Alexander Temerko is a Ukrainian born businessman and deputy chairman of the OGN Group
It’s an eventful time for Britain’s energy industry. The Energy Secretary Amber Rudd and Communities Secretary Greg Clark have recently announced new measures to fast-track fracking applications, unleashing a torrent of criticism from campaign groups. This came shortly after debates on the Energy Bill in the House of Lords also prompted criticism from a number of quarters. The green lobby decried the end of public subsidies for onshore wind farms, while in the chamber itself Lord Howell spoke out strongly against the ‘untried’ reactor planned for Hinkley C, insisting it represents the worst possible deal for consumers and industry.
These are important debates within the debate, but for me the real concerns are much broader.
The Energy Bill is not dangerous but at the same time not helpful either. In the context of our overall energy policy it does no more than dot a few ‘i’s and cross a few ‘t’s. Its proposals are marginal and offer nothing like the kind of strategic vision that’s required. The government’s about-turn on wind subsidies is indicative of the way the UK is feeling its way on energy compared with other European countries. What everyone seems to be ignoring is that a key condition for investment in the energy sector is stable, predictable long-term tax policy.
Energy investment requires long-term planning from the government, investors and operators. Expanding exploration or building additional generation capacity are 20 to 25-year investment decisions and the current lack of such investment only shows that the government doesn’t understand the sector well enough. Energy has never been a Conservative strong point, and the previous and current governments are no exception as constant ministerial reshuffles have shown.
The current chaos, however, predates the Conservatives. Labour’s complete lack of direction and its inertia on nuclear left us with an energy mix that’s incapable of meeting our needs. In the meantime we’ve had eight energy ministers in ten years. Of these, only Michael Fallon, who introduced important support for nuclear and pushed to boost the UK’s competitiveness in securing North Sea projects, has shown the kind of leadership and global vision we need. He has also demonstrated the political will to overpower the monopoly of the Big Six and the utility barons. The UK needs an energetic, trusted visionary who can lead a complex industry. My view is that Boris Johnson, who is experienced at managing major projects, could be effective in pushing through the reforms the sector so desperately needs.
The well documented energy successes in Europe and the US demonstrate the value of close engagement with the whole supply chain from production to distribution. Without this the task of building a functioning energy sector is impossible. Distribution is a particular issue in the UK, where National Grid has failed in its mandate to manage a reliable and future-proof power network and has instead allowed the system to deteriorate to the point where no new generation or interconnection can be introduced without large-scale upgrades, putting the whole country at risk of blackouts.
Even the government’s housing plans, a core part of the Conservative manifesto, could be compromised due to National Grid’s lack of available capacity in the South of England and the impossibility of adding any meaningful new generation. Until the system is upgraded we face an unhappy choice between sporadic blackouts affecting new and existing homes or else newly built homes waiting for power. The wait-and-see approach is unacceptable for a party which claims to have a long-term economic plan. No reform strategy can possibly have any hope of success without a resolution to this crisis.
As for the energy sources themselves, Germany (renewables), France (nuclear) and Italy (gas) all offer examples of the benefits of focusing on one or two areas and doing them well. In the UK, gas and nuclear are the keys to safeguarding our energy security and yet the government appears clueless as to what it will take to develop those industries adequately.
In the North Sea, we are currently at a crunch point with oil and gas majors deciding whether to maintain investments of £12bn or take that capital to Asian or Eastern European markets with higher revenues, better incentives and more stable tax and policy environments. Failure to listen to their concerns will cost us seven years in the development of a crucial part of the sector. It will also do fundamental damage to UK content and the local supply chain, potentially resulting in tens of thousands more unemployed and putting huge pressure on the budget due to rapid narrowing of the tax base.
Expanding the remit of the Oil and Gas Authority is supposed to offer much-needed stability by enhancing the powers of an independent regulator at arm’s length from central government. But in reality it’s just another ill-defined body staffed by people with limited understanding of the commercial and technical pressures of the modern energy sector. These are the same civil servants who once worked for DECC and BIS. It was originally tasked with increasing oil and gas production and creating jobs, but neither is looking likely to happen. It has no power to protect British content. Ofgem, in contrast, is in a much better state but is struggling to prove its effectiveness in the absence of a balanced energy policy.
The Conservatives have a golden opportunity to bring UK energy sector into the 21st century and it would be a disgrace to squander it on minor tactical, rather than strategic, changes to the legislation. The Energy Bill barely scratches the surface of the problem and the sooner the government acknowledges its shortcomings and calls in expert advice the better. The government should be more flexible and be willing to form expert groups or appoint special advisers for issues that have reached deadlock and require swift, strong and balanced decisions. It should stop living in the bubble of an often ineffective civil service. There’s no shame in bringing in industry experts to tackle complex issues; other countries have done the same and are reaping the rewards. Continued ambiguities – whether it’s the u-turn on wind subsidies, slow decision making over Hinkley C, or constantly shifting fracking policies – are becoming more and more costly.
Fundamental restructuring is urgently needed, framed within a long term vision – two decades and more – to reverse the trend of recent years. If the government cannot produce such a plan it should appoint an independent advisory body to do so, and fast.