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Ed Davey served as Energy and Climate Change Secretary from February 2012 to May 2015. In that role he was one of the highest ranking Liberal Democrats in the coalition government. During his time as Secretary of State he represented the UK at the Lima climate change talks in December 2014, an important precursor to the Paris global climate change deal signed the following year. He lost his Kingston and Surbiton seat at the May 2015 general election, only to regain it earlier this year.
Jon Bernstein (JB): How would you characterise the state of the energy market today?
Ed Davey (ED): The transition to low carbon—whether it’s power, transport or heat—is picking up speed. The decline in coal and the investment in renewables has been quite spectacular. The biggest thing is the dramatic drop in the price of solar energy, particularly when one looks at it in a global context with the emergence of massive new markets in China, India and the Middle East. Solar prices are dropping and it’s only going one way. And in terms of where the big increases in demand will be in future—whether it’s rural areas, whether it’s Africa—solar is increasingly the power source of choice.
JB: What does the fall in the price of solar tell us about markets and subsidies? Perhaps it tells us we should let the markets decide.
ED: No. They require subsidies to get going, particularly when you are in a market dominated by fossil fuels. We would not have got where we are today without subsidies. Clearly, you want to get rid of them as fast as you possibly can. [As Secretary of State] I tended to try and marketise the reduction so people were competing for any remaining subsidies. That was my preferred model with Contracts for Difference (CFDs) [which effectively guaranteed prices for renewable energy suppliers]. I would also point out that fossil fuels are being subsidised because they are causing the problem and not paying a carbon tax anywhere near what it should be.
JB: So an effective subsidy exists already?
ED: Yes. And because renewables are clean they are super competitive. If those not laden down with vested interests got their heads around basic economics, they’d see what a dramatic, fantastically competitive renewable regime we have developed.
I would like to see other low-carbon technologies and power come on stream, particularly Carbon Capture and Storage (CCS). If I was an oil and gas company I’d say, “Let’s not wait for government. Let’s get behind CCS.”
JB: What’s the advantage of carbon capture and storage?
ED: [Among other things] it would enable you to use gas going forward. Gas power stations with CCS can be more flexible. There is a question mark over whether we’re going to need that type of flexibility or whether the flexibility that we are going to be using with intermittent renewables is more linked to smart interconnectors and, above all, storage. The missing piece in power is storage.
JB: Doesn’t storage and distribution remain the real barrier to the widespread adoption of renewables?
ED: There’s no doubt that storage and distribution is a barrier to total penetration. It’s not a barrier in the UK with the diverse power system that we’ve developed. But there could come a point even if you have lots of smart technologies you would still need a lot more interconnectors and a lot more storage to balance it out. And then you can bring in other renewable technologies such as tidal lagoons, an extraordinarily cost-effective solution built to last 125 years with zero or low decommissioning costs which makes them rather more attractive than nuclear power. And because they can act as a storage system they offer huge advantages to the system.
The core question of storage is absolutely fundamental. Even two or three years ago, people were sceptical about our ability to make progress. But today, the storage story is increasingly resembling the solar story. The predictions of solar costs were always wrong. The only organisation that got close to getting the fall in solar prices correct was Greenpeace.
JB: Why were most people so wrong?
ED: I don’t know, and I’m not saying I got it right. But one thing is for sure: when you’ve got large-scale innovation for something that is as fundamental as energy, it might well be that things happen more quickly because the prize is much greater. Take, for example, the last solar auction in India. The price of solar was 18 per cent lower than electricity generated by coal-fired plants. Think how fast has that happened.
JB: What do you say to those who remain sceptical about renewable sources of energy?
ED: Wake up and smell the coffee. They may think that the UK is not the best place for solar but most people are forecasting there will be grid parity [where alternative energy sources generate power at a cost that is less than or equal to the price of purchasing power from the electricity grid] and costs will come down in the early 2020s, if not before. And I wouldn’t bet against UK subsidy-free solar at the back end of this decade or early next decade. I would compare the way we did subsidies with Germany who will be spending a fortune on their solar power. They just went for it with no constraints.
JB: During your time as Secretary of State Energy and Climate Change, what’s your proudest achievement?
ED: More than trebling renewable power. Plus, the negotiation with the European Union for 2030 climate change targets. I ensured that these were technology-neutral [providers could not favour one type of technology over another] so there was a role for CCS and that they were really ambitious. It required UK leadership to deliver that.
