An energy plan from Liz Truss

Power prices have roared ahead in the UK, much more so that almost anywhere else in Europe and they look like accelerating further- some said overall domestic energy prices could reach £6000 p.a. or more next spring. Something obviously had to be done. But despite the clear indication from Carbon Brief that green energy support schemes added only a very small amount to consumer bills, the governments new energy crisis plan included cuts to green levies, in support of its price freeze. It also included expansion of fossil fuel extraction, with shale fracking now to be allowed, this inevitably adding to emissions.  

Liz Truss made clear in her launch speech that there here will be no windfall tax on power producers/suppliers, but prices would be held at £2,500 for 2 years. So she claimed domestic consumers will in effect, get £1000 on average off their annual bills and ‘vulnerable sectors’ in industry will get support too. Borrowing and financing cost details for all this will be announced by the Chancellor later on. But estimates for the total cost ranged up to £150bn. 

As a start, in a claw back, green levies worth, it was claimed, around £150 a year on average will be removed ‘temporally’ from household bills. A new Energy Supply Taskforce will also negotiate with suppliers to agree long-term contracts that reduce the price they charge for energy, for example existing renewable projects being moved off the old RO subsidy scheme   to new lower CfD strike prices, this further bringing consumer down costs. And to reduce cost of energy over time, Truss says the government will also speed up the deployment of ‘all clean and renewable technologies’. In parallel though, the shale gas fracking ban is to be removed and a new round of around 100 new oil and gas licences would be launched. 

There were some strong reactions.  The Renewable Energy Association (REA) trade group said ‘it beggar’s belief that even though the current energy crisis is being caused by price volatile fossil fuels, the Government has doubled down on oil & gas production.’ Instead it ‘must now focus their plan beyond the winter to help deliver the real solutions to this crisis. A national scale energy efficiency programme, & helping homes and businesses transition to renewable alternatives.’

The Institute for Fiscal Studies think-tank described the idea of cutting green levies  as ‘somewhere between meaningless and pointless’, given it would only save households about £11 over the next 3 months. And the whole thing was pricey and ‘not well targeted at those on low incomes. Just over half of the support package will go to the top half of the income distribution’.

Labour was very unhappy that no windfall tax was imposed. Keir Starmer said the energy companies will be making £170bn in windfall profits over the next two years. He wants to tax this, but Liz Truss is opposed: ‘Every pound the government refuses to raise in windfall taxes  is a pound of extra borrowing. It’s that simple’. He also said ‘fracking & a dash for gas in the North Sea will not cut bills or strengthen energy security’: 

The U-turn on Fracking certainly came in for a lot of flack and critical analysis.  The last Conservative's manifesto had said the party would not support fracking ‘unless the science shows categorically that it can be done safely’. Georgia Whitaker, an oil and gas campaigner for Greenpeace UK, said there has been no change to the science since that pledge was made three years ago. She said that before the ban was introduced, the industry had 10 years of experimenting with it, but ‘produced no energy for the UK’, just ‘two holes in a muddy field, traffic, noise, earthquakes & enormous controversy’. 

In addition to these specific issues there was also much concern about the appointment of Jacob Rees-Mogg as Business and Energy Secretary given his reported views on climate change, renewables and fossil fuels. So, with Truss also keen on fossil fuel, there could be battles ahead, for example on Carbon Capture and Storage, which some see as a way to allow for continued fossil fuel use.  And also on energy efficiency, which got scant mention…

What next?

The policy outlined by Liz Truss is only really a draft, with few details as yet. It may get adjusted. For example, NIESR, the National Institute of Economic and Social Research, wanted a sliding price cap, with the cost of energy per unit going up the more energy used. It said the government’s ‘untargeted’ plan is ‘needlessly inefficient & expensive’. There were already plans to adjust the UK electricity market system, moving it away from using gas prices to set overall prices, with a linked review and consultation exercise. That presumably will all be expanded and speeded up. There is also a new review of the government’s net zero strategy, to be led by Chris Skidmore, who chairs the net zero group of Conservative MPs, with the aim being ‘to ensure we are meeting our net zero 2050 target in an economically-efficient way, given the altered landscape’.

Industrial lobby group Renewable UK took a positive line, looking forward to working on all this: ‘We’re already working closely with Ministers and our member companies on proposals to break the link between the unaffordable cost of gas and the price of electricity…Although the Prime Minister’s announcements set out various measures, we’re confident that accelerating renewables will prove to be the only scalable solution which delivers meaningful and sustainable savings for billpayers and helps UK be a net energy exporter’.  

The REA trade group also looked to ‘delivering well thought-through wholesale market reforms to decouple electricity prices from the cost of gas.’ It said ‘Filling the wide gaps in energy policy, investing in the grid, and offering expanded CfD schemes.’ It added ‘Renewables, not more of the same, is the route out of this crisis.’ 

Well yes, with cost falling, renewables do seem to be the key way ahead, dealing with the problem at source, but although she expressed support for renewables, offshore wind especially, it’s not clear if Truss sees it quite like that. In addition to her support for fracking, she also backed nuclear power (and mentioned Small Modular Reactors) as part of a new ‘indigenous power’ way forward: ‘I want to see us use more of our energy supply, including more oil and gas from the North Sea and nuclear power’.  She also pressed SNP ministers to agree to new nuclear power stations being built in Scotland to safeguard the country’s energy security. That will be a long hard battle…

Overall it looks a bit of a botch. Renewables will help, but with neither nuclear or shale gas likely to be cheap, and no commitment to energy efficiency, it is hard to see how gas use and generation costs will fall, pushing up the cost of maintaining the Energy Price Guarantee. Truss does seem to want the existing nuclear plants (the few remaining old AGRs and Sizewell B) to sign up to new lower-cost CfD contracts. But will EDF be keen to do that, when their new Hinkley Point C will be getting so much more under its generous, inflation index-linked, CfD? Or is that to be renegotiated too? Lots of battles ahead…