Ever the twain shall meet

"Where politics and markets meet" is - since the beginning of this year - the slogan of European Energy Review - and it was never as appropriate as in today's edition of our newsletter.

Today we have an article for you about one of the most remarkable - and most significant - turnarounds in energy policy that is taking place in Europe today: the UK Electricity Market Reform. Indeed, in combination with the country's new gas strategy and its policy to encourage nuclear power, the UK has embarked on what analyst Robert Hensgens rightly calls a new Energy Master Plan.

Not only that, as Hensgens explains in an article for EER, it is a Master Plan that flat-out reverses - to the consternation of many, including the European Commission - the UK's former enthusiastic embrace of liberalisation.

As most of our readers are no doubt aware, historically - in the 1990s - the UK, together with the Scandinavian countries, was in the vanguard of energy market liberalisation in Europe. The country's rapid and radical breakup of old structures in the power and gas sector served as a model for the rest of Europe.

Since a few years, however, the beneficial results of these policies have increasingly been called into question. It has been clear for some time that not enough was being invested in power generation. At the same time, the UK government's commitment to ambitious climate change targets made new investment all the more necessary. As our UK correspondent Alex Forbes wrote in an article for EER on 15 March 2010: "The British government faces tough choices: it has huge climate ambitions - but cannot let the lights go out. The big question is whether and to what extent the government will intervene in the free electricity market."

Well, that question has now been answered: the government intends to intervene heavily. The "free electricity market" is effectively dead in the UK.

This new interventionist policy has led to a lot of criticism from economists and others who would have preferred the UK to stick to a liberalised market, with climate change targets being achieved on the basis of a market price for CO2 emissions.

Hensgens, however, takes a different view. He argues that a CO2-price alone, even if supported by a government-guaranteed floor price, would by no means have been enough to generate sufficient investment to ensure that both the country's climate ambitions are met and "the lights do not go out". Although he does criticise the UK for taking a frightfully unilateral approach inside Europe, he feels that the government had little choice than to do what it has done.

Indeed, he feels that the UK might well once again set an example for the rest of Europe.

Robert's concise and informative article is recommended reading for anyone in the energy sector who wants to go where Politics and Markets Meet.