03-Aug-2015

What does a Conservative government mean for the energy sector?

What does a Conservative government mean for the energy sector?

A change in government often brings a domino effect with it. It affects attitudes and outlooks – from financial markets, to real estate values, to job growth – all facets of life seem to take a collective breath in anticipation of a power change.

Prime Minister David Cameron and Chancellor George Osborne have both promised to bring conservative fiscal values to the country, and that will undoubtedly influence the future of energy production in the United Kingdom.

The energy sector is not immune to changes in Westminster. Under Conservative control, the government’s various positions on energy production and development will no doubt have an effect on energy jobs and the energy infrastructure sector. The key is to try to understand what this new government means to the industry as a whole.

North Sea tanker

Traditional Responses

In most Western countries, a Conservative government means open support for traditional energy production. Development and expansion of fossil fuels typically get priority over alternative forms of energy – or so the established relationship goes.

In his first run as prime minister from 2010, Cameron tried to create an image of the Conservatives building bridges to alternative energy and breaking that traditional mould. He once said the country needed alternative energy growth in order to compete in the European and world economies. His 2010 pre-election pledge to being the “greenest government ever” was ambitious, but as a coalition government they did make progress.

Back in 2013, then Energy Secretary Edward Davey announced that investment in renewable electricity in the UK over a three-year period would lead to the creation of 35,000 jobs across the country, and renewable energy capacity increased by almost 40 per cent from 2012-2013. From Jan 2013-Mar 2015, there was an 11.7 per cent increase in the number of people working in mining, energy and water supply, according to an ONS study.

Earlier this year, Cameron signed a joint pledge with Labour and Liberal Democrat officials, promising to uphold the UK targets for carbon emissions. Further, he agreed to lobby for an ambitious climate change plan with the United Nations, and agreed to phase out unlimited coal-fired power stations.

The party’s view on energy, according to their manifesto, is to "keep your [energy] bills as low as possible". In order to do that, increases in traditional sources of energy need to be maintained, or even increased. After the Conservative win, shares in the traditional, large UK power generators soared, according to The Financial Times.

Despite the buoyant response, the UK economy remains uneven. According to the ONS, the economy grew 0.7 per cent from April to June 2015, compared to 0.4 per cent in the first quarter of the year.

Analysts say the increase is thanks to increased oil and gas production lifting overall industrial output by one per cent, despite a falling oil price and a reduction in manufacturing output. Industrial output in ‘mining and quarrying’ grew by 7.8 per cent when compared to the first quarter of 2015.

Despite this positivity, energy sector watchdog Oil and Gas UK has blamed falling oil prices for an estimated 5,500 job losses in the north. However, the government has put plans in place to combat this, and Conservative leaders are hopeful the recent job loss is a reaction to prices, not a long-term trend. In their manifesto they pledged to support the development of North Sea Oil and Gas, and Conservative tax breaks will stabilise companies. This will, in turn, encourage them to maintain or expand their workforce and it is hoped that the global price will recover, meaning the government will not need to maintain this level of support. 

North Sea Oil Rig

Green Energy

The government has already made moves to end its backing of several wind turbine programmes. Additionally, the new government has caused some stirrings within the green energy leaders after Osborne announced a £910m-a-year raid on the renewable energy sector by changing a climate change levy (CCL).

“The government will review the business energy efficiency tax landscape and consider approaches to simplify and improve the effectiveness of the regime. A consultation will be launched in autumn 2015,” Osborne said.

Osborne also promised to bring forward proposals for a sovereign wealth fund for communities that host shale gas developments, to expand the North Sea investment, and cluster area allowances to include additional activities.

The changes have raised the ire of green energy supporters. Gordon Edge, director of policy for RenewableUK has said that another shift in the rules has made it difficult to predict the future.

“The government had already announced an end to future financial support for onshore wind – even though it’s the most cost-effective form of clean energy we have,” Edge said in a statement.

“Now they’re imposing retrospective cuts on projects already up and running across the entire clean energy sector.”

Despite this blow to onshore wind energy, there is still the potential for other green energy areas to expand. Many companies are waiting for the government to provide “clarity” for future plans, says the Financial Times. This will need to be provided soon due to the legally binding EU target of producing 15 per cent of our energy from renewable sources by 2020. Currently the country is producing around 7 per cent from renewable sources. 

wind turbines

A turn to fracking or nuclear?

A controversial method for extracting oil from the ground, the Conservatives are hoping to move forward with building up a UK fracking industry. Citing a 2012 study published by the UK Department of Energy & Climate Change, with the consultation of the British Geological Survey, the government found that fracking "did not pose a significant risk to water supplies".

The report said if the wells were constructed properly, fracking was no more dangerous than traditional drilling.

The government is likely moving forward with the practice, which will result in the creation of thousands of jobs, particularly in the north of England. As a new energy sector, a mix of both skilled technicians and those with experience from elsewhere in the energy industry will be needed. There are a great number of companies, including Cuadrilla, who are trying to build a presence in the British fracking market. Cuadrilla is currently appealing a recent council denial to set up operations in Lancashire.

It is unclear where exactly the Conservatives will carry nuclear power in the near future. In 2013, the coalition government at the time approved the first nuclear power plant in the UK for 20 years: Hinkley Point C. In its party manifesto, the Conservatives hope to "secure clean but affordable energy supplies for generations to come" via "a significant expansion in new nuclear and gas".

Government leaders have gone into little detail about how they would achieve an expansion in nuclear power generation, however a great deal more infrastructure will need to be put in place for any serious commitment to nuclear energy to take place. This will create not only jobs within these nuclear plants, but also thousands of infrastructure jobs to ensure that there is the necessary framework in place for nuclear energy production to become sustainable in the long term. This will range from initial construction of the plants to the continual maintenance and running of them.

Image Credit: Andrew Imanaka, Alan JamiesonBerardo62steve p2008 (flickr.com)

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