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Falling energy prices 'could threaten renewables'

UK Energy Research Centre

3 min read Partner content

Falling global energy prices could compromise investment in renewables, a leading energy expert has warned.

The recent fall in gas and oil prices has been welcomed by Governments and consumers alike, though questions have been asked about the extent to which energy companies have passed on savings to retail customers.
However, Professor Jim Watson of the UK Energy Research Centre has warned that it could impact on green technologies by increasing the costs to consumers of supporting their deployment.
The Government is having a “disconnected set of conversations,” he says, on the potential knock on effects of lower prices in the gas and oil markets.
He suggests that state subsidies to the renewable sector, which are a set amount, could be used up more quickly as the relative cost of other sources of electricity falls.
Politicians have been keen to reassure the industry that there is enough slack built into the system to allow for recent market fluctuations.
Professor Watson is sceptical, but adds: “I hope that’s true.”
Labour’s Energy Price Freeze
Labour’s plans to freeze energy prices for customers has come under scrutiny in recent weeks, prompting some senior figures in the party to refer to it as a ‘cap’ rather than a ‘freeze’; a clarification which would allow for prices to be lowered but not raised over the proposed 20-month period.
Professor Watson is “not convinced” by the policy and describes it as “risky”.
He goes on to say he understands “where the anger comes from,” and admits that it has “grabbed headlines,” but suggests that other measures advocated by Labour and other parties might be more effective in improving economic efficiency in the sector.
He proposes splitting up wholesale and retail markets, as well as empowering the regulator to intervene when necessary.
This, he says, would inject the UK energy market with the “new thinking,” and “new business models,” it requires.     
Professor Watson warns that if global gas prices continue to fall it could “take the momentum out,” of the UK’s fledgling shale gas industry, but adds that it is currently “too early to tell” what the effect will be.
Any immediate impact, he suggests, will only be “marginal,” given that we have “barely started”.
Safety concerns over fracking have been raised by both campaigners and parliamentarians and Labour has proposed amendments to the Government’s Infrastructure Bill that would impose tighter regulations on the industry.   
Professor Watson describes the political discourse on the issue as “loud and adversarial,” but supports a tough regime even if it is only to build public trust.
It is vital, he says, to win “public consent,” before commercial production of shale gas begins in the UK.     
Energy Efficiency
Professor Watson would like to see “a big push” on energy efficiency from whichever political party, or parties, are in power after May’s general election.
A “strong political commitment” is needed on the issue, he says, as it will go some way to reducing any upward pressure on consumer bills – and to protecting consumers from higher fossil fuel prices if they rise again in future.