Memorandum submitted by Professor Dieter
Helm, University of Oxford
1. INTRODUCTION
NPSs are part of a new framework of planning
which attempts to integrate energy and climate change policy into
the planning process. The government's policies are set in white
papers; these are then translated through the "Overarching
National Policy Statement for Energy" as the framework for
the Infrastructure Planning Commission (IPC), and then a series
of NPSs deal with each of the dimensions and technologies of the
energy sector.
It is a necessary condition for the NPSs to meet
the public interest that the overall energy policy framework is
coherent, consistent and deliverable. The NPSs themselves must
be clear, and the NPSs need to be capable of covering conditions
for some time to come in a sector where assets tend to be very
long lived and capital intensive.
This memorandum deals with three aspects of the NPSs:
— the coherence of the overall framework
and the Overarching NPS;
— the process for revisions and replacements;
and
— the coverage of the NPSs.
2. THE COHERENCE
OF THE
OVERALL FRAMEWORK
2.1 The NPSs are intended to provide a key
linkage in the delivery of energy policy objectives: they translate
the overall framework into guidance on planning decisions, to
be taken by a non-elected new public body—the IPC. The democratic
content is limited to energy and climate change legislation, and
some elements of Parliamentary scrutiny. The NPSs can also be
easily changed so that where investments are complimentary, there
can be no certainty that associated infrastructure will continue
to be required (see section 3 below).
2.2 From the perspective of the NPSs, the two
core concepts here are "need" and "complimentarity".
"Need" is what the NPSs are supposed to provide a statement
of, instead of the under the old regime where need was established
as part of the planning process. The government tells the IPC
what is needed, and the IPC takes this as given. Thus the government
of the day—with perhaps as little as 36% of the popular
vote, defines in the NPSs what is required without a vote in Parliament.
2.3 Complimentarity relates to the interdependency
of investment decisions. Energy provision is via a system: the
need for any particular component depends upon the rest of the
system. In a dynamic context, need depends on other investments
actually being made. The new planning framework tries to achieve
this by providing the Overarching NPS. If this is inconsistent,
incomplete or simply not credible, the rest of the edifice falls.
2.4 The NPSs are therefore only as good
as the overall framework—it is a basic assumption of the
NPSs that this is well worked out, coherent and deliverable. Unfortunately
this is not the case: the Government's energy policy is neither
capable of achieving its climate change objectives nor ensuring
security of supply. The most recent White Paper, The UK Low
Carbon Transition Plan and the associated documentation includes
a host of different policies for different technologies. In particular,
the renewables target derived from the EU Renewables Directive
is widely agreed to be unachievable. There is no provision for
strategic storage of gas, and the EU ETS provides a short term,
volatile and low price of carbon. As has been recognised by the
Climate Change Committee, the main impacts on UK carbon emissions
have happened independent of government policy. (Indeed the economic
depression has proved to date the most successful mechanism for
reducing emissions). On security of supply, there is no capacity
market, and hence the market is ill designed to deliver the required
capacity margin.
2.5 Of particular relevance for the NPSs,
the renewables target is the one that most exposes the implications
of a non-credible overarching policy. To achieve around 30% wind
by 2020 requires a host of ancillary infrastructure to support
the individual wind farms. Yet if the target is not delivered,
some of this infrastructure may be redundant. There is no provision
in the regulatory regime to recover the transmission costs in
the event that there is such redundancy. But if not, then the
incentives to apply to the IPC for planning permission will be
limited. And if this is the case, then the wind developers will
worry about the lack of transmission. The point here is that "need"
depends on what other investments are being made—it is not
exogenous.
2.6 In the absence of a coherent energy
policy, the "need" is at best ambiguous. It is rather
like trying to define how many aircraft, vehicles and helmets
an army might need, without defining the overall objectives and
strategies in a coherent and deliverable way. Thus the NPSs are
likely to be changed, and indeed the new planning regime makes
changing the NPS very easy.
3. THE PROCESS
OF REVISIONS
AND REPLACEMENTS
3.1 It is stated that "The Secretary
of State must review National Policy Statements, either in whole
or in part, whenever they think it appropriate" (the Government's
English). There must be a significant change in any circumstance,
and account must be taken of whether this could have been anticipated
at the time. The Secretary of State can suspend an existing NPS,
and it will be treated as if it is withdrawn.
3.2 It is important to recognise the consequences
in a context in which the NPSs have not been supported by a Parliamentary
vote. At any time the Secretary of State can decide that there
has been a "significant change of any circumstance".
Thus, a government might introduce a new white paper, or simply
decide that different approaches should be taken to the main instruments
of policy as detailed in the Overarching NPS. This indeed is very
likely. Examples include: a requirement of strategic gas storage,
a floor price of carbon, a capacity market, a greater emphasis
on coal CCS, a downgrading of the renewables targets (probably
at the EU and the UK levels), an acceleration of the nuclear programme,
changes to the demand side through energy efficiency, changes
to the smart metering programme, a reform of Ofgem, and a different
approach to the roll out of electric cars and the associated networks.
