Last week I unveiled the coalition government’s proposals for the most radical reform of the electricity market since privatisation in the 1980s. The plans set out in the White Paper aim to keep the UK’s lights on and consumer bills down and shift the economy away from a high-risk, high-carbon future.
With a quarter of the UK’s generating capacity shutting down over the next ten years, as old coal and nuclear power stations close, it’s clear that we have a Herculean task ahead of us. Over the next ten years, more than £110bn in investment is needed to build the equivalent of twenty large power stations and upgrade the grid – more than twice the rate of the last decade. In the longer term, by 2050, electricity demand is set to double, as transport and heating is steadily shifted on to electricity.
Business as usual is not an option: the current electricity market is unable to meet this challenge. Without action, there is a risk of uncomfortably low capacity margins from around the end of the decade, and a far higher chance of costly blackouts – and, furthermore, we would miss the ambitious carbon reduction targets we agreed just a couple of months ago.
The Electricity Market Reform White Paper published on 12 July sets out a series of key measures to attract investment, reduce the impact on consumer bills, and create a secure mix of electricity sources. The Renewables Roadmap published alongside this outlines a plan of action to accelerate renewable energy deployment – to meet the EU target of 15 per cent of all UK energy by 2020 – while driving down costs.
Key elements of the reform package include:
- The introduction of new long-term contracts (Feed-in Tariffs with Contracts for Difference) to provide stable financial incentives to invest in all forms of low-carbon electricity generation (renewables and, in line with the coalition agreement, nuclear) – creating certainty for investors, encouraging new entrants and minimising costs.
- An Emissions Performance Standard to limit carbon emissions from fossil fuel power stations, set at 450g CO2/kWh, to reinforce the requirement that no new coal-fired power stations can be built without carbon capture and storage, but also to ensure that the investment in gas which will be necessary in the short term can take place.
- A Capacity Mechanism to ensure security of supply at periods of peak demand, including demand response as well as generation. We are consulting further on the type of mechanism required.
- The Chancellor’s announcement in Budget 2011 that he will put in place a Carbon Price Floor from 2013, putting a fair price on carbon and providing a stronger incentive to invest in low-carbon generation now;
The electricity market reform package will minimise the impact on bills by insulating the UK from volatile fossil fuel prices and providing investors with the certainty they need to raise capital more cheaply. Estimates are that with the market left as it is now, domestic electricity bills will be around £200 higher in 2030 compared with today’s average annual household bill (about £500). The market reform packages published last week limit this increase to £160, £40 lower than it would otherwise be.
And alongside this, of course, we aim to get energy bills down overall by improving energy efficiency in homes and buildings. The Energy Bill, which has almost completed its passage through Parliament, will allow us to introduce the flagship Green Deal programme, the first scheme of its kind in the world, which will enable householders and businesses to reduce their need for energy at no up-front cost.
After a wide consultation, I believe our reforms represent the best deal for Britain. They will get us off the hook of relying so heavily on imported fossil fuels by creating a greener, cleaner and potentially cheaper mix of electricity sources here in the UK. A new generation of power sources, including low-carbon generation and carbon capture and storage, along with new gas plants to provide flexibility and back-up capacity, will secure our electricity supply as well as bringing new jobs and new expertise to the UK economy.
This package will keep the lights on and bills down. It will insure us against shocks from volatile parts of the world like Libya, and end the dithering about our need for new electricity plant.
Chris Huhne MP is the Secretary of State for Energy and Climate Change.
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13 Comments
You should get lots of points for driving this home Mr Secretary of State for Energy and Climate Change. I salute you!
We need a simple version of this coming out of Lib Dem HQ with a figure showing the projected savings for our Focuses. The right wing papers are already blaming us for the increase in gas prices and we need to be able to put our view clearly.
Can anyone tell me what the party’s policy is on nuclear power now? Is the party still opposed to new nuclear power stations?
If so, are there any plans to change party policy to bring it into line with what Chris Huhne is doing now?
Or will Huhne be fighting the next election on a platform of opposition to his own actions as a minister?
