For many people sustainability has mainly green connotations, and that’s part of it. But there’s more to it than that. It’s about balancing environmental, economic and social factors. This neatly matches the so-called energy trilemma - decarbonisation (reducing emissions and moving to a cleaner system), security of supply (making sure we have enough energy to keep the lights on), and affordability (making sure people can afford to switch their lights on).
In my view, a truly sustainable energy policy must aim to balance all three parts of the trilemma.
2008 was a landmark year for energy policy: it was when the Climate Change Act was passed under political consensus. The energy industry was given a clear signal that decarbonisation was priority number one and it acted on it. As a result, the UK has become a world leader in renewable technologies, creating thousands of jobs and significant economic benefits for the country.
SSE alone has invested over £7bn since then, largely in support of the policy framework set by the Act. SSE is the UK’s largest generator of electricity from renewable sources and as such has made a huge contribution to the decarbonisation of the power system – something I personally think is a very important part of the effort to tackle climate change.
In that time, however, we have also witnessed rising costs of wholesale energy in the global marketplace and, as a result, energy prices are now much higher than they were.
Though Labour’s price freeze proposal would not tackle the real underlying issues of why prices are increasing, it did confirm that the world is now very different than it was just a few years ago. People are, understandably, concerned by rising bills and at SSE we’re very conscious of how they impact on already squeezed household budgets.
That’s why I believe it’s time for a national debate about what people’s money should be spent on when it comes to energy. We must ask ourselves if the balance in energy policy has been lost; and whether it should be restored by taking greater account of economic and social factors that can be summed up in one word: affordability.
In saying this, I am very conscious that we have announced that household electricity and gas prices will go up next month. We have to put up prices following the increased cost of buying energy in global markets (approximately half of bills), paying to use the upgraded networks (approximately a quarter of bills) and government-imposed levies on bills (approximately a tenth) - plus the fact our Retail business has been loss-making for the last six months. We have pledged to cap prices at their new level until at least the autumn of 2014, despite the fact that networks costs and government-imposed environmental and social levies are forecast to go up again in the meantime. Other technologies, like SMART meters and Carbon Capture and Storage could add further costs.
We believe that an immediate answer to the affordability issue is to take the cost of those government environmental and social schemes out of bills and put them into general taxation. This would take £110 out of the typical bill now and nearer to £200 towards the end of the decade. It would also be more progressive as more of the cost would be borne by those who can afford it, and would ensure accountability for policy costs by the people who make those decisions of behalf of the country.
If this is not enough, however, the debate has to extend to how we decarbonise. The question is not whether we should be decarbonising – that to me is a given. It is whether the way in which we are pursuing this has allowed the focus on the trilemma to become skewed and balance between environmental, social and economic factors to be lost. If affordability is now the number one concern for consumers and politicians, then the debate will have to extend to this key question.
It is a challenging question to answer, with a number of different factors to consider. However the current debate has become increasingly polarised, and has been played out as ‘affordability versus “green” taxes’.
Framing the argument in this way is not the answer. The way forward has to be a considered energy policy that balances the trilemma, giving appropriate weight to the objectives of decarbonisation, security of supply and affordability for customers. In other words, we need to consider how we maintain secure supplies of energy that become progressively lower carbon – but at a price and a pace that customers (or taxpayers) understand and protects the vulnerable.
The pursuit of decarbonisation since 2008, which SSE has supported, does come with a price tag. It is our view that investment in low carbon and energy efficiency will help keep prices down in the long term by reducing our dependency on fossil fuels and stopping energy leaking through our roofs. But these are long-term benefits that require significant sums of money to be invested today, when households up and down the country are struggling financially.
I believe that a progressive reduction in carbon has to be an objective of a balanced energy policy. The value of what has been done up to now is not in question. At the end of the day, however, it is always the customer or the taxpayer who pays, and that’s why I think we need to look again at what a truly sustainable energy policy should look like in the future.