JB: And if you had one regret, what would that be?
ED: The Green Deal [a finance mechanism which eliminated the need for consumers to pay upfront for efficiency improvements in their homes]. It didn’t work very well. And although we managed to do an awful lot through something called the Energy Company Obligation (Eco), which required energy firms to make homes more efficient, there’s a huge amount more to do.
JB: Why didn’t the Green Deal work out?
ED: We thought everybody was going to use it but when you started to really understand it, it was clear it wasn’t going to happen. When I took over, the ship had more or less sailed and when I looked at it, I wasn’t too sure [it would work]. I kept being told that there were no upfront costs to the homeowner. And when I started thinking about the costs, I couldn’t make it work in my head. The shame is that there’s still something in the Green Deal—pay-as-you-save is an interesting model. However, its application is much better in the rented sector. It could only really work in the owner-occupier sector if you were allowed to put many other forms of green energy investment into the Green Deal plan.
JB: How about the subscription-based model for solar panels that’s emerging in the United States from the likes of Tesla?
ED: It’s the sort of thing that should be examined. However, we shouldn’t duck the more fundamental issues. The real question is what role is there for regulation. I fought for regulation in the private rented sector, that means from 1st April 2018 it will be illegal to rent out your property unless it reaches a minimum Energy Performance Certificate (EPC) rating of “E.” That’s not super high but getting rid of properties that rate “F” and “G,” will have a massive impact on carbon emissions, energy savings, as well as going some way towards tackling fuel poverty.
JB: Briefly, what is the role of the policy maker?
ED: First, you’ve got to care about the issue. It’s astonishing how many people don’t grapple with the trilemma [energy security, equity—access and affordability—and sustainability] and allow themselves to be buffeted by vested interests or newspaper headlines. You’ve got to stick to the issues. Second, you need to look at the evidence. Take an evidence- based approach.
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Ed Davey served as Energy and Climate Change Secretary from February 2012 to May 2015. In that role he was one of the highest ranking Liberal Democrats in the coalition government. During his time as Secretary of State he represented the UK at the Lima climate change talks in December 2014, an important precursor to the Paris global climate change deal signed the following year. He lost his Kingston and Surbiton seat at the May 2015 general election, only to regain it earlier this year.
Jon Bernstein (JB): How would you characterise the state of the energy market today?
Ed Davey (ED): The transition to low carbon—whether it’s power, transport or heat—is picking up speed. The decline in coal and the investment in renewables has been quite spectacular. The biggest thing is the dramatic drop in the price of solar energy, particularly when one looks at it in a global context with the emergence of massive new markets in China, India and the Middle East. Solar prices are dropping and it’s only going one way. And in terms of where the big increases in demand will be in future—whether it’s rural areas, whether it’s Africa—solar is increasingly the power source of choice.
JB: What does the fall in the price of solar tell us about markets and subsidies? Perhaps it tells us we should let the markets decide.
ED: No. They require subsidies to get going, particularly when you are in a market dominated by fossil fuels. We would not have got where we are today without subsidies. Clearly, you want to get rid of them as fast as you possibly can. [As Secretary of State] I tended to try and marketise the reduction so people were competing for any remaining subsidies. That was my preferred model with Contracts for Difference (CFDs) [which effectively guaranteed prices for renewable energy suppliers]. I would also point out that fossil fuels are being subsidised because they are causing the problem and not paying a carbon tax anywhere near what it should be.
JB: So an effective subsidy exists already?
ED: Yes. And because renewables are clean they are super competitive. If those not laden down with vested interests got their heads around basic economics, they’d see what a dramatic, fantastically competitive renewable regime we have developed.
I would like to see other low-carbon technologies and power come on stream, particularly Carbon Capture and Storage (CCS). If I was an oil and gas company I’d say, “Let’s not wait for government. Let’s get behind CCS.”
JB: What’s the advantage of carbon capture and storage?
ED: [Among other things] it would enable you to use gas going forward. Gas power stations with CCS can be more flexible. There is a question mark over whether we’re going to need that type of flexibility or whether the flexibility that we are going to be using with intermittent renewables is more linked to smart interconnectors and, above all, storage. The missing piece in power is storage.
