Robert Buckland is Joint Secretary of the 1922 Committee, chairs the Conservative Party Human Rights Commission and is MP for South Swindon,

The Government has established three primary pillars on which to build UK Energy Policy, namely security of supply, affordability and low carbon. These three objectives are not easy bedfellows, and they create some challenging objectives for the Government:

  • There is a binding obligation to meet renewable targets by 2020, yet they are proving to be difficult and expensive to deliver, with the majority being provided by intermittent wind generation.
  • Long term low carbon targets can only be met if significant nuclear capacity is built alongside carbon capture and storage (CCS). Post-Fukushima, the cost of nuclear has risen to levels that will stretch the Levy Control Framework in years to come, while CCS is commercially unproven and has been abandoned as unviable by a number of nations.
  • The low cost of coal, partly driven by the shale gas boom in North America, has resulted in increased coal-fired generation and consequent increases in CO2 emissions.

The Cinderella at this party appears to be gas.  Gas is assumed to provide the insurance in the event that insufficient renewables are built, or they fail to operate due to lack of wind or sun.  Similarly, if the nuclear programme is delayed or curtailed in any way, gas is expected to fill the gap.  There is also a growing realisation that the infrastructure involved in domestic heating is so extensive that the idea of a switch from gas to electricity will take decades and carry a significant cost, leaving gas as the primary heating fuel for decades to come.

While additional expectations are being heaped upon the shoulders of gas, domestic production is declining rapidly.  Demand for flexibility from gas supplies is increasing with the intermittent nature of renewable generation, while the capacity for domestic production to flex is decreasing. Finally, as global demand for gas continues to rise, particularly in the developing markets, the UK is becoming less significant and less influential in the international gas market.

If the cornerstone of the UK’s energy economy is increasingly gas, and it is acknowledged as the transition fuel to a low carbon economy, it seems strange that the policy objectives of security and affordability are not garnering greater attention. The Energy Select Committee came to a similar conclusion in October 2011 following an in-depth analysis of UK energy security where they called for a doubling of domestic gas storage capacity[1].

If UK consumers are to be protected from exposure to disruptions in international gas markets, and the consequent implications of gas price spikes, the country must have the capacity to provide insurance against such events.  A recent report by Redpoint Energy (“The Impact of Gas Market Interventions on Energy Security” July 2013) highlighted the net benefit to consumers from the availability of greater volumes of gas storage within the UK market.

The cost of gas storage may be equated to an insurance policy against gas market disruptions and price spikes, but the lack of clarity of such events in the future means that the market struggles to provide appropriate price signals for the delivery of such an insurance policy.  Given this uncertainty and the material cost implications for consumers, there is clearly a role for Government to act in the best interests of consumers.

The market does generally deliver the assets or products to meet the needs of consumers.  However, it is clear that this market is failing Britain’s needs, and targeted intervention is needed to ensure the gas market performs in line with expectations.

It appears that gas storage has an essential role to play in providing secure and reliable energy supplies to the UK energy sector, and that the market is not delivering the level of investment that we need.  This is exactly the sort of long lead infrastructure investment where some form of regulatory intervention will provide a clear benefit to consumers and can help untie the Gordian Knot of UK Energy Security.

[1] ECC Select Committee 8th Report Session 2010-12 “The UK’s Energy Supply: Security or Independence (HC1065) paragraph 77