With reports emerging last week that the newly-installed Truss Government was planning on pressing the pause button on the Energy Security Bill, much of the industry was taken aback. Almost a decade after the last Energy Bill was passed, and with the added focus on energy matters prompted by the recent spike in wholesale gas prices, the general consensus was that now was the time to legislate. Instead, the new Business and Energy Secretary, Jacob Rees-Mogg, has all but confirmed that the Bill will not be taken forward in its current form.
Is the energy industry right to be worried in this case?
Firstly, it is worth reflecting that, much as the Bill would have been needed both to future-proof the UK’s energy system from possible shocks and to ensure a smooth transition towards Net Zero, it was not a response to the current crisis. The Government’s plan to tackle soaring energy bills for both households and now businesses – only announced yesterday due to the national period of mourning – rightly takes precedent in the packed legislative calendar of this new administration. In addition, it would be counterintuitive to legislate to extend the Default Tariff Price Cap having effectively suspended it for two years as Liz Truss did at the start of the month.
Secondly, one of the medium-term levers the Government is exploring is decoupling the electricity price from the gas price in the ‘as available’ market – a move which would reduce price volatility for consumers. But this proposal is not part of the current Energy Bill as presented to Parliament, it forms part of the Department for Business, Energy and Industrial Strategy (BEIS)’s Review of Electricity Market Arrangements – commonly known as REMA. While the REMA consultation has a few more weeks yet to run (deadline is 10 October), a decision on decoupling could be taken in a relatively short space of time, and with Parliament only returning from Party Conference recess on 11 October there is ample time to put these arrangements in place shortly after MPs come back to Westminster.
However, these should not be reasons to junk the Bill in its entirety. Reports suggest that the Government will carve out some elements of the Bill and give them to other Departments, such as the Treasury or the Department for Levelling Up. This should worry industry. With the lack of a standalone Energy Department, breaking up the current Bill and handing parts of it over to other ministries risks pushing down the priority order some necessary changes, such as the creation of a Future Systems Operator, or the establishment of funding models for hydrogen production. If anything, the Bill could have acted as a catalyst to make the UK a world leader in some of the technologies of the future, such as carbon capture and storage, and hydrogen fuel cells. Instead, it looks like the UK will lose a possible competitive advantage over the rest of the world and this will be another missed opportunity for the country.
Additionally, even though Truss recommitted to the Net Zero target during her leadership campaign, her moves since should hardly fill the industry with confidence that this is at the top of her agenda. Rees-Mogg has voiced climate-sceptic opinions in the past, and Truss herself has now launched a review into how the UK can reach the target in an “efficient and sustainable” manner. Today’s announcement that the Government has lifted the moratorium on fracking imposed by the Johnson Government will do little to allay the fears of environmentalists – even if the chances of widespread shale gas exploration in the UK remain slim due to the opposition of local communities in the Midlands and the North West.
On the plus side, this review will be led by Chris Skidmore, who has long campaigned on environmental matters and urged the Conservative leadership candidates in the summer to recommit to the Net Zero target. Industry should engage with the process and make any concerns clear from the off.
Business leaders are rightly concerned about the drift which is beginning to happen with this new government. The UK Business Group Alliance for Net Zero has already written to the Prime Minister calling on her to build economic resilience through the delivery of the Net Zero target and by restoring nature but the pressure will need to be kept on in order to communicate the strength of feeling among the business community for decarbonisation and sustainability matters.
From a purely political perspective, junking the Bill offers an opportunity for Labour. By pausing this legislation, the Opposition can accuse the Government of repeating the mistakes of the past, and not taking a decisive step to improve the UK’s energy security – a line that the Labour leader, Keir Starmer, has already been using, especially with regards to nuclear power. Expect more of this line of attack when the party faithful gather in Liverpool from this weekend for Annual Conference.
Energy will remain high on the Government’s agenda, even though the flagship Energy Security Bill has now been paused. Industry needs to be ready to deal with the new landscape even if it makes for tougher work than the previous administration.
If you wish to discuss any of the issues mentioned in this article, please contact Dan in H/Advisors Cicero’s Energy practice on daniel.julian@h-advisors.global
