EUE0068 - Evidence on Leaving the EU: implications for UK energy policy

Written evidence submitted by the Institution Of Mechanical Engineers (EUE0068)

To what extent have the Government’s energy policies been driven by the EU? Are any policy areas currently at risk?

a) From the 1990s, energy policy has historically and progressively rolled back from centralised orchestration to regulatory oversight, where energy is supplied by the market under the Electricity Trading Arrangements. The effect has been for economics to determine how energy is generated and delivered within the UK. The UK government (HMG) has some ability to influence these economics and could choose to steer the market further to realise lower carbon and capacity objectives. There is a risk that only allowing the market to decide allows the ‘worst’ option for energy generation to flourish.

b) HMG energy policies are aligned with, but not driven by the EU, when considering the deregulation of the energy market allowing private companies to meet energy supply requirements - whether this market continues to provide the most economic supply and sufficient generating margin simultaneously requires consultation and review.

c) Energy is a shared competence with the EU – so while the electricity “mix” has been a sovereign matter for the UK, HMG are signed up to the EU 20:20:20 (20% Increase in energy efficiency, 20% reduction in CO2 emissions, 20% Renewables) 2020 and EU 2030 policy targets - some of which are nominally binding. It is important that these targets are seen to encompass the whole energy system including heat, transport and the system architecture.

d) Policy areas currently at risk include Research & Development no longer funded at a national level. Nuclear Fusion research is one example where the EU is the majority funding provider (see part 4).

e) UK energy supply policies have been inextricably linked to environmental ambitions and their associated constraints. There is now an opportunity to rethink the UK's position on energy supply with respect to climate change policy and how HMG might tackle this free of EU constraints. This does not mean our commitment to reducing emissions to air, land and water should be diminished, but that new approaches can be considered that work more appropriately with UK industry, transport, farming and environmental management and their connectivity.

What should be the Government’s priorities on energy when negotiating the UK’s exit from the EU? What would a successful negotiation outcome look like?

a) To prevent interference with energy supplies. The UK currently has gas lines from mainland Europe, Norway and a capability to import LPG at Milford Haven. Supplies should be provided unhindered and at market rates and not be influenced by foreign governments or the EU. Of particular concern is the knock-on effect of the EU-Russia gas relationship.

b) Electricity is supplied through the interconnectors between England and France at Dungeness. This should be unhindered and supplied at market rates not influenced by foreign governments or the EU. Supplies are also shared in Ireland and whilst modest they need to be free of EU tariff controls.

c) With generating margins reduced in UK, these supplies are vital and there are risks foreign supplies could be withheld for non-commercial reasons. Similarly, EU Energy investment requires protection and should not be reprioritised due to Brexit. It is important that at this point the HMG does identify the ‘real’ capacity margin and what types of power stations/ generation may fulfil this best.

d) Future negotiations on EU rules affecting nuclear power must consider the scale of the upfront investment required to bring about new capacity. Contracts for Difference have helped to counteract these investment challenges.

What aspects of existing EU energy policies and directives are beneficial to the UK? What should be the Government’s priorities in deciding which EU-led energy policies and legislation to retain?

a) HMG must consider the whole energy system in the UK when making decisions about which EU led regulations and directives to maintain. The way in which we can generate and transmit electricity and energy for all sectors must be delivered with connected and supported policies across sectors. These different energy types and systems can become symbiotic ensuring security and sustainability of the system. Any EU led policies maintained must enable this. HMG have an opportunity to reshape our energy policy and infrastructure positively and with foresight. Our continued cooperative relationship with the EU will remain an important part of this.

b) The big question for HMG is whether current market conditions allow a sufficient number of attractive business cases to be developed by private sector companies/ consortia/foreign monopolies to provide sufficient new generating capacity. This is an essential consideration for the UK economy in the years to come.

c) The mechanisms that control the capacity market need further reform to promote investment in new capacity. There are developments in this field but the concern is they are not bearing fruit quickly enough. It is important that we understand exactly what the capacity required for the future is with developments in digital support, energy storage and renewables and how these will be influenced by the consumer.

d) The carbon price floor has been helpful in limiting the impact of cheap fracked gas on the electricity industry in the UK, protecting low carbon but with higher cost production.

e) Procurement policies are heavily influenced by EU and prevent UK government intervention. Operating outside EU procurement rules, HMG is more able to direct and manage its energy supplies through reform of electricity trading requirements.

f) EU state aid rules have had an impact on the Contracts for Differences during the negotiation for Hinkley Point C. This has affected the fixed contract price for electricity per MW agreed with site owner EDF to fund the construction business case.

g) Continued participation in the EURATOM treaty needs careful consideration. There are likely to be significant implications with regards to nuclear safeguards associated with changes to IAEA and EURATOM influence.

h) Outside of the EU, the removal of EU constraints imposed on state support for selected energy supply and using industries needs detailed and careful examination. Examples could include intensive energy users such as the steel Industry, the many facets of the transport sector, small to medium nuclear power station development and improving the energy efficiency of the existing and future building stock.

