As the ink dries on the last Energy Act, a new one will be required to correct all of its perverse outcomes. Former Citi utilities lead Peter Atherton has his money on 2017 or 2018.
Atherton, now with Liberum Capital, told policymakers and regulators that following the election, if the government maintains the 2020 and 2030 targets, “there will need to be another Energy Act, probably in 2017/18 to correct all the perverse outcomes of the 2013 Energy Act, which in itself trying to correct all of the perverse outcomes from interventions of the last decade”.
Ofgem’s senior partner for markets, Rachel Fletcher, agreed that another Energy Act may be needed. She also suggested working on an exit strategy from EMR, which is now in its fourth year.
The two were speaking alongside independent generators and suppliers and representatives from Decc at an Electricity Market Reform panel session in the house of commons.
“The question we need to ask ourselves is whether it is clear how EMR is going to evolve?” Fletcher noted. “What is our exit strategy from it and if so, how, what and when?”
Given government appears intent on managing all facets of the market, said Atherton, it should “stop messing around with a bunch of half-arsed market mechanisms, which are delivering nothing but perverse outcomes, and take all of the risks and all of the actions and live or die by it”.
Not his preferred approach, “but that is where we are likely to end up”.
Generators and suppliers agreed that further intervention was probably inevitable.
Watt Power MD George Grant noted that one unintended consequence was obvious ahead of the first capacity auction, with coal-fired generation the biggest winner. Watt Power is developing some 1.5GW of new gas fired generation.
“New plant is going to set the price for the auction. That gives a huge windfall to existing capacity and enables it to stay open a lot longer. So we may see inefficient, carbon-intensive plant [extended] at the expense of new gas capacity,” said Grant.
Atherton urged greater political debate about the direction the current policy was taking to reduce the risk of u-turns down the line. He was scathing of the Hinckley C contract and the decision to sign a £24bn cheque from the public purse.
“It’s an abomination that will blow up in the nation’s face somewhere along the line. And yet as far as I can work out, nobody is batting an eyelid.”
Unless the public understands the decisions being taken on their behalf and are willing to foot the bill, investors will remain nervous of being “stabbed in the back by politicians”, Atherton warned, “everything else is kicking the can down the road”.
More detail from the session will be published in the forthcoming print issue of Water Energy & Environment, alongside the views of directors polled over EMR and other energy issues affecting their bottom lines. Click here to see if you qualify for a free subscription.
