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2011 Annual Energy Statement

Introduction Mr Speaker, with permission I would like to make a statement on our energy policy. This fulfils a commitment made in the Coalition…

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government


Mr Speaker, with permission I would like to make a statement on our energy policy.

This fulfils a commitment made in the Coalition Agreement. In describing the progress we have made, and the policies underway, it also honours one of the Coalition’s founding principles: to open and transparent government.

Mr Speaker, the consumer is at the heart of everything we do. The decisions we make must ensure the consumer is protected as far as possible from rising prices.

So we will secure our energy at the lowest cost: in the short term, by promoting competition. In the medium term, by insulating our homes. And in the long term by steering us away from excessive reliance on fossil fuels and onto clean, green and secure energy.

That is my Department’s ultimate goal: to deliver clean energy for the future, and tackle dangerous climate change. Our vision is of a thriving and globally competitive low-carbon economy: with cleaner energy, more efficient homes, and lower bills.

Over the past twelve months, we have taken significant steps to achieve just that. On both supply and demand, we have begun to deliver key Coalition commitments - starting with energy efficiency.


Mr Speaker, energy saving is now an equal priority with energy production. An economy that wastes energy cannot thrive in a high-demand, low-emissions world. Improving energy efficiency will save money - and cut carbon.

That is why we are creating a new Energy Efficiency Deployment Office within DECC.

Our first task is to make our homes and businesses less leaky and wasteful.

Earlier this year, the Energy Act 2011 received Royal Assent. The Act contains provisions for the Green Deal, the pioneering programme under which business will install energy saving measures in our homes, and will recoup the cost over decades from the energy savings.

I am today launching a consultation on the secondary legislation that will allow Green Deals to begin next Autumn, including the Energy Company Obligation to support those who need the most help.

Improving our buildings is vital. But we must also change the way we warm them in the first place. We are determined to help consumers heat their homes and businesses securely and affordably, and will publish a heat strategy next year.

We are also making it easier for people to save energy. In March, we set out the strategy and timetable for introducing smart meters, which can help consumers manage energy use.

We are continuing to push for ambitious EU vehicle emissions standards. The Government is providing £300 million in consumer incentives for ultra-low-emissions vehicles, and further support for research and development.


Mr Speaker, we are also working to secure Britain’s energy supplies.

We need significant new investment in power plants and infrastructure to meet future demand.

In July, we published the White Paper on electricity market reform. It heralds the biggest change to the market since privatisation.

We are introducing a new system of long-term contracts, to remove uncertainty and attract investment; and a new mechanism for backup electricity generation, to keep the lights on.

We are setting new standards on emissions from power stations, to ensure they are clean. And the Treasury is supporting low-carbon generation with a floor price for carbon, to help encourage low-carbon investment in the UK

Together, the reforms will deliver secure, affordable electricity from a diverse mix of sources, including renewables, new nuclear, and fossil fuels - including carbon capture and storage.

Each of these energy sources will be important. They will work together in concert to deliver a reliable energy system. Over the past year, we have introduced a range of policies to support them.


We have published the first ever Renewables Roadmap, setting out the barriers to deployment, and what must be done to deploy renewable energy at scale. We have also published a consultation on the right level of subsidy to support jobs, investment and growth.

Professor Weightman’s report into nuclear safety after Fukushima reassures me that nuclear can be an important and safe part of the energy mix. In October, as part of our work to enable new nuclear build, I published the regulatory justifications for two reactor designs.

Fossil fuels will remain important. That is why we are firmly committed to carbon capture and storage, with £1 billion still available for projects in the CCS programme despite the disappointment of the Longannet project. Promising projects have been proposed, and we are developing a streamlined selection process, which we will set out shortly.

Gas will continue to feature strongly in our energy mix, and our policies are designed to allow new gas plant to be built. I welcome Ofgem’s proposals to sharpen incentives for reliable gas supply.

We may need further measures to ensure we are ready for low probability, high impact events. I am asking Ofgem to report to us by next Spring on any such measures.

We are improving the technical foundation of our energy security. Earlier this month, we laid the Statutory Security of Supply Report before Parliament. The report sets out future supply and demand forecasts, and discusses risks and drivers.

We are also making it easier for new nationally significant energy projects to be delivered. In July, this House approved the National Policy Statements for Energy Infrastructure, against which major energy projects will be assessed.

Developers can now have greater certainty about how applications for consent will be considered, and absolute certainty on when decisions will be made, with statutory timescales to ensure investor confidence.

Mr Speaker, our actions will maintain the diversity and security of our energy supplies. We are working hard to ensure they are delivered at the lowest possible cost.


