Memorandum submitted by Dieter Helm (NPS 26)

 

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

- 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 The 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