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Parliamentary Group for Energy Studies annual reception

Malcolm Wicks MP,  Minister of State for Energy
London,  28 March 2006

I am honoured to speak at the Group’s annual reception.

I would like to say a few words about some of the key issues that have dominated energy discussion recently, notably prices, security of supply and climate change, and conclude with a few words about the energy review. I am sure you all have strong views on each of these subjects, and I look forward to hearing some of them during the Q&A session later.

The Government takes the situation of rising energy prices extremely seriously and we are leaving no stone unturned in our efforts to find solutions and reduce the impacts on those affected, particularly energy intensive industrial users and those in fuel poverty.

It is our role to make sure that the market is working properly and encourage reform in neighbouring markets in the EU and further afield, on which we are increasingly reliant.

We have been encouraging the European Commission to implement energy market liberalisation across the EU, and warmly welcome the hard-hitting report, published on 16 February. We support the Commission’s announcement of anti-trust action.

Even if further price rises occur, domestic gas (and electricity) prices including taxes are still likely to remain below the EU15 median level, with gas prices still remaining the cheapest in the EU15 nations.

Initial estimates of prices in January 2006 to domestic gas consumers including taxes were significantly below prices in other EU15 states including France, Germany and Italy. They were less than one third of the level of prices in Denmark.

It should be noted that between 1990 and 2004, the relative costs of gas to UK industry were £7.9 billion less than their German counterparts. I do however recognise that the UK has seen sharp price rises for industry since then.

Over the long run, our policies have delivered low gas prices and increased choice for domestic and industrial consumers.

There is a great deal of help available to the most vulnerable in society, such as those on low income and the elderly, to help keep their homes warm, e.g. Warm Front, Benefit Entitlement Checks, Winter Fuel Payments and The Home Heat Helpline.

The gas market was tighter this winter than last for a number of reasons including declining North Sea supplies and new gas infrastructure projects coming on-stream later than anticipated. But National Grid stressed that under all credible scenarios, the market would be able to maintain energy supplies to domestic consumers and most smaller businesses and public sector organisations, and they have been proved right.

Equally, the Government have been proved right in not making any knee-jerk reactions to the many ‘crisis’ over the winter, most of which were engineered by the media or those who should know better.

Although National Grid did issue a Gas Balancing Alert on Monday 13 March, this was a prudent signal to the market to further increase gas supplies. A planned measure and not an emergency response; which did not threaten domestic or the huge majority of commercial/industrial supply.

We do not anticipate any further Alerts this winter.

Next winter is likely to remain tight. However there are additional infrastructure projects which are expected to commission during the course of next winter which should help to ease the situation.

There are 3 projects expected to commission in 2006:

• - further upgrade to the existing interconnector from Belgium;
• - the new Langeled pipe-line importing Norwegian gas to Easington;
• - and the new "BBL" ("Balgzand-Bacton Line") interconnector from the Netherlands.

Two further major import facilities are scheduled to commission in 2007-08:

• Dragon LNG import terminal at Milford Haven.
• South Hook LNG import terminal, also at Milford Haven.

In addition, and subject to regulatory consents, two new gas storage facilities may also commission in 2007-08 (Caythorpe and Albury).

DTI has played a proactive role working with developers and regulators to smooth the regulatory path in relation to infrastructure development.

Before concluding my speech by turning to consideration of the energy review, I would like to say a few words about the 2006 Climate Change Programme, launched today.

As the Prime Minister has made clear, tackling climate change is a key priority for this government. All departments are working closely together to drive us towards our short, medium and long-term emissions goals.

It is clear that we are making significant progress. We are one of the few countries who will actually exceed our Kyoto commitment. But it is also clear that there are big challenges here.

Government, businesses and, critically, individuals all have an important role to play if we are going to address these challenges. If we are to succeed in delivering 60% cuts in UK carbon emissions we will need by 2050, the Climate Change Programme cannot be the last word.

Today we have also published the Government’s strategy for the promotion of microgeneration. This set of technologies has real potential to help reduce our carbon emissions, which is why we published it alongside the Climate Change Programme. But they can also help reduce our reliance on imported gas supplies and help tackle fuel poverty.

Part of this strategy is the allocation of capital grants through our Low Carbon Buildings Programme. Following the Chancellor’s announcement last week of an additional £50 million, this Programme now has £80 million to allocate over a three year period. A huge vote of confidence in the microgeneration industry.

But capital grants are not the full answer to achieving the sustainable market for microgeneration that is required to allow these technologies to achieve their potential.

That is why this strategy looks at removing all the barriers that are currently preventing widespread take-up of microgeneration. From lack of information to planning issues to connection to the distribution network - there are several areas where action is required.

We will be working in partnership across Government, with local authorities, with OFGEM and with other key stakeholders to implement this strategy and bring microgeneration into the mainstream, where it belongs.

This brings me neatly on to the Government’s Energy Review.

Our energy policy has delivered many achievements;

• Reductions in our emissions - Latest provisional estimates show that total UK greenhouse gas emission in 2004 have fallen 12.5% below 1990 levels, so we are on track to meet our Kyoto target.
• Secure and reliable energy supplies - There has also been a big leap forward in renewable generation with a record 500MW of wind capacity installed last year. Renewables now account for 4% of our electricity, and with the Renewables Obligation we’re looking for the industry to build on that year by year. £10 billion is being invested in new gas import and storage infrastructure, and proposals are coming forward for investment in new electricity generating capacity as well; none of which costs taxpayers a penny.
• Competitive prices - For almost a decade prices have been amongst the cheapest in Europe. Even when taking in to account recent price increases prices in real terms remain below 1997 levels. Independent league tables show UK has the most competitive energy market in the EU and G7.
• Reduction in fuel poverty - From 1996 to 2003, the number of vulnerable households in fuel poverty in England has fallen from 4.0 million to around 1.0 million. In the UK as a whole vulnerable households in fuel poverty have fallen from 5 million to around 1.5 million in the same period.

And our energy market has for the most part delivered secure and reliable supplies, helped of course by the tremendous benefit we have had from our North Sea oil and gas.

But things have changed since we set out our energy policies in 2003.

• Our own energy reserves have declined faster than anticipated and we have moved to being a net gas importer earlier than envisaged.
• Global demand for energy has increased massively as economies such as China have boomed.
• Evidence of the adverse impacts of climate change has continued to grow.
• Progress towards truly open energy markets across the EU has been slow.

And there are major challenges emerging;

• We need to go even further in reducing emissions to tackle global warming.
• Almost a third of our power stations need to be replaced – by 2020 30% of our generation capacity is likely to go as coal and nuclear plants close.
• We will import more and more oil and gas from a variety of countries; and
• Prices for fossil fuels have been rising across the world, impacting on business and consumers, and forecasts of future prices are now higher than at the time of the Energy White Paper.

These will be addressed by the Review.

The review is wide-ranging, looking at supply and demand side issues. There are no foregone conclusions, and we are open-minded about the outcome.

But we do know there is no single solution; the issues are complex and interrelated.

A public consultation phase was launched on 23rd January, followed by a series of regional seminars to hear views from main stakeholders on the decisions we are facing.

We want a wide-range of consultation responses, and I would encourage all to read the consultation document carefully and to make their views known.