In a world of volatile fossil fuel prices, these objectives complement each other. We believe the policies we have introduced will deliver the best value for consumers as we move toward a cleaner energy future.

But as we embark on the transformation of our energy system, we must take people with us.

That is why I am today publishing an assessment of prices, bills and the impact of our policies.

Overall, we anticipate that rising world gas prices will push up bills. But our policies will moderate this rise. By 2020, we expect household bills to be 7% - or £94 - lower than they would otherwise be without our policies. Moreover, bills will be lower during this Parliament, too. Britain’s homes will be cheaper to heat and to light than if we did nothing - in this Parliament, and in the longer term.

These savings result above all from our energy saving policies and from market reform. In addition, we decided to fund the Renewable Heat Incentive and Carbon Capture and Storage commitments from general taxation rather than levies.

To sum up again, rising global fossil fuel prices and decades of underinvestment will mean prices will rise in the UK, just as they will elsewhere. We cannot control global gas prices, but we can soften the blow. Prices and bills are forecast to rise, but we can ensure they rise less than they would otherwise do.

Mr Speaker, we want to leave a fairer energy legacy than those before us. Between 2001 and 2009, fuel poverty doubled. The Warm Home Discount and ‘Affordable Warmth’ part of the ECO are targeted at the poorest and most vulnerable households.

Warm Home Discount will support up to 2 million homes each year, helping over 600,000 poorer pensioners with £120 off their energy bills this Winter. Other vulnerable people will also be eligible for a rebate.

And the Warm Front programme helped 130,000 households last year, providing advice and installing heating and insulation, with a further 90,000 set to benefit over the next two years.

As it phases out, the Affordable Warmth part of the ECO subsidies will phase in to replace it.

We are also helping consumers more generally to take advantage of a competitive energy market.

Consumers could save up to £200 by shopping around for the lowest online rate, but last year less than one in five households switched suppliers. We are making it easier and faster to switch, and have launched a campaign to encourage consumers to ‘check, switch and insulate’ to save.


We are also mindful of the impact on businesses. Earlier this year we published our proposals on simplification of the CRC Energy Efficiency Scheme, and for the new Climate Change Agreements. We are committed to simplifying the regulatory burden on industry, while driving behaviour change to improve efficiency and reduce emissions.

Lower levels of energy efficiency savings mean our policies will typically have a larger impact on energy bills for businesses. By 2020, policies are estimated to add 19% to the average energy bill of businesses that are medium-sized energy consumers.

For large energy intensive users, who are more exposed to fossil fuel price volatility, that figure is between 2% and 20%.

It is important that these industries play their part in the transition to a low-carbon economy. But it is also important that they remain competitive.

That is why we are working with the Department for Business and the Treasury to announce measures before the end of the year to support those energy intensive industries whose competitiveness is most at risk.


The energy sector is a vital part of our economy. Energy industries employ 173,000 people, contribute 3.9% of our GDP - and provide more than half of our industrial investment.

More than 51,000 companies in Britain provide low-carbon and environmental goods and services. Exports are now £11.3 billion per year, up 3.9%. Last year, nearly 4,500 new jobs were created in the sector, which grew by 4.3%.

We expect that our policies like the Renewable Heat Incentive will strengthen supply chains across the country bringing jobs and growth.

The Green Deal alone will kick start at least £14 billion of investment in the decade to 2022, and support at least 65,000 insulation and construction jobs by 2015.

We want to ensure that young people today can play their part in the industries of tomorrow. So we are supporting for 1,000 green apprenticeships, to build the skilled workforce we need to deliver the Green Deal. And we are working with industry and skills bodies to support hundreds of apprentices in the nuclear supply chain.


Mr Speaker, between now and 2030, our relationship with energy will change fundamentally.

We must build a new energy portfolio: one that is equal to our changing needs and our ambitious carbon targets. It must be supported by a new consensus. Helping consumers understand their energy costs, and how our policies affect them, is key. The decisions we take now will affect the way our energy is produced for decades to come.

We must secure huge investment in our energy sector. Building the power plants that will fuel our future prosperity, and the infrastructure that will deliver it. This investment, and the assets it will create, are vital to Britain’s economic recovery.

We must prepare our homes and businesses for this century, not the last. Turning the oldest building stock in Europe into the most improved, with a nationwide commitment to energy efficiency.

We must make good the promise of our scientific and engineering sectors, who will build the next generation of clean energy technology. Allowing them to flourish and compete on the world stage.

These are the aims to which my Department works. The policies I have outlined today are the means with which we will achieve them. We are committed to securing safe, affordable energy supplies as we move toward a low-carbon economy.
I commend this statement to the House.

Published 23 November 2011