To mark the arrival of Alistair Phillips-Davies as the new Chief Executive of SSE we invited a number of organisations and individuals to ask a question they’d like him to answer.
Today, Alistair answers questions on energy policy.
Guy Newey, Policy Exchange
If you were Secretary of State for Energy and Climate Change, what would be the first thing you would change?
Alistair:
I have only just got this job so I’m not sure I’m ready for another one!
For me the most important political issue is the investment climate. The country is coming out of a recession and looking for growth. You know this as well as anyone that energy investments are part of regional growth and I am frustrated that as I look a few years ahead, government policy uncertainties are making it very difficult to make financial decisions in new generation capacity. A CEO of a British FTSE 30 energy company, which spends £1.5 billion a year on infrastructure should be able to be building new plant, but this year we have had to close plant due to poor economics and have not yet got the policies from the EU and the UK legislators that we need to get building.
You will no doubt have seen Ofgem’s warning of the growing risk of the lights going out on the back of plant closures. With poor market conditions and policy uncertainty we just cannot invest in new thermal plant that the UK needs. At the same time, vital existing plant across a range of companies are making little or no money and at risk of closure.
The Government’s solution to introduce a ‘capacity mechanism’ to help provide more secure income for thermal plant looks a little late to me as first payments won’t be made until 2018 – two or three years after Ofgem expects the capacity ‘crunch’ to bite. I hope something comes out of the National Grid procurement initiative that was announced and we will feed in views to those consultations.
If I was Secretary of State this would be my priority as if the lights go out, support for clean technologies will wane. I’d bring the first payments forward by a few years and apply them to new and old plant alike, but let’s see what this National Grid initiative brings.
Tim Webb - The Times
Will tackling climate change result in higher energy bills than doing nothing?
Alistair:
I hate the word, but the challenge we are facing is a “trilemma” with cutting carbon, keeping the lights on and making energy affordable at each end. We recently carried out a poll and found that the vast majority of consumers think affordability is the most important of the three, so we need to bear that in mind when working out how best to tackle climate change.
Without a crystal ball it’s hard to tell what the cost of doing nothing would be. But we do have the Stern report, which highlighted the dangers of leaving it too late on climate change. Like it or not, that’s the consensus in British politics. And ultimately as a British energy company we follow British energy and climate policy.
For me, it should all be about balance and efficiency. Balance in making sure we evenly spread the ‘burden’ of decarbonisation as let’s not forget that a significant chunk of our carbon emissions come from heat and transport. Efficiency in designing cost-effective policies that work and come with other benefits. At the moment I have concerns with the energy efficiency schemes, which, while clearly well intentioned, can be highly inefficient and not very cost-effective in practice. We have to make these as simple as possible so that delivery is efficient for customers and at the moment they are very bureaucratic.
But if we get things right on energy efficiency and low-carbon energy, there are potentially huge benefits in terms of jobs, investment and growth. And if we can all use less energy by being more efficient that will almost certainly mean bills are lower in the long run.
Angela Knight CEO, Energy UK
What do you think that Government should do to make energy more affordable?
Alistair:
Affordability is one of the things I am most concerned about and I think everyone has a role to play in this area, not just Government. For energy companies it is primarily about keeping costs to a minimum and doing what we can to protect vulnerable customers.
For Government, I’d point out that affordability is not just about how much something costs. It’s also related to income. While this is something for all society and not my specialist subject, I’d personally like to see a better benefits system as we find ourselves giving customers benefits checks, which though really helpful for them, feels like a job for government.
On the energy side, the Government must make sure that any scheme paid for through bills offers value for money. I’ve heard you say this yourself but much of an energy bill is outside the Government’s direct control with around 10% paying towards government initiatives. Help for the vulnerable, support for low-carbon energy and energy efficiency schemes are all very important but they need to be cost-effective if consumers are footing the bill.
Take ECO, for example. Through it, customers pay for energy efficiency measures through a levy on bills. It is a complex programme and clearly there’s a long way to go, but there are already warning signs. We have seen some measures that we have bought off the insulation industry through the
Government’s auction that are costing far more than they should. Cavity wall insulation is coming in too high at the moment, higher than under CERT. Eligibility and auditing is also very bureaucratic, with regulations demanding up to 40 separate pieces of documentation to prove customers fit the right socio-economic boxes.
We know the Government is looking closely at this, but we believe it should do anything it can to make these schemes run smoothly to keep costs down for consumers. It should also cap the scheme costs to protect customers. We have to make sure that these schemes are as efficient to deliver as possible.