JB: Doesn’t storage and distribution remain the real barrier to the widespread adoption of renewables?
ED: There’s no doubt that storage and distribution is a barrier to total penetration. It’s not a barrier in the UK with the diverse power system that we’ve developed. But there could come a point even if you have lots of smart technologies you would still need a lot more interconnectors and a lot more storage to balance it out. And then you can bring in other renewable technologies such as tidal lagoons, an extraordinarily cost-effective solution built to last 125 years with zero or low decommissioning costs which makes them rather more attractive than nuclear power. And because they can act as a storage system they offer huge advantages to the system.
The core question of storage is absolutely fundamental. Even two or three years ago, people were sceptical about our ability to make progress. But today, the storage story is increasingly resembling the solar story. The predictions of solar costs were always wrong. The only organisation that got close to getting the fall in solar prices correct was Greenpeace.
JB: Why were most people so wrong?
ED: I don’t know, and I’m not saying I got it right. But one thing is for sure: when you’ve got large-scale innovation for something that is as fundamental as energy, it might well be that things happen more quickly because the prize is much greater. Take, for example, the last solar auction in India. The price of solar was 18 per cent lower than electricity generated by coal-fired plants. Think how fast has that happened.
JB: What do you say to those who remain sceptical about renewable sources of energy?
ED: Wake up and smell the coffee. They may think that the UK is not the best place for solar but most people are forecasting there will be grid parity [where alternative energy sources generate power at a cost that is less than or equal to the price of purchasing power from the electricity grid] and costs will come down in the early 2020s, if not before. And I wouldn’t bet against UK subsidy-free solar at the back end of this decade or early next decade. I would compare the way we did subsidies with Germany who will be spending a fortune on their solar power. They just went for it with no constraints.
JB: During your time as Secretary of State Energy and Climate Change, what’s your proudest achievement?
ED: More than trebling renewable power. Plus, the negotiation with the European Union for 2030 climate change targets. I ensured that these were technology-neutral [providers could not favour one type of technology over another] so there was a role for CCS and that they were really ambitious. It required UK leadership to deliver that.
JB: And if you had one regret, what would that be?
ED: The Green Deal [a finance mechanism which eliminated the need for consumers to pay upfront for efficiency improvements in their homes]. It didn’t work very well. And although we managed to do an awful lot through something called the Energy Company Obligation (Eco), which required energy firms to make homes more efficient, there’s a huge amount more to do.
JB: Why didn’t the Green Deal work out?
ED: We thought everybody was going to use it but when you started to really understand it, it was clear it wasn’t going to happen. When I took over, the ship had more or less sailed and when I looked at it, I wasn’t too sure [it would work]. I kept being told that there were no upfront costs to the homeowner. And when I started thinking about the costs, I couldn’t make it work in my head. The shame is that there’s still something in the Green Deal—pay-as-you-save is an interesting model. However, its application is much better in the rented sector. It could only really work in the owner-occupier sector if you were allowed to put many other forms of green energy investment into the Green Deal plan.
JB: How about the subscription-based model for solar panels that’s emerging in the United States from the likes of Tesla?
ED: It’s the sort of thing that should be examined. However, we shouldn’t duck the more fundamental issues. The real question is what role is there for regulation. I fought for regulation in the private rented sector, that means from 1st April 2018 it will be illegal to rent out your property unless it reaches a minimum Energy Performance Certificate (EPC) rating of “E.” That’s not super high but getting rid of properties that rate “F” and “G,” will have a massive impact on carbon emissions, energy savings, as well as going some way towards tackling fuel poverty.
JB: Briefly, what is the role of the policy maker?
ED: First, you’ve got to care about the issue. It’s astonishing how many people don’t grapple with the trilemma [energy security, equity—access and affordability—and sustainability] and allow themselves to be buffeted by vested interests or newspaper headlines. You’ve got to stick to the issues. Second, you need to look at the evidence. Take an evidence- based approach.
You can also receive the full report as a fully designed PDF document by simply entering your email below.
[prosform fields="email,forename,surname" signupcode="Energy" countrycode="GB" redirect="the-future-of-energy-is-yours"]
When you sign up for this free report, you will also join our free Prospect newsletter.
Prospect takes your privacy seriously. We promise never to rent or sell your e-mail address to any third party. You can unsubscribe from the Prospect newsletter at any time
