We need a new energy trilemma … like a hole in the head!

15 Mar 2016 | David Casale

Ian Marchant, ex CEO of SSE and ex IE President, has suggested we need a second Trilemma (see below). However, as the first Trilemma achieved nothing, the second is surely a step in the wrong direction.

The first trilemma was a brain teaser that the power industry created where it was befuddled into doing very little as it had three problems it needed to solve and couldn’t. They were (in case somehow you managed to avoid them):

  • Security of supply
  • Decarbonisation
  • Affordability (price…. in old money)

If I had a penny for every CEO of the major energy companies who has a slide with these three issues on it, I would retire.

The trilemma came to an abrupt end some 10 years after its birth when HM Treasury slapped a Levy Control Framework on the industry – in effect a cap on spending, or in economic terms a price limit. The Treasury’s realisation was that we can only do what we can afford to do., Planning to achieve something other than that should be a crime (alongside banking crime).

The lost billions as the industry sent itself around the trilemma merry-go-round could have been usefully aimed at the problem which is, and always has been, delivering power at the least possible cost.

Least Cost Energy Planning (as it was known prior to when the fated trilemma invention took hold) is a lost art. It does not take place without the other two key issues and never has done. Environmental limits have been part of the power industry challenge since the dawn of time. The fact that they are now more stringent is no surprise.

Security of supply has also always been part of the industry. Until recently, we’ve paid for it with a capacity charge – a concept now belatedly making a comeback as the Capacity Mechanism – and in gas, a bigger pipe.

Let’s take Hinkley Point C. This is a new nuclear station that, when built, will replace an old nuclear station or two – no trilemma here, just a least cost planning need. Let’s take a less well publicised topic – interconnectors with Europe. Brexit or not the drive to interconnect has and always will be strong as it’s cheap. As gas and power interconnection capacity grows, so does security of supply. Approximately 7,000 MW of new interconnection is planned in the UK, twice as much as Hinkley Point C – by the way, as yet, this is hardly mentioned in the press.

In part 2 I commit the second demand side trilemma to room 101.

We need a referendum on carbon, which in my view poses a much simpler question than the Brexit issue. Possible topics include :Do you think that the United Kingdom should deliver on its commitment (to the world) to decarbonise our energy system by 80% by 2050?

The Intended Nationally Determined Contributions (INDCs) agreed in Paris are the sign that, referendum or not, the world is moving towards carbon budgets. Our INDC (either inside or outside of the EU) will be discussed with us by our global trade partners such as USA, India, South Korea and China (amongst others). They may take a dim view of anything other than a plan to deliver.

So we have a carbon budget (no, we do), we are energy secure as it is abundant (check the oil price) and why should we pay more? Our industry needs to bury trilemma1, man up and get back to some good old fashioned least cost energy planning.

David Casale

Director

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