This editorial piece was originally released by the Business Mirror and was authored by Trevor Lewis, dated 19 August 2014. Lewis is chargé d’ affaires at the British Embassy Manila.
Can I convince you in 800 words that government and regulation isn’t boring? We normally hear complaints about too much regulation. And there are lots of examples of that. One of the reasons the United Kingdom is consistently ranked highly in global competitiveness rankings is because it takes only 24 hours to register a company and 13 days to set up a business. Regulation should be avoided where it is possible.
Free markets and avoiding red tape is the goal. But markets are not all perfect. Regulation is part of the answer and can be a power for good. Sometimes regulation can incentivize activity. On other occasions it might be needed to drive required innovation. It can be required to ensure there is sufficient competition and choice. And sometimes it is needed to ensure the right societal outcomes.
Let’s take the example of energy. Energy is a mainstay of prosperity and essential for our day-to-day needs. But markets, left to their own devices, would not ensure access for all. They would not strike a balance between climate and energy security. And they would not ensure sufficient resilience to withstand and recover quickly from major disasters. We see some of these challenges in the Philippines.
In the UK we are seeking to maintain the excellence of our infrastructure and competitive advantage by reshaping our regulatory environment in the energy sector. The results should be cheaper energy, greener energy, thousands of well-paid jobs and investment, more choice and, most important, security and resilience of supply.
We had to act because we looked long term and realized that in the next 20 years, around a quarter of our existing energy infrastructure (about 20 gigawatts) will shut down, while demand for energy will double by 2050. Twenty years is a long time, more than three presidential terms in the Philippines. But without action now, we would undoubtedly have an energy emergency in the future. So we acted.
Our response will provide incentives and security the private sector needs. Initiatives include Contracts for Difference (CFD) and the Capacity Market (CM). CFD requires generators to sell energy into the market as usual but provides a top-up from the market price to reflect the cost of investing in a particular low-carbon technology. CM, a competitive auction process, works by offering all capacity providers (e.g., power stations, electricity storage and capacity provided by demand side response) a steady, predictable revenue stream on which they can base their future investments. In return for this revenue they must deliver energy when needed to keep the lights on, or face penalties.
We want the very best solutions and industry practices. We are very proud in the UK to have a large number of world-class energy companies. But no country has a monopoly of best practice and choice is the greatest defense the public has. We are, therefore, also open to investment from all around the world. We expect around £110 billion (about P8.1 trillion) of investment to result, a good percentage from overseas.
And we can do this while ensuring that the consumers get a good and fair deal. Energy regulators will have powers to prosecute any abuse of the market. Consumers will also receive help to minimize their use of electricity and avoid waste. Action on energy efficiency is already saving the average British household around £200 (P14,600) a year. The average household needs about 20 percent less power on a like for like comparison than we did 10 years ago.
This is a lot of regulation. But it isn’t too much or over-regulation for such a vitally important sector. Planning and regulation will help avoid an energy emergency and balance all the needs of the country.
In the Philippines we hear a lot about the current energy emergency. Short-term measures appear inevitable and necessary. But the need for short-term action suggests that the long-term framework has not provided the right mix of incentives for business, levels of choice and protection for the public.
Politics and public service are seldom fair or easy. Those dealing with energy problems now are, in reality, dealing with the accumulation of imperfections from the past, as well as the present. And it is also unfair because any regulations and policies put in place now will not immediately transform the energy sector—for example, it takes on average five years to plan and build a power station. But the success or failure of the decisions made now will be apparent in the years ahead. Success is attainable. The consequences of failure are too great for too many to allow. I wish those handling this goodluck and goodspeed.
Have I convinced you that regulation isn’t boring? Even if you are yet to be persuaded, I think the case of energy makes a very strong case that is vital for the country.
