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Edison Electric Institute (EEI) International Utility Conference

Malcolm Wicks MP,  Minister of State for Energy
London Hilton,  11 March 2008

Twin challenges

I notice that the theme of this conference is “Energy Security VERSUS Climate Change VERSUS Price”. Of course it’s true that these three issues can sometimes pull policy makers in opposing directions, but in the UK we see climate change and energy security as joined at the hip. They are twin challenges, and have to be tackled together.

Energy production contributes more than half of greenhouse gas emissions, so as I’m sure you all accept, to deal with climate change we need to move to a lower-carbon mix of energy sources and use them more efficiently. At the same time, we need to ensure that the UK has secure supplies of energy at affordable prices, as we become increasingly dependent on imported fuel.

Climate Change

Our strategy, which we set out in our Energy White Paper last year, puts us on course to tackle these long term challenges by ensuring we have a diverse supply of clean energy as well as addressing the need to save energy and reduce demand.

Of course, the most cost-effective way to reduce greenhouse gas emissions is for us all to be more energy efficient. Financial measures to encourage this, such as the Climate Change Levy are in place, but we are also working to provide businesses and consumers with high-quality information. For example, we are encouraging smarter metering, and in October, we launched a new forward-looking energy market information service, the Energy Markets Outlook.

But we also need to ensure the energy we do use is cleaner and more sustainable. So in order to move towards more low-carbon technologies, we are supporting the world’s first commercial-scale demonstration of Carbon Capture and Storage for post-combustion coal. This is in addition to continuing our rapid progress with new renewables generation by taking full advantage of the UK’s vast renewable energy sources - particularly wind, wave and tidal resources. The more of this indigenous resource we can utilise, the more diverse our mix of energy and the more secure our energy supplies will be in the future.

Of course, to decarbonise energy production in the long-term, we need to see a robust and meaningful price for carbon. That’s why the EU Emissions Trading Scheme is so important, and why we’re working to reform and strengthen it and expand it to connect with others around the world so that we can push towards a genuinely global carbon market.

An open, liberal market underpins our solutions to both challenges. UK energy markets are recognised as one of the most liberalised and successful in the world, and we’re currently going further by working to remove infrastructure constraints such as unnecessarily burdensome planning processes. However, there is further progress to be made towards fully competitive and transparent international markets.

The draft Climate Change Bill currently going through Parliament will make the UK the first country in the world to set a long term legal framework for reducing emissions: a 60 per cent reduction in CO2 emissions by 2050 with the possibility of increasing this target to 80%.

Energy Security

Many of the UK’s existing electricity-generating plants will close in the coming decades. Given that transport and heat will continue to use fossil fuels to some extent for the foreseeable future, our electricity generation system will need to be producing virtually no carbon emissions by 2050. As existing plants are decommissioned, therefore, we need to ensure that the investment framework is right for energy companies to build new plant, and that all low-carbon options are available in the mix.

This is one reason why, after a thorough consultation process, we announced in January our decision to invite energy companies to bring forward plans to build and operate new nuclear power stations. Nuclear power will contribute very considerably to our energy security, while moving us towards our long-term carbon reduction targets in a cost-effective way.

We are making rapid progress on renewables, and are fully committed to the EU target of 20% of energy from renewables by 2020. The UK’s own share of that will be around 15%, which is extremely ambitious - requiring us to redouble our efforts. Since we introduced the Renewables Obligation in 2002, the proportion of electricity supplied from renewable sources has more than doubled: from 1.8% then to over 4.6% now. We already expect this to triple to 15% by 2015, but we will have to go considerably further to play our part in meeting the 2020 target, as we are determined to do.

Currently, the UK has more than 160 wind farms with over 2 gigawatts of installed capacity, and last year we gave the final consents for the world’s biggest offshore wind farm (the London Array), and one of the world’s largest biomass plants (Port Talbot). By the end of this year, the UK will have more installed offshore wind capacity than any other country in the world.

But we’re going even further: in December we launched a Strategic Environmental Assessment on a draft plan for up to an additional 25 gigawatts of offshore wind power. This could mean that offshore wind could be generating enough power for up to 25 million homes by 2020 - the equivalent of all UK homes.

We are also conducting a feasibility study for the Severn estuary, which has the second largest tidal range of any estuary in the world and the potential to generate 5% of UK electricity.

Of course, it’s for the market to decide which forms of generating technology it wants to invest in, but we are working with the regulator Ofgem and others to ensure that our energy markets function successfully and support our policy goals.

Prices

This all does cost money.

Energy prices are determined most directly by commercial decisions by suppliers, but we can’t forget that suppliers’ costs are heavily dependent on transportation charges and environmental regulations. The cost of tackling climate change inevitably is reflected in the energy bills that consumers pay, whether they’re domestic or business users.

As wholesale energy prices rise, we believe that our competitive market provides the best long-term protection for UK consumers; and indeed, over the last 5 years, the UK has enjoyed lower prices overall than the EU15 average.

Our framework ensures that no company can dominate energy production, generation or supply and that consumers can switch suppliers to get a better deal.

Levels of switching are healthy, though I am keen, as Ofgem is, to ensure that the information and processes required to switch suppliers are easily accessible to all consumers, including the least well off.

Fuel poverty came down year-on-year since 1997 but the recent rises in global energy prices have meant that fuel poverty increased last year, and this year will be another difficult year. This is a matter of great concern to me personally, and is taken very seriously across Government.

So we are making great efforts to tackle the issue: the Warm Front scheme to improve the energy efficiency of qualifying households; Winter Fuel Payments to help those who are 60 or over with fuel costs; the Decent Homes Standard to improve energy efficiency in social homes; and from April the Carbon Emissions Reduction Target will be include a specific requirement to help a priority group of low-income and elderly consumers - helping us to meet a key goal that every home should be adequately and affordably heated.

I’m not complacent about this, however; [I don’t want to pre-empt what the Chancellor will say in the Budget tomorrow, but] we do need to continue to look for ways to do more.

Three Bills

Finally, I’d just like to mention The Energy Bill, which is currently being scrutinised in Parliament. This takes forward some key aspects of the Energy White Paper, going hand in hand with the Planning Bill and the Climate Change Bill to form a package of action to accelerate the UK's transition to becoming a low carbon economy.

I said at the start that we believe energy security and climate change are joined at the hip. That’s why it’s right that we should be tackling them together, just as we are through the three Bills. And although energy prices are currently high throughout the world, we are taking action to ensure that UK energy markets remain among the most competitive in the world and that the issue of fuel poverty is addressed successfully.