IEA calls for tougher U.K. energy policy

The International Energy Agency, Paris, has called for tougher energy policies from the U.K. government to improve its performance on emissions, energy security and fuel diversity, and regulation. In a new review of U.K. energy policy, IEA applauded the government's success in opening gas and electricity markets to competition, removing subsidies from coal production, and encouraging renewables (see related stories, this page and on p. 36).

Nov. 2, 1998

3 min read

The International Energy Agency, Paris, has called for tougher energy policies from the U.K. government to improve its performance on emissions, energy security and fuel diversity, and regulation.

In a new review of U.K. energy policy, IEA applauded the government's success in opening gas and electricity markets to competition, removing subsidies from coal production, and encouraging renewables (see related stories, this page and on p. 36).

But the agency warns that the U.K. must improve its energy efficiency measures to meet emissions targets set out in the Kyoto climate change accord (see related story, p. 27).

What's needed

"Fuel switching has been the principal means by which the U.K. has achieved its climate goals to date," said IEA. "There is still some capacity for fuel switching, but the capacity is limited.

"The IEA believes that the energy efficiency programs in place need to be strengthened. Funding is modest at present, and there is little understanding of what have been the results of current policies."

The agency also suggested that the U.K. government should increasingly rely on market responses to consumer needs to drive its policy on energy security and diversity.

If consumers had the option of buying security of supply, through contracts with varying security assurances according to the fuel used, then security would acquire a market value.

Meanwhile, electricity supply in the U.K. is not fully competitive, said IEA, because there are only three electricity generators with enough market influence to determine the pool price of electric power.

"The pool price has been set higher than might be expected in fully competitive conditions," said IEA, "sheltering the entry of new combined-cycle gas turbines.

"The competitiveness of gas-fired plant is assisted by the low spot price of gas, which is probably lower than it should be. The existence of overcapacity lies at the heart of the current situation and will be corrected in time by market forces."

Gas power moratorium

Following the government's recent moratorium on development of new gas-fired power projects, IEA notes that the U.K.'s economic and environmental performance will be reduced if gas use is restricted by government policy for an extended period.

While specific energy industry regulation has been necessary to assist in the liberalization of the U.K. gas and electricity markets, IEA believes the need to distinguish between energy supply and other industries should fade.

"Responsibility for general competition regulation," said IEA, "should be transferred to the Office of Fair Trading and Monopolies & Mergers Commission, under generally applicable competition law.

"The role of the regulator should be confined solely to ensuring the integrity of the system, the neutrality of market operations, accountability, and transparency."