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The UK Meeting the Energy Challenge with Europe

The Rt. Hon. John Hutton MP,  Secretary of State for Business, Enterprise & Regulatory Reform
"Partners in Europe" Energy Seminar, British Embassy Conference Centre, Berlin,  10 December 2007

If climate change presents mankind with the greatest social, economic and political question of this century, then a radical shift in how we source competitive and reliable energy supplies will be the dominant answer.

Those, who have been exposed to the science of climate change, or have seen the reality of the damaging impact we are having on our planet, can do nothing other than conclude we need to reduce global greenhouse gas emissions by at least 50% over the next 50 years.

Without a fundamental shift in world energy production toward diverse sources of clean energy, we will simply be unable to enjoy something that most of the world has taken for granted: an inexorable rise in living standards from one generation to the next.

For countries like the UK - experiencing the switch from net exporter to importer of energy – how we respond to the challenge of shifting energy production will be more important to differentiating our ability to compete and prosper, than it has been at any other time in our history.

We need strong incentives to drive the cost-effective production of low-carbon energy.

To deliver them, politicians and policy makers must show global leadership.

This means making the case for ambitious targets to stimulate changes to energy demand and supply. But also demonstrating a real understanding of the difficulties involved in meeting such targets.

The low-carbon revolution will only happen if the public and business are with us.

Political aspirations – however ideal – only become reality, when inspiring words are backed by credible actions.

At the Bali Climate Change Conference, we need the world to agree to start negotiations on a global climate deal to take us beyond 2012.

In the EU, we must deliver on our ambitious package of energy targets.

To reduce greenhouse gas emissions by 20%, or 30% if we reach international agreement on climate change measures after 2012;

To see emissions trading as a central mechanism for achieving these reductions;

To have 20% of our energy come from renewable sources and to increase energy efficiency by 20% - all by 2020.

Taking the UK’s overall renewable energy supplies from less than 2% now to our share of the EU-wide 20% in 2020 will be a major challenge.

We’re strongly committed to meet it.

Our traditional sources of North Sea energy – although still hugely important - are declining.

It’s time we sourced more energy from our other abundant, natural resources – sea and wind.

We shall need to do more to encourage renewables in the heat and transport sectors. But today I want to focus on electricity.

The UK has some of the best offshore wind resource in the world, a long history of design, installation and operational expertise in the offshore environment and the skills and manufacturing capability to transfer to this exciting new sector.

The challenge for Government and for industry is to turn this potential – for our energy and economy - into a cost-effective reality. This will be a major challenge.

I want to work with you and other member states to help make it happen.

Germany is a world leader in renewable energy. So, it’s particularly apt that I announce here today, proposals for a potential major expansion of UK offshore wind – with a draft plan that could allow companies to develop up to 25 gigawatts of offshore wind by 2020. This is in addition to the 8 gigawatts already planned.

This potential expansion will be subject to the outcome of a Strategic Environmental Assessment.

But if we could manage to achieve this, by 2020 enough electricity could be generated off our shores to power the equivalent of all of the UK’s homes.

This could be a major contribution towards meeting the EU’s target of 20% of energy from renewable sources by 2020.

I look to the Commission’s proposed action plan on offshore – which provides an opportunity to share knowledge and experience – to give helpful guidance on how the application of existing Directives can support increased offshore deployment.

The UK is now the world’s number one location for investment in offshore wind. I want to ensure it remains one of the best places for renewables business.

To help make the connection to UK onshore electricity quicker and cheaper, we will shortly publish our response to consultation on a competitive regulatory regime for offshore electricity transmissions.

I will also chair an enhanced Renewable Advisory Board. With a bigger remit to advise UK Government on the EU 2020 renewables target, and a wider pool of expertise to help deal with issues and opportunities across renewable energy.

And our Renewable Obligation remains a strong commercial incentive.

Since its introduction, renewable electricity generation has more than doubled in the UK. The first gigawatt of wind took around 14 years to become operational, under RO the second took 20 months. By 2010, the RO will provide £1 billion a year in support for renewable electricity generation.

It places an obligation on licensed electricity suppliers to source an increasing proportion of their supply from renewable sources annually.

We plan to extend the obligation level to 20% subject to deployment, and target additional support to help bring emerging technologies such as offshore wind and marine to market more quickly.

These reforms should help UK renewable electricity generation triple by 2015.

