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Hinkley Point Debacle is Just Latest Example of Failed Government Intervention in Energy Market

    After months of delay, it appears that EDF will not make a final investment decision on the Hinkley Point nuclear power plant later this week. If an investment decision does eventually get the go ahead, evidence suggests that this deal would be terrible value for money for consumers.

    Peter Atherton – a well-respected energy analyst – has highlighted the enormous prospective costs over the coming decades. EDF are being offered guaranteed prices of around twice the wholesale power price, which will be indexed linked to the CPI measure of inflation for 35 years. Atherton argues that an equivalent capacity of gas could be created for just 14% of the cost.

    The Government’s failure to achieve value for money in this deal is just the latest failure in energy policy. Other detrimental government interventions in the energy market include those highlighted by Tony Lodge in his CPS report ‘Great Green Hangover.’ In particular, a combination of EU and domestic legislation is leading to an energy capacity crisis. EU emissions legislation and the unilateral carbon floor price are leading to a large scale closure of baseload capacity, with the recent closure of Rugeley power station being the latest example. This is leaving the UK’s energy system dangerously vulnerable

    Figure 1: Changes in Dispatchable Generation

    Source: Financial Times link

    It is estimated that since 2010 over 15 GW of power has been lost from the system (see figure 1), leading to very narrow electricity margins. National Grid’s latest Winter Outlook Report  suggests that margins are at just 1.2%, increasing to 5.1% with the use of emergency measures. These emergency measures, which include paying large businesses to stop using electricity, had to be used in November last year, and National Grid admit that such emergency measures may be needed more times this winter. This is a real failure in Government policy.

    Of course, the new Conservative Government has made some progress in energy policy. In particular, the Government has removed many roadblocks to the development of shale gas development (highlighted in the CPS’ latest economic bulletin.) But this won’t solve the immediate crisis of energy security. Nor, incidentally, will the Hinkley Point nuclear plant, which is only due to come on stream in the 2020s.

    The Government should accept that intervention in the energy market is not working. The Hinkley Point nuclear power plant deal is bad value for money, and a combination of EU and domestic interventions are leading to mass closure of baseload power plants.

    The Government is attempting to centrally plan Britain’s energy market. Market mechanisms have been squeezed out of energy policy to the detriment of consumers. The Government therefore needs to urgently review how its interventionist policies are damaging the UK’s energy policy, particularly on the carbon price floor and the promotion of renewables. 

    Daniel joined the Centre for Policy Studies as Head of Economic Research in November 2015. He was promoted to Deputy Director in March 2017. Prior to joining the CPS, he worked in research roles for a number of parliamentarians. Daniel left the CPS in March 2018.

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