The Role of Gas in UK Energy Policy

UK energy policy has often mystified outsiders. Politicians and policy makers talk grandly of solving the energy “trilemma” of affordability, environmental sustainability and security of supply. Many energy experts seem ensnared in endless debates regarding the minutiae of the electricity supply sector whilst in the real world coal displaces gas in power generation, prices rise and, if the media headlines are to be believed, gas and electricity supplies are in danger – the familiar ‘lights going out’ story.

The paper addresses two primary questions:

• How has UK energy policy since 2000 impacted on the gas sector?
• Is there a case for an integrated natural gas strategy for the UK or, in other words, does the absence of such a strategy pose particular risks to the energy sector and the wider UK economy? If this is the case what specific policy initiatives might be directed at the gas market?

The UK gas market is a complex set of interactions and whilst a long-term future for gas is not assured it should continue to play a key role in the provision of heat and power in the UK for many years to come. There is the danger that policy initiatives aimed at a particular part of the energy chain will fail to address the specific needs and opportunities presented by natural gas. It is therefore essential that policy makers recognise and plan for the continuing large scale presence of gas in the energy mix.

Without this recognition, the lead times involved may mean the gas-related components of the portfolio are not available when required. This is a particularly pressing issue for new generation gas-fired power plant. The recent capacity auctions have not incentivised any additional projects and this could lead to inadequate reserve margins of reliable generation unless the market dynamics shift in favour of gas. In this context it should be noted that the lead time for new CCGTs, including planning and approval is between 4 and 8 years.

There should be little doubt that there will be a role for gas for the next two decades at least and the gas industry needs to ensure it can play this role effectively. The critical challenge for policy makers is to identify the ways in which the role can be integrated positively and effectively within the broader energy framework to ensure an equitable outcome for the industry and an optimal solution for consumers and taxpayers.

Executive Summary

By: Chris N Le Fevre

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