3.3 It might be argued that a strength of
the new regime is that a government has the speed and flexibility
to change policy precisely because the NPSs are open to being
withdrawn, revised and restated without a Parliamentary vote.
But this is an illusion: complimentarity matters, and by being
able to change the content with ease, the predictability of energy
policy and the planning regime becomes all the weaker. Faced with
for example a public backlash against rising consumer bills as
a result of the dash-for-wind, the process can be halted quickly.
Then the technology-specific supporting infrastructure might be
stranded. The NPSs try to take the politics out of energy policy,
but what they in fact achieve is reinforcing the political discretion
of ministers.
4. THE COVERAGE
OF THE
NPSS
4.1 The NPSs represent a plan for the planners.
The government's priorities are set very much with 2020 in mind—for
the overarching EU target and the UK own climate change objectives,
and for the EU Renewables Directive. It is therefore not surprising
that the focus is on the planning issues in respect of this timetable.
4.2 Climate change and energy security are however
longer term, as are the supporting investment requirements. Before
2020, most of the capital stock is fixed, and emphasis falls on
building gas CCGT's and wind. After 2020, the priorities are on
the electrification of transport (and all its implications for
energy systems and storage), nuclear, coal CCS and second generation
renewables.
4.3 "Need" depends upon energy
systems, and it is already apparent that the choice between a
variety of technology routes mandates very different infrastructures.
For example, if the UK were to pursue a French-style approach
to nuclear (in the French case 80% of capacity), a centralised
grid would be the "need". But if the future was to be
based on wind and small scale technologies, then a decentralised
grid would be the "need".
4.4 The NPSs avoid making these sots of
choices, by pursuing all the main technologies currently deployable.
This is consistent with the choice of technology being left to
the market—it is up to private companies to decide what
they want to build and to apply for permission. Yet the government
is in fact specifying technologies—for wind, nuclear and
CCS—leaving only CCGTs to the "market".
4.5 Given this specification of technologies,
there is a surprising lack of an overarching "plan"
as to how the bits fit together, and this leads to a number of
omissions within the NPSs. Notable is the absence of a "need"
for the supporting infrastructure for CCS and a consideration
of the implications of an electrification of transport.
4.6 In the CCS case, there are two broad
options for the development of this technology: a bottom up plant-by-plant,
power station-driven set of investments; and a top down development
of a new infrastructure along the lines of the earlier building
out of the natural gas infrastructure. The absence of an overarching
framework for CCS leaves a vacuum at the individual NPS level.
4.7 The electrification of transport is
perhaps the most radical midterm development to the energy system.
It has impacts on the overall demand for energy and its composition,
the networks themselves, and to storage. As with CCS it can be
encouraged to develop in a piecemeal fashion, or it can be built
out as a system. And as with CCS, there is a complimentarity issue:
investing in developing electric cars depends upon there being
a battery-charging network in place—and vice versa.
5. CONCLUSIONS
AND RECOMMENDATIONS
5.1 he major advantages of the new planning
system are that it speeds up decisions, and it forces government
to state the "needs". The former could however have
been achieved within the existing planning system. The latter
requires that there is a coherent overarching energy policy within
which the needs are defined. The current energy policy framework
des not meet this requirement—it has a set of overlapping
and technology-specific targets and instruments, which lack coherence
and credibility.
5.2 As a result, the key NPS—the Overarching
NPS—tries to translate into the planning process a framework
which is unlikely to be delivered and which is wide open to revision.
As energy becomes increasingly important as a political issue,
it is possible that it may come to experience the attention that
health has received over the past decade, and it is possible that
there may be up to one Bill per year on energy and climate change
matters for the foreseeable future. Each change in legislation
potentially changes the Overarching NPS.
5.3 Given the lack of Parliamentary votes
on major infrastructure decisions, the revision process of the
NPSs is easy—and as result the intention to produce a more
predictable planning regime is unlikely to be achieved.
5.4 The new planning regime and the NPSs
are only as good as the policy framework. Unfortunately it is
inadequate to the task, and given that energy is a system (and
climate change and security of supply are system properties),
complimentarity is an integral part of meeting the overarching
objectives and the economic attractiveness of particular projects.
Knowing that the regime can be changed easily undermines the economics
of particular investments. The needs will change, and so will
the NPSs. However well crafted the individual NPSs, they are only
from a public interest perspective as good as the Overarching
NPS, and that in turn is only as good as the energy policy framework.
Unfortunately, it is not that good.
5.5 In part reflecting the weaknesses of
the energy policy upon which the NPSs rest, there are a number
of key aspects which are not sufficiently incorporated into the
NPSs. Most notable are the implications of the electrification
of transport and the CCS networks—both of which have radical
implications for the energy infrastructure.
January 2010
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