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20/05/2015

Energy Policy under the new UK Government - Business as usual

There will be quite a few people in the energy sector who will be relieved at the UK Election outcome on May 7th. With the election of a majority Conservative Government the future is more certain. Ofgem is likely to be retained in its current form, there will be no energy price freeze and it is unlikely there will be structural separation of generation and retail forced on the big six. So, will it be business as usual?
 

There are likely to be some changes in approach

Energy policy and the DECC portfolio were always seen as a Liberal Democrat area of responsibility. Climate change and the low carbon agenda were the centre piece of the previous coalition government's energy policy. This is unlikely to change with the promotion of the new Secretary of State, Amber Rudd, who was previously junior Minister for Climate Change. Ms Rudd is regarded as a moderate and a known supporter of climate change science. With this we can expect that much of the existing policy agenda will be maintained.

The change in approach will occur at the margins in areas such as onshore wind where the Conservatives are less enthusiastic about additional onshore wind turbines. While this is symbolic, it's unlikely to have a major impact on renewable energy targets as most of the large scale wind developments are occurring offshore. In this area we expect to see business as usual.

Unconventional oil and gas development could receive a boost

The Conservatives have been strong supporters of expanding shale gas and oil production, together with coal bed methane development. It is likely we will see a stronger emphasis on indigenous onshore oil and gas development under a Conservative Secretary of State.

However, unconventional oil and gas will only ever play a small part in the UK's energy mix. The UK's populated small land mass and, in the short term, lower oil and gas prices, will limit the extent of oil and gas development. We should not expect significant short-term change.

HM Treasury is likely to play a stronger role in Energy Policy

In the early days of the previous government there were reported tensions between George Osborne and Chris Huhne. This mainly revolved around the Chancellors reluctance to support subsidies for low carbon energy projects. These tensions seemed to ease once Ed Davey replaced Huhne.

As his former Parliamentary Private Secretary, Amber Rudd will be close to the Chancellor and so we should expect a closer working relationship between DECC and HM Treasury on energy policy.

One area where Treasury may have a stronger focus is competition in the wholesale and retail markets, particularly electricity. To a large extent this will depend on the outcome of the CMA competition Review currently underway. If the CMA concludes there are deficiencies in wholesale and retail competition then the Treasury may be inclined to pursue more radical options to reform the market. We can expect considerable lobbying from the big 6 to continue. It is unlikely that major changes will be considered in the short term.

Overall, with a few minor exceptions, the appointment of Amber Rudd as Secretary of State for DECC represents a business-as-usual approach. She is not a climate change sceptic and is unlikely to make fundamental changes in policy.

Scott Flavell

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