Britain has ended liberalised power market pricing, in a broad strategy announcement that poses questions over how qualified government ministers are to choose between energy technologies and to set prices.
Wholesale power and carbon markets have failed to find a clearing price for low-carbon power generation, recalling a comment by British economist Nick Stern in 2006 that climate change was the ‘greatest and widest-ranging market failure ever seen’.
Power markets are too volatile and carbon prices too low to drive investment in expensive, capital-intensive renewables, nuclear power and carbon capture and storage, and help Britain meet binding national CO2 targets.
The return to central price-setting is unavoidable for now, and evokes the UK state-owned Central Electricity Generating Board (CEGB), privatised in the 1990s.
This time power will be met by a commercial generation market where the government, until around 2020, will set the required amount and price for low-carbon power according to technology and leave delivery to the market.(The CEGB in addition owned the power plants, in a fully nationalised model).
A high-level draft published on Tuesday left out details of precise price support, however, and these are to be announced in the second half of 2013.
In the meantime, there’s a danger the shift is not only a step back in market delivery but in technology.
Tuesday’s focus is on writing big cheques for centralised power-generation including carbon capture and storage (CCS) and nuclear, which may be necessary in the short-term, but there was scant detail on how to exploit advances in grid connectivity, flexibility and energy efficiency.
For now the focus is supply, but a sharper focus is needed on demand curbs and the grid.
Britain will shut a quarter to a fifth of its ageing generating capacity over the next eight years, posing a problem faced by many industrialised countries as they replace capacity including nuclear power plants built in the 1960s and 1970s.