A speech by Business Secretary Greg Clark on the future of the energy market heralds the end of the trilemma

On 15th November energy secretary, Greg Clark delivered a speech regarding a new set of principles to steer future development of the energy market, during which he declared the energy trilemma to be over. The speech embraced the concept that “cheap power is now green power”.

The energy trilemma relates to the balance between energy security, sustainability and affordability, which have commonly been presented as conflicting aspects of energy production. The necessity to decarbonise generation in the cheapest way possible, while still guaranteeing the security of supply, has been a major ambition behind much of the government’s energy policy.

However, factors such as the falling costs of sustainable energy production have led Greg Clark to replace the trilemma with four key principles that will be applied to energy policy hereafter, which are:

• The use of market-based mechanisms wherever possible;
• That government must be prepared to intervene and provide insurance given the “intrinsic uncertainty” over future technologies;
• That regulation must be agile and responsive if it is to respond effectively to opportunities created by smart and digital technologies, and;
• No ‘free riding’, with all consumers paying their fair share of system costs.

These principles reflect the fact that the agenda is moving forward but inevitably raise questions of their own. Market-based mechanisms can be at odds with government intervention when potential investors are looking for a subsidy to get nearly market-ready technology off the ground. There has been a lot of media attention for solar farms which are promoted as subsidy free but these are often only viable if a customer for the energy is next door to the site which is likely to rule out a lot of sites. The idea that all consumers should pay their fair share of costs sounds equitable but it means that current consumers will be paying for previous underinvestment in infrastructure. It also means that those willing to work off-grid will pay for infrastructure they do not expect to use.

Clearly, the interpretation of these principles will be critical to policy formulation going forward. It is interesting to note that the issue of security is demoted to be of less importance based on facts highlighted in the speech, such as the security margin for gas supplies being around 22% in a winter that is as cold as one in every 20 and the development of liquified natural gas as a global market.

Greg Clark concludes by stating that “it is looking now possible, indeed likely, that by the mid-2020s, green power will be the cheapest power. It can be zero subsidy.” It would be fantastic if this turns out to be the case but in a sector that is dependent upon new technology, products and services if it is not to return to be an industry dominated by 2 or 3 fuels and a small number of big suppliers, then there is a place for subsidy to promote diversity.     

And what of the impact on local authorities? As investors, councils need to balance the risk versus return debate and if appropriate invest in energy generation and infrastructure where it benefits themselves and the communities and economies they serve. It means using your assets most effectively in a changing market.