i) Agreed historic UK targets within an EU framework for future percentages of electricity generation by renewable resources were passed without a proper assessment of the implications for electricity system operation. These need to be examined further in the context of the currently emerging system investments for the 2020’s.

j) The EU and UK regulations on electricity storage are currently preventing UK businesses from investing in this technology. Electricity Directive (2009/72/EC) defines the basic principles for the internal market for electricity but does not mention storage at all. In contrast, the Gas Directive (2009/73/EC) does include clear roles for gas storage.[1]

k) Under both EU and UK regulations storage is still treated as a generation asset, however it is often an activity that is taken on more easily by the distribution network operators rather than the power generators. Further aspects of our current regulatory framework prevent distribution licence holders from holding a power generation and supply licence meaning that they are unable to manage electricity storage.[2]

l) The UK Government post-Brexit can and should develop new regulations that enable electricity storage to become more integrated at both the generation and the distribution ends of the electricity system. This will open up opportunities for commercial and domestic storage combined with DSR as well as opportunities for energy farm combinations and managing an increasingly electric transport system whilst securing supplies across all sectors.

m) This action will show the UK to be leading on creating flexible systems for electricity and energy generation as well as providing a platform to transition to a cleaner more secure energy landscape benefiting UK businesses and homes. In turn a new sector will be created, enabling engineering skills and employment opportunities for supply and maintenance of our energy systems.

n) For negative emissions technologies some regulations are still emerging, however for Carbon Capture and Storage this is covered by the EU CCS Directive 2009/31/EC.

o) In the UK the CCS Directive is mainly implemented in the UK through the Energy Act 2008 (Chapter 3), which introduces a new regulatory framework to facilitate the offshore storage of carbon dioxide.

p) Section 36 of the UK Electricity Act 1989 (licensing of power plants) has been amended to implement the CCS Directive requirement that all new combustion power plants over 300MW must be constructed as CO2 Capture Ready (CCR). The Department for Energy and Climate Change (DECC) published a guidance note on CCR in 2009.[3]

Opportunities and barriers and any technology specific issues you would like to get across.

a) There is an opportunity to use Renewable Obligation Certificates to drive the most efficient fossil generation as opposed to more binary policies such as closing all coal stations by 2025.

b) Investment in Nuclear has been minimal for decades. This is an area the UK used to lead the world in but continues to lose that knowledge base. There is potential to use national capability to develop small reactor systems for commercial operation (both water cooled and molten salt designs should be considered). HMG should facilitate a market opportunity for such technology in the UK, particularly in areas needing new medium capacity e.g. Mid Wales, North Scotland and the South Coast, as discussed in the Institution of Mechanical Engineers’ SMR Policy Statement.

c) The UK has significant stockpiles of Plutonium which could be used as fuel in a Fast Reactor. Such a reactor would be a means of converting the Plutonium into a more manageable form and generating power. The UK must retain its knowledge base in this technology so that at a future time, if conditions permit, the UK is able to develop it. This would most likely happen in collaboration with a partner (such as CEA, France or GE Hitachi) leading to a commercial demonstrator. The potential of Fast Reactor technology should be re-considered as part of the UKs future energy strategy. Existing IMechE policy statements and reports support this approach.

d) HMG must provide further support for investors in UK energy supply, such as the sale of NuGen to Toshiba and ENGIE, and Horizon to Hitachi: their Pressurised Water Reactor and Advanced Boiling Water Reactor designs currently going through GDA. Consistency in policy is important – last minute U turns on investment decisions will tend to have an adverse effect on all related prospective investments.

e) Nuclear Fusion Research in the UK has the following EU issues:

The negotiation of the extension of the Joint European Torus operating contract and continued membership of the EUROfusion research consortium beyond 2018 will now be more difficult. Indications are that the Commission will want to extend JET until at least 2020, with further options currently being considered into the mid 2020s. The experiments at JET are critical to the ongoing design work of the international ITER project as outlined in the EU fusion roadmap.
UKAEA research is carried out with partners across Europe. Strong UK government support for fusion research is required to avoid staff and collaborators (including many EU citizens who are based at Culham) making decisions to move elsewhere or deciding not to move to Culham from their home laboratories.
Eligibility for EURATOM and EUROfusion funding of fusion research

f) There is an opportunity for the UK to become a global centre of excellence for the reuse, recycling and disposal of nuclear wastes. By supporting the whole nuclear fuel cycle the UK can create a system that maximises the energy of potential of the fuels used in nuclear power generation.

g) With regard to research and development, the Government should seriously consider the undoubted benefits in participating fully in EU programmes co-ordinating practices and standards in the electricity supply industry.

h) The Climate Change Act and the Climate Change Committee have resulted in the UK’s carbon budget ambitions to be more extensive those of the EU. Brexit gives the UK an opportunity to fully assess the technologies that could potentially deliver the UK’s carbon reduction ambitions and what aspects of the constraints imposed by the Climate Change Act should remain.

September 2016