Mathew Riley, managing director of Infrastructure & Environment at EC Harris, on the tough choices facing Amber Rudd, the new energy and climate change secretary.
Mathew Riley
A Conservative majority, albeit slim, is good news for infrastructure. Lobbying the last government saw progress through the National Infrastructure Plan Strategic Engagement Forum (NIPSEF), and the commitment to London’s Long Term Economic Plan and the Northern Powerhouse.
But government now needs to convert good intention into reality. This government has to build on these foundations and accelerate policies that will lead to delivery – delivery that will create confidence in markets and stimulate economic growth, and delivery that will lead the way to the next generation of infrastructure.
The weakest part of the Conservative manifesto is its energy policies, where it is lukewarm about anything other than new nuclear and gas. So, what are the issues awaiting Amber Rudd as the new face of DECC in her first 12 months, and what choices will she have?
The new energy minister will need to balance the tension between the government’s spend in supporting energy, and funding pressures from the Treasury. It remains to be seen how good Rudd will be at managing this in the face of further funding pressure. However, the Conservative manifesto does support offshore wind (such as Siemens’ investment in Hull), and wave and tidal power (notably Swansea’s tidal lagoon) as well as new nuclear build.
Rudd will have to cope with a backbench dislike of government subsidy expenditure and this pressure is likely to be even more significant with only a slim majority, not to mention anti-renewables and anti-fracking press campaigns. Of real interest is the stronger voice of the Scottish National Party MPs, as the Scottish government sees renewables as a means of asset-led regeneration and will be looking for tangible actions to support this. So Rudd’s resolve will be tested on many fronts.
A focus within days of her appointment was her interview in The Sunday Times where she said the new government would drive shale gas forward. Shale gas, a potential low cost energy option, as witnessed in the US, could be a game-changer for the UK’s energy security. This would support the fact that long-term UK energy supply is becoming critical, yet the Tories are ominously silent on a clear commitment to solving this looming crisis.
Amber Rudd: Challenges
Let’s start with Nuclear New Build, a project that should have been well underway with the first reactor at Hinkley Point. However, as a result of some well-publicised delays, it has become ever more expensive, and our dependency on foreign investment has increased, meaning that this government will be faced with the harsh reality of having to pay more, or having to look elsewhere.
This government will not pay any more, so either we wait for EDF to resolve its differences, or the Japanese solution via Hitachi may well overtake EDF. Hitachi is well advanced in its planning and will have assembled its supply chain by the end of this year in readiness to show UK government and regulators that it is ready to deliver.
The fact that nuclear new build is becoming more expensive is good news for offshore wind investment. Hitherto seen as a poor return on investment for the public purse, it is a major plank of the SNP energy policy. This should be where this government seeks to collaborate with the SNP in return for concessions elsewhere.
Rudd has, unusually for a Tory, already been quoted as being in favour of renewable energy sources. Onshore wind will not grow and solar is a piecemeal solution, but the offshore wind market has been waiting in the wings to become a viable alternative.
Round Three is underway with Neart Na Goithe (448MW) and East Anglia One (714MW) being the most recent announcements. These projects, in addition to the five projects (with a combined capacity of more than 3GW) that were awarded allocations in the Final Investment Decision enabling for Renewables (FIDeR) process in April 2014, means that the UK now has more than 4GW of capacity with contract for differences (CfD) support and more to follow, thus leading to the reduction of the unit cost of investment in the new technology.
Shale gas will be seen as another potential solution. Tapping into the large reserves in Lancashire and the North Yorkshire Moors will be encouraged, as long as local environmental conditions can be met. This will cost the government very little in subsidy and more likely be seen as fiscally positive for the Treasury too, once up and running.
Rather than being seen as someone who has inherited a Lib-Dem-created department, Amber Rudd can make a real impact to society and improve the quality of life by taking tough decisions in these three areas to play her part in getting our economy moving.
Our construction industry cannot invest in the skills and technology we so desperately need if it does not have confidence in the market. It is within the gift of this government, and DECC in particular, to use infrastructure to stimulate economic growth. It just needs to be bold and to take action.
