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'A balanced approach to Energy – The Nordic Experience'

Malcolm Wicks MP,  Minister of State for Energy
Royal Society, London,  08 September 2006

The politics and public policies of energy supply and financing

This summer I had opportunities to visit Finland, Denmark and Norway where I met with some key players in the Energy scene. Rich experience – seeing hydro projects in Norway, visited Denmark to see distributed energy.

I was impressed by Copenhagen which is a cycling city. We have a great deal to learn from them. In Finland, I saw the developments in civil nuclear power. Scandinavia is rich in expertise and experience and I pay to tribute to that.

We are all facing the wide range of complex issues around energy policy and climate change, which we have sought to address in our recent energy review.

The review

The UK energy review looked at the UK’s progress against the medium and long-term Energy White Paper goals and outlined what more was needed to achieve them.

Our objective has been to put us in a better position to tackle the two major long-term challenges for UK energy policy:

First and foremost following Sir David King, tackling the problem of climate change, as global carbon emissions continue to grow; and

Secondly to deliver secure, clean energy at affordable prices, as we become increasingly dependent on imports for our energy needs.

In terms of the carbon challenge, we need to do more to cut carbon emissions I think. There are 4 main obstacles to achieving that goal:

First, economic growth and energy demand have increased and will increase;

Secondly, large-scale power stations will continue to provide most of our energy needs in the foreseeable future and;

Third, growth in renewables is happening faster than ever before, but realistically renewables will not be able to provide all the energy generation required.

And the final point is that the UK is responsible for 2% of global emissions. We cannot solve the issue of climate change alone, continued international co-operation is also vital, given developments in economies such as China and India.

The decisions we have taken within the review to address this carbon challenge fall broadly into two camps - measures to use less energy and measures to bring on cleaner low carbon energy.

So let me say something about energy efficiency. Cutting energy demand is an ambitious aim. Measures within the review are designed to remove barriers to people becoming more energy efficient.

This package includes giving people real, accurate information about their energy use through smart metering for example, how to lower it and save money at the same time.

It also includes steps such as phasing out inefficient consumer goods, and a series of actions to move towards our long-term ambition of carbon neutral development.

We will be taking forward work on a radical new idea to give energy supply companies incentives to reduce demand and therefore emissions from the home. Certainly there are some sectors such as housing where we should talk of energy reduction not energy efficiency. Incentives for companies to help reduce energy demand. We need to talk about this. Government will also play its part by reducing its own energy demand. We aim to have the central Government estate carbon neutral by 2012.

If all Energy Review proposals were implemented, carbon emissions could be between 19 and 25 million tonnes lower by 2020.

If we add in the potential savings that could be generated if road transport were to be included in the European Union Emissions Trading Scheme, this could increase savings to around 23-32MtC by 2020 now. 32 MtC is the equivalent of saving the total annual CO2 emissions of over 20 million homes.

For businesses, the EU Emissions Trading Scheme and Climate Change Levy will remain key instruments to encouraging more energy saving and emissions reduction.

We are fully committed to the European Union Emissions Trading Scheme. The best way to cut carbon emissions is for the Government to create a framework, which puts a value on carbon. When I say government, I don’t mean government of any one nation state.

The price of carbon plays a key role in making it attractive to save energy and developing clean energy. It incentivises business to reduce its emissions through energy efficiency, switching to a low carbon source of energy or investing in new low carbon technology.

Within the review proposals, we are putting forward plans also for the Energy Performance Commitment which will target emissions from large organisations, such as supermarkets, hotels and government itself. These are currently not covered by the EU ETS. But analysis suggests we could cost effectively save half a million tonnes of carbon per year by 2015 using such an approach.

We are already seeing carbon prices impacting on the economics of some forms of generation, including nuclear. It is our view that a new generation of nuclear power could make a significant contribution to meeting our goals for both carbon emissions and security of supply. It is one of Sir David King’s wedges and I think it is important.

The consultation highlighted the current regulatory barriers to new nuclear. We will remove these barriers to new investment by reducing regulatory risk in the planning and licensing process, clarifying the strategy for decommissioning and waste and undertaking assessment on suitable sites. Considerations of waste, safety and security are of course paramount.

