Corporate report

Single departmental plan: 2015 to 2020

Updated 4 July 2016

This corporate report was withdrawn on 14 December 2017

This was replaced by another version.

£3.3bn Total Departmental Expenditure Limit (DEL) in financial year 2015 to 2016

This includes £0.9bn resource DEL and £2.3bn capital DEL (totals may not sum due to rounding).

Source: Spending Review 2015 and Autumn Statement

Vision

Secure, affordable and clean energy supplies provide the backbone for the UK’s economic success. The government will deliver an energy infrastructure fit for the 21st Century. This means energy which is both cheap and clean. We will meet these goals by nurturing competition and supporting innovation in new technologies. This will help keep bills as low as possible for families and businesses. We are also pushing for ambitious international action on climate change to safeguard our long-term economic and national security.

Our ministers and management

Objectives

1. Ensure the UK has a secure and resilient energy system
2. Keep energy bills as low as possible for households and businesses
3. Secure ambitious international action on climate change and reduce carbon emissions cost-effectively at home
4. Manage the UK’s energy legacy safely and responsibly

1. Security And Resilience: ensure the UK has a secure and resilient energy system

Lead Ministers: The Rt Hon Amber Rudd MP, Secretary of State for Energy and Climate Change and Andrea Leadsom MP, Minister of State

Lead official: Jeremy Pocklington, Director General, Markets And Infrastructure

1.1 What DECC is doing

Ensuring a secure supply of electricity, oil and gas is the government’s first priority. Secure energy, that families and businesses can rely on now and in the future, underpins the success of our economy. In this Parliament, we will work across the oil, gas and electricity sectors to make sure the UK has a well-functioning, competitive and resilient energy system.

Electricity

We will continue to work with Ofgem and National Grid to make sure we have the right tools to ensure secure electricity supplies for the coming few winters.

To provide security of supply beyond that point we will review the operation of the Capacity Market to ensure it provides the right investment incentives for new gas plants to be built in the UK. In parallel we will support an increase in Britain’s interconnection capacity by ensuring a stable regime under which interconnector developers can bring forward projects to enable access to cheaper electricity from Europe at times of peak demand.

Our long-term plan for predictable and clean electricity includes a significant expansion of new nuclear. We therefore welcome plans from developers for a fleet of nuclear plants, including the planned development at Hinkley and proposals for Wylfa and Moorside. We are also commissioning an independent review to assess the strategic case for tidal lagoons.

As the electricity system overall changes, we are working closely with National Grid, Ofgem and the National Infrastructure Commission to consider how best to ensure it meets our future needs, and costs for consumers are minimised. This includes considering new smart technologies such as storage and demand-side response, looking in particular at where it is possible to remove policy and regulatory barriers, and catalyse further innovation. It also includes introducing more competition wherever we can, such as for certain large electricity network assets. We will also consider how to reform the current system operator model to make it more flexible and independent. In parallel, we will continue to take steps to reduce overall demand through better energy efficiency.

Gas

We remain confident in the reliability of our gas infrastructure, which can deliver 50% more than the highest demand ever recorded. The UK’s gas market is one of the most developed and competitive in the world. However, we propose to work with the industry to introduce a process of regular, systematic assessment to examine the risks to the system and the level of security we can expect it to deliver. Results will be published next year.

These high levels of security are supported by the UK’s domestic production of gas. To maintain this we will continue to support development of North Sea oil and gas and to maximise the production of domestic energy sources, fully implementing the recommendations of Sir Ian Wood’s independent review of UK offshore oil and gas recovery. Measures in the Energy Bill, currently before Parliament, are a key stage of this implementation, formally establishing the sector regulator, the Oil and Gas Authority (OGA), as a Government Company, with a focus on maximising the economic recovery of the UK’s remaining reserves.

The OGA was set up as an executive agency of DECC in April 2015, and we aim to establish it as a Government Company by Summer 2016. The OGA will have powers to maximise the economic recovery of the UK’s oil and gas, including the ability to access data, resolve disputes and impose fines up to £1m. We have recently concluded a consultation on a strategy to Maximise the Economic Recovery of the North Sea and published our response to it on 5 February. Once in place, this strategy will set the boundaries of people’s obligations and provide a framework for the OGA as it carries out its role. We are also taking action to help the industry remain strong during this period of low international oil prices, retain vital skills and experience, and remain capable of making the right investment decisions.

To supplement production from the North Sea, we will also continue to support the safe development of shale gas which will strengthen UK energy security. We will ensure that communities that host shale exploration benefit directly; the government has therefore established a Shale Wealth Fund from up to 10% of shale tax revenues, which will invest up to £1 billion in the North and other shale producing areas over the next 25 years. This will also contribute to the government’s commitment to build the Northern Powerhouse.

We will continue to ensure that shale exploration is developed safely, cleanly and responsibly, including, where appropriate, through support for independent environmental monitoring, and that the protections in place are properly explained to local communities. We will continue to work