New inquiry to examine technologies and pricing

The future shape of the UK’s energy market – including sources of domestic supply and pricing strategies – is subject to a new inquiry launched yesterday.

Led by the House of Lords Economic Affairs Committee, the inquiry will assess whether a combination of policy and subsidies have led to failures in the energy market, and what new action may be needed.

“Coal power stations are being closed and old nuclear stations are coming towards the end of their life,” said committee chair Lord Hollick. “But it is not clear how they will be replaced and at what cost.”

The inquiry centres on the premise that UK energy policy over the last decade has focused on three objectives: maintaining supply and minimizing threats to energy security; keeping supply costs competitive for businesses and consumers users; and, de-carbonization, sought primarily by closing coal-fired plants and offering subsidies to renewable energy infrastructure.

According to a House of Lords release yesterday, a report by the committee two years ago into the economic impact on UK energy policy of shale gas and oil concluded that there had been a lack of clarity and consistency in energy policy over many years.

“This failure of policy had left the UK dangerously close to lacking sufficient electricity generating capacity,” said Lord Hollick. “Over two years later, little has changed.”

The UK, with its history of offshore production, was a net exporter of oil, natural gas liquids and gas until 2005. Since that time, the UK has been reliant on overseas imports to meet domestic demand.

Data from our Evaluate Energy team confirms that in the past decade that disparity has been greatest in 2013, when the UK imported 1.2 million boe/d more than it exported. In 2015, that figure was 1.05 million boe/d.

UK oil/NGL/gas production has declined every year since 2000, when it stood at 4.45 million boe/d, to 1.44 million boe/d in 2014. It increased slightly in 2015, to 1.6 million boe/d.

The committee will seek to identify emerging technologies that could materially alter the UK energy market over the next decade and beyond.

This will likely include discussion over the role played by on-shore shale gas and other alternatives. Earlier this year, former UK energy minister Andrea Leadsom described shale gas as an effective potential “bridging fuel” amid goals to reduce reliance on coal while seeking alternative future power supplies. She viewed shale as a homegrown solution that could create thousands of jobs during development and production. 

Lord Hollick added: “The energy market involves an extraordinarily complicated mix of policy interventions and subsidies. Every investment in electricity generating supply is effectively determined by the government. This inquiry will seek to investigate whether current policy is delivering the best deal for energy users and whether it is striking the correct balance between private and public sector involvement."