The Guardian view on UK energy policy: the limits of the market | Editorial

Government has a vital role ensuring that green goals and supply needs are both maintained

Last year was a rough one for the climate change secretary, the Lib Dems’ Ed Davey. The big government offer in 2010 of a clear, market-driven energy policy turns out to have been easier to promise than to deliver. That is partly the fault of coalition politics. Energy became the battleground for the most fundamental differences between the two partners. As a result, a policy area that demands long-term thinking has been mired in uncertainty. The case for green energy has been widely undermined by misleading accounts of its cost to the consumer. David Cameron, the man who used to say vote blue, go green, now talks of cutting the green crap.

In the midst of the political squabbling, the Department of Energy and Climate Change (Decc) has lurched between crises. Last month, faced with warnings from the power-generation industry that they were working at something close to full capacity, with a margin of as little as 2% at times of peak demand, Mr Davey’s department looked for a cast-iron guarantee that the lights would stay on. Although many independent observers argued that the 2% margin was likely to be breached only in an extreme winter, and then only for a very short period, last month the National Grid held the first ever auction for capacity contracts which can ensure the lights will not go out. The generators guaranteed they would have power available and, in return, were guaranteed sales at a price that, when it comes on stream three years from now, will cost consumers about £1bn a year.

This deal is due to be approved by Mr Davey on Monday. There are two particularly contentious aspects to it. First, it has turned out to be a subsidy to generators for doing something that they would do anyway. Second, instead of encouraging a new generation of gas-fired power stations to enter the market, two-thirds will come from existing capacity, which means that nearly a fifth of the supply will come from dirty coal and contentious biomass, while EDF, the major nuclear power operator, will generate a further 16%.

Meanwhile, the Decc has rebooted the struggling green deal, the flagship project to encourage home owners to invest in energy efficiency. Beset by complexity, at the end of its second year in 2013, green deal had attracted fewer than 4,000 takers. It has now been rebranded as the green deal home improvement fund, and extended to allow consumers to borrow up to £6,000 to invest in more difficult projects like solid-wall insulation. The experience of the green deal home improvement fund has been the reverse of its predecessor. It’s so successful that it’s a complete sellout.

Reshaping energy policy will inevitably be a long-haul project. The political right argues that, with well-designed market incentives, innovative technologies will emerge. Incentives certainly have their place. But, overall, this is too big a challenge, as Mr Davey’s experience has shown, to rely exclusively on incentivising. Moreover, in moral terms, this is a challenge that cannot be left wholly to the market. At its heart, energy policy generates conflicting rights. Only the state can ensure fairness between them.

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