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A fifth of the UK's existing power stations are scheduled to close by 2020. Yet investment into new energy projects fell over the last five years as investors saw the returns as too low and political risk too high. The election result is resolving some political uncertainty and Amber Rudd is bringing deliberately disruptive but innovative ideas to the Department of Energy and Climate Change. We still have a potential supply shortfall, but clean energy technology is moving at a fast pace and should become our mainstream energy source, even without subsidies.
The UK is currently a net importer of gas and coal. An increased focus on renewable sources will not only help the trade balance, but also could give us energy independence, as well as ensuring energy security.
Solar is experiencing the energy equivalent of Moore's Law in computing… exponential increases in capacity with accompanying falls in price. The costs of clean generation have fallen sharply, and renewables are a more economic proposition even without the same levels of subsidies that were required to install the technology.
The subsidy regimes for renewables, gas, coal and nuclear are expensive for government and consumers, and can sometimes have distorting effects. The wrong types of subsidy can discourage innovation, reducing downward pressure on prices. Amber Rudd is clarifying the government's position on changing market support mechanisms for solar and wind energy. We now need to allocate money previously spent on these subsidies for renewables on R&D, as well as ending subsidies for nuclear, gas and coal energy.
The Global Apollo programme looks promising. It's being promoted by Sir David King and six lords: John Browne, Richard Layard, Gus O'Donnell, Martin Rees, Nicolas Stern and Adair Turner and calls for a programme of publicly funded research and development to put the UK at the forefront of renewable energy generation. Like most great ideas it is conceptually straightforward: the sun provides 5,000 times more energy to the earth's surface than our total human demand for energy. We need to understand it, harness it and deliver it in a technically and economically effective way.
The government still has to reconcile three policy goals:
Reconciling these goals isn't easy, and we certainly can't afford a 'brownout'. We are closing old and polluting coal-fired power plants, but gas it is still a tempting backup, where electricity can be generated simply, day or night, rain, wind or shine. But the transitional role of carbon technologies shouldn't put us off the low-carbon, renewable-focused endgame, especially as we continue to develop better storage and transmission for electricity generated at the "wrong" times or in distant places.
Nuclear energy is low carbon, but the costs are too high. The £25bn estimates for a new nuclear power station at Hinkley Point in Somerset make it look like an expensive white elephant – another potential chapter in the Crewe and King book of government blunders. It will be slow to build, produce prohibitively expensive power at over £100 per MWH to be subsidised over 30 years – plus nuclear fuel decommissioning costs which, according to the Whole of Government Accounts, cost the taxpayer £80bn.
We must ensure that global temperatures don't rise by two degrees Celsius over historic 1880 levels. So it's essential that the UK moves towards renewable energy sources in the next five years. Last year,renewables accounted for only 6% of UK energy generation.
Legal & General can help. Firstly, as the UK's largest investor we believe that the companies we invest in can be more successful if they adopt low carbon policies, and we are engaging with them actively on this topic.
Secondly, we've already invested over £6.5 billion of our £15 billion target in UK infrastructure.
And now we want to make direct investments into renewable energy sources. The UK has some of the best environmental conditions for renewable energy in the world, with strong wind, solar, tidal and wave resources. We intend to continue investing in renewable energy despite government announcements that they are considering ending subsidies to wind and solar energy.
Taking a balanced approach to energy generation, and prioritising research and development, would give us greater flexibility in moving towards renewable energy sources. The cost of renewable energy has fallen considerably in the last few years and now is the time for investors and governments to get things moving.
We owe this to the next generation: we have already saddled them with over-priced housing and too much debt: let's not add further environmental damage, excessive energy costs and £100 billion nuclear decommissioning, to the toxic mix.