Firth, a tidal project that could see 269 seabed turbines powering 175,000 homes, he says that one of the most important considerations is to ensure renewable energy is competitive. 

“Most renewables are still an early technology,” he says. “And the cost of many renewables are falling sharply. We’ve just seen the first deployment of tidal power being signed off in Scotland and the cost of solar is falling around the world and we are now within sight of it becoming competitive. 

“As technologies advance, so I hope we will see renewables being price competitive in the UK and so we’ve got to keep the pressure on to bring those technologies to scale and keep advancing them. But in the meantime, they play an important role in security of energy supply as does oil and gas, both onshore and offshore and therefore providing the energy needs of the nation.”

Just how near DECC considers the various technologies to be close to being fully competitive is shown by the strike prices it has assigned them, with more established technologies like solar and onshore wind being assigned a far lower £ to MWh rating.

But Hancock says he believes the balance is broadly right. “I think the timescales are reasonable,” he says. “We’ve got to make sure that the industry that is growing up around renewables thrives and the UK can be a leader in the industry and development of renewables.

“But at the same time, costs to consumers through subsidies can come down over time as the technologies mature.” 

He adds: “A lot of subsidy-supported renewables, through the Renewables Obligation, changing that to a market-driven approach we hope will lead to increased value for money, money that is ultimately transferred to the consumers in the form of subsidy. 

“Our job is to make sure that we have a good balance, ensuring that the projects can go ahead on the one hand and making sure that it is good value for money for consumers.

“The pressure is always going to be there from both sides; both consumers demanding lower bills – quite understandably – and industry asking for higher subsidy – that’s inevitable. Our job is to balance those pressures to make sure that industry continues to build whilst the cost of technology falls and the large-scale use of technologies mature.

“It is about a balance. I think we’ve got the balance right in this case and we’ve got to keep an eye on it in the future to make those judgements.”

The previous system of subsidy, Renewables Obligation, which is being phased out, was brought in under the previous administration, and while Hancock acknowledges it had the “upside of getting things moving”, the fact that it was not market driven meant there was not the confidence of getting full value for money.

He said: “By putting technologies in competition with each other you can get that best balance over time and the system can adjust automatically to different cost improvements and different technologies.

“It’s all about trying to squeeze the most value for money whilst securing security of supply within our international obligations. There is a balance between those three goals but also we can try to squeeze more out of all three goals by improving the system.”

The brief that Hancock has inherited is a wide-ranging one. He straddles both DECC and the Department of Business, Innovation and Skills. He is also Minister for Portsmouth, a role that was given to Fallon in the wake of a job cuts by BAE Systems earlier in the year.

It is certainly not the first time a minister has held multiple portfolios. Under Labour, Des Browne was Defence Secretary and Secretary of State for Scotland but Hancock says the combination of energy and business is no accident.

“The job is purposefully designed to bring energy and business [portfolios] together and that happens on a day-to-day basis inside my office so it works,” he says.

“It is wide ranging but there are many interactions. Energy supply, both the security of its supply and the cost, are vital input into many, many businesses – almost all businesses in the UK, so there are strong interactions across the department. 

“I’ve found already that being able to work closely across both departments helps the jobs of both departments supporting businesses and ensuring that our energy supply is secure and the lowest reasonable cost.”

His predecessor, Fallon, had pledged to end onshore wind farm subsidies under a Conservative Government, he has also criticised onshore wind, signing an open letter in 2012 which said: “In these financially straitened times, we think it is unwise to make consumers pay, through taxpayer subsidy, for inefficient and intermittent energy production that typifies onshore wind turbines.”
UK body RenewableUK said in its manifesto for next year’s General Election that it wanted to see a continued growth in onshore wind beyond 2020.

But Hancock says onshore wind has the biggest visual impact on the local environment and this must be addressed. 

“It is vital in onshore wind that the local environment is taken into account as well as the global environment. That means a strong say for local communities where onshore wind goes. 

“You will have seen, for instance, in introducing the 14th round on shale, that we’ve also said there that the local impact of that needs to be very carefully managed. It’s a matter of making sure local environmental considerations aren’t overridden by the need to expand renewables.”

Of course, for the renewable industry, it is not just a question of subsidy in areas like Orkney, where EMEC, the wave and tidal research centre is based, developers want to see transmission connections to ensure the jump can be made from test projects to full deployment.

Hancock says he is excited about the MayGen deals and hopes tidal has a strong future. He adds: “As tidal develops, we’ve got to make sure it gets all the extra connections and is fully put into the grid in the normal way. 

“One of the reasons that it is important to get the economics of renewables right is that compared to conventional energy sources, renewables tend to involve more upfront capital and lower running costs. 

“Tidal is almost entirely about upfront capital costs and the long-term maintenance costs are relatively small. At the same time, the geography of tidal is more challenging but these things are more extreme versions of what you have in other renewables. So as tidal becomes a part of a mix, I’m sure that we can deal with those challenges.”

But with renewable energy competing not just against each other for a market share, but with commitments, especially from the UK Government on nuclear power, is there enough money to adequately support the growth of the industry?

Hancock says he believes there needs to a balanced mix, one that includes oil and gas, shale gas and new nuclear.

“It’s terrific to see renewables take up an increasing proportion of the UK energy mix and there is more to come. But they will never be 100 per cent of the UK energy mix – as in many things in life, achieving a balance is an important part of the objective.

“The truth is because of security of supply, because we don’t know the future of costs of different types of provision, you want to have a mix of energy availability and that means striking a balance of what’s funded too.”

He laughs and says: “I know this answer sounds like I’m giving a ‘balanced and reasonable answer’, if I am, then that’s what I’m intending to do.”

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