Our trajectory on renewables is beyond question. They are as central to our future low carbon economy as chimneys were to the industrial revolution, and road building following the invention of the mass produced car.

We’ve given consent for one of the world’s biggest biomass plants.

We’re taking a hard look at the feasibility of a barrage across the Severn Estuary. This could generate 5% of our electricity needs from a clean, indigenous resource.

Since May 2007, 24 wind farm consents have been granted including final consent for the London Array – the world’s largest offshore wind project.

Our Energy Bill, Planning Bill and Climate Change Bill will also boost our transition to a low carbon economy.

Under the Climate Change Bill, we will be the first country in the world to impose a legal binding duty on Government to ensure we live within challenging 5 year carbon budgets.

And we’ve asked the new independent Climate Change Committee, which will be advising us on these budgets, to review raising our domestic target to an 80% reduction in emissions by 2050.

Increased energy efficiency measures in existing homes and businesses are also essential. And we’re strengthening building regulations to deliver zero-carbon new homes by 2016.

The rapid development and deployment of other low-carbon technologies such as carbon capture and storage, and potentially nuclear subject to the UK Government’s decision shortly, is critical.

Gordon Brown recently announced a competition to establish one of the world’s first commercial scale demonstration projects for carbon capture and storage on a coal power station.

We believe this technology currently offers the best solution to reduce emissions from the use of fossil fuels. And to ensure safe storage and monitoring of carbon dioxide underground, we’re working in the UK and with European partners to build the right regulatory framework.

We’re also working with countries whose emissions from fossil fuels are set to rise rapidly, leading on an EU initiative with the Chinese Government to demonstrate CCS with coal-fired power generation there.

Our Energy Technologies Institute (ETI) – a partnership between Government and business – is spearheading the collaborative development of new commercially viable, sustainable energy technologies.

But in driving the production of low carbon energy resources, we need to be mindful of three things.

First, we must learn from previous experience. To be a global leader - our ambition must be matched by delivery.

Seven years ago, the EU set tough economic targets in Lisbon, only to be blown off course by a lack of focus and action to deliver on them.

Second, we will only build the necessary political consensus to deliver, if the burdens each of us must shoulder are shared in a fair, equitable and credible way.

Third, we must be clear that developing these resources is a means to an end – the reduction of greenhouse gas emissions. That outcome must be our priority.

The public and business will only act, if the measures we put in place put cost-effectiveness front and centre.

Fair, open and well-regulated markets are the best way for us to achieve the massive investment in clean energy needed, and create opportunities for the most efficient and cost-effective technologies and solutions to develop and succeed.

That is why we must continue to move to a liberalised energy market across Europe.

In the UK, we strongly support a fully liberalised European energy market built on full ownership unbundling of networks, strong, independent regulation and greater transparency.

Much of the discussion about EU energy markets focuses on ownership unbundling. I know many here have reservations about such moves. Only a full, frank debate will deliver the right outcomes for EU businesses and consumers, and structures to guarantee secure and sustainable energy supplies.

Our experience – shared by countries including the Netherlands and the Nordic Market that have also opened their energy markets - shows liberalisation to be the most effective way to deliver real choice, better services, greater efficiency and increased investment.

Between 1999 and 2003, 51% of UK consumers switched suppliers to find the best deal for them. Hundreds of thousands continue to do so every month.

UK energy prices to domestic consumers are below the EU average. For small industrial consumers, they remain below or around the EU average. Although prices to the very largest users have risen, we’re still one of the most competitive energy markets in the EU.

Through a transparent market and stable regulatory regime, cost-reflective prices give market players the certainty and signals they need to invest or reduce demand.

Investment in UK transmission is around three times higher than in the US. It’s approximately 40% higher than in the rest of the EU.

Investments in UK electricity transmission have roughly doubled since unbundling. Our competitive gas market has responded to the decline in our indigenous gas reserves with £10 billion of investment in gas facilities.

Coupled with legally binding carbon targets and a strengthened EU-Emissions Trading Scheme – also covering aviation and carbon capture – competitive markets will establish a meaningful price for carbon.

Giving greater clarity to business and incentivising the wider adoption of policies that make a difference and offer value for money.

The work of every country to tackle climate change and energy security is an environmental necessity and economic opportunity.

We need policies, processes and structures that deliver affordable choices to consumers and generate investment from business and cost-effective, sustainable solutions.

I hope we can work together to make that happen.

Thank you.

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