However, we are entirely clear that in terms of new build it will be for the private sector to propose, develop, construct and operate any new nuclear power stations. It is the Government’s role to ensure that there are no barriers to the market being able to take this decision.

In the coming decades, Britain will import more of its energy such as gas. But we need to get the balance right – insecure and unstable world. There is a premium on ‘home’ grown energy. In the 21st century energy supply is energy security, an increasingly important dimension of national security.

I want to say something now about renewables. Carbon pricing does not just help bring on new emerging technology and nuclear, it also has a key function in driving up demand for renewables.

We already have a number of measures to incentivise renewables, including the Renewables Obligation and also £500m of funding for a range of support programmes for emerging technologies such as marine. As a result, renewables are providing 4% and a growing proportion of total electricity supplied in the UK.

We are going to strengthen the Renewables Obligation by extending it to 20% and consult also on modifying it to target different levels of support between emerging and more established technologies so that the newer technologies receive the support they need.

We will take action on grid issues too and the specific issues of planning and renewables. Securing planning permission can leave developers facing uncertainty and delay. We are committed to fundamental reform of the planning system.

Now let me say something about distributed generation. Large-scale projects and plants, as part of our highly ‘centralised’ energy system is not the only way forward.

There is a real potential to create a clean, efficient and diverse ‘distributed’ energy system producing heat or electricity on a small scale (or even large scale seen in Copenhagen) and used at a local level.

Many small-scale technologies use renewable sources that emit little or no carbon. More distributed generation also helps give us more diversity in our energy market.

We have already begun implementing our microgeneration strategy and the review includes proposals for a comprehensive review of the incentives and the barriers for distributed generation.

The evidence shows however that, whilst renewables and distributed generation have great promise for the future, we will still need some large-scale power stations to provide our energy needs in the foreseeable future.

Around a third of our current generation capacity is due to close by 2015 and, despite the drive for energy efficiency, will need to be replaced.

Without changes, much of the new investment needed is likely to be in gas power stations, leaving us increasingly reliant on imported gas. In fact, by 2020 we could be importing as much as 90% of our gas needs compared to about around 10% now.

In order to have secure energy supplies, we need fair access to available supplies from a range of sources. We need the right infrastructure in place to store and transport it, and we need effective markets that ensure supply meets demand in the most efficient way.

To ensure we make the most of our remaining fossil fuel reserves, Government will boost the attractiveness of investment in the UK by immediately refocusing on maintaining reliability and encouraging nearby exploration in the UKCS.

UK coal remains important. For much of last winter, over 50% of our electricity generation came from coal-fired stations. We will convene a coal forum to bring together UK coal producers and suppliers to help find solutions to coal’s high carbon emissions, and for securing the long-term future of UK coal. The Carbon Abatement Technology demonstration programme will formally launch its first call for proposals, worth £10 million, this autumn.

We are also tackling the planning regime. Timely delivery of the right infrastructure is key to secure supplies and managing the risks of depending on imported energy. The planning consents process is simply taking too long at present.

We are looking closely at carbon capture and storage which has the potential to remove some 85% of CO2 emissions, offering the prospect of genuinely clean coal fired power generation. Through the North Sea Basin Task Force, Norway and the UK are co-operating closely on various aspects particularly related to CO2 storage in the North Sea.

Internationally, we will forge stronger political relationships with energy producing countries. Within the EU, we are continuing to support the Commission in securing effective implementation of energy market rules. This will address anti-competitive behaviour and ensure more reliable UK access to gas coming in to European networks.

The actions we are taking to bring on new low carbon generation will, over time, increase distributed energy and help diversify our energy sources. Giving greater clarity on renewables, on nuclear and carbon pricing, as well as improving the planning process, are important components for energy security.

In terms of overall security of supply, the Energy Review measures could result in reduced gas consumption of around 12 – 20 billion cubic meters by 2020, which currently represents about 11-17% of our projected 2020 consumption.

So securing energy supplies and reducing greenhouse gas emissions are rightly at the top of the political agenda. We should seek to give the energy market the clear investment signals it needs and give individuals the motivation and information they need to change the way they use energy. It is now for all of us - business, consumers and Government - to take the journey.

(as delivered)