Good work, congratulations.
For a different slant on this one could look at a recent study carried out by the Electricity Policy Research Group at Cambridge “The implications of recent UK energy policy for the consumer: A report for the Consumers’ Association”
They found that “The EMR envisages household bills rising by 32% by 2030 and by 47% per unit of electricity
on average.” and that “The preferred package transfers significant amounts of money to the
private sector and the government from consumers”.
This seems logical. Offshore wind is around 4 times the cost of gas to produce electricity so the more we use it the higher prices will be. It would be much more honest to admit that to fight global warming we will have to pay more rather than pretend there will be ‘savings’.
http://www.eprg.group.cam.ac.uk/wp-content/uploads/2011/05/Implications-of-recent-UK-energy-policy-report-exec-summary.pdf
Overall, this seems like a sensible package building on the proven advantages of Feed-in-Tariffs.
But one thing. Do I correctly understand (as I read in one newspaper) that the FiTs for low carbon will extend to existing capacity which, in large part means existing nuclear? If so, this would be a departure from the rule for small-scale renewables where the FiTs introduced last year are NOT grandfathered to existing capacity on the basis that this capacity exists already so needs no incentive.
If the new FiTs do apply to existing nuclear then this represents a huge bung for EdF. Please say it ain’t so.
Meanwhile, how exactly the industry is NOT a cartel remains an open question.
http://liberaleye.wordpress.com/2008/07/29/small-earthquake-in-the-energy-market/
Only in the medium term, because of the temporary low cost of oil and gas. Eventually (by 2050, probably sooner), it will become a saving. There will be a period of higher-than-possible energy prices before then; exactly how long is difficult to predict.
Of course, that’s assuming you don’t count the cost of damage resulting from global warming.
I don’t think saying that the LDs will save you money after 2050 is going to be a winning line somehow… 🙂
Actually, the savings (compared to BAU) by 2016 will be significant. This is something we can shout about!
@adam – there are no savings, we are replacing relatively cheap forms of generation with much more expensive ones. how could that possibly be cheaper?The Dept of Energy’s own figures show substantial cost increases
I’d congratulate you but it looks like I will be choosing between feeding myself and keeping myself warm this winter. My bills are going up by around %18. I really struggled last year and this year will be worse.
Nobody in Westminster really cares about fuel prices. On an MP’s £60,000 salary they don’t have this dilemma. How is it right that in 2011, we still have pensioners and sick/disabled/unemployed people who will have to go cold in the winter? How is it right that the execs in these companies are getting higher salaries and bigger bonuses when our weakest fellow citizens cannot afford heating?
Privatisation of communications has been a success. Privatisation of essential utilities such as power, water and gas should be renationalised. I am bloody sick and tired of having to freeze my arse off in the winter (which makes my condition even worse) while these companies are swimming in profit.
@Simon:
You’re confusing capital costs with running costs. Look up OfGem’s Project Discovery scenarios to see what the implications of increased gas prices will be on electricity costs.
I note http://www.guardian.co.uk/politics/2011/jul/22/chris-huhne-fossil-fuel-lobby ; I have to say that I like Chris Huhne’s politics. I’ve said it before and, no doubt, I’ll say it again, but, to my mind, he has the most important cabinet position of all the LDs for positive change for the future. So far he’s doing a decent job. I’m glad he has ignored all the anti-nuclear screeching, there is no other low carbon technology presently available which provides genuine baseload capability (no doubt will draw forth criticism). I’m also very happy to see strong economic incentives for renewable energy and for efficiency. Can’t say I’m thrilled with CCS or gas, but (shrugs) I guess that they are inevitable at this stage of technological development. I would like to see some emphasis (perhaps in co-operation with Vince Cable or David Willetts) on support for the development of more experimental energy sources (e.g. tidal or geothermal) which could provide baseload capacity down the track. I would also like to hear of efforts to encourage industry to set up manufacturing plant in the UK to supply low carbon energy technology.
So, 7/10, for Chris Huhne so far, but I bloody hope he sorts out his personal difficulties pdq. And no more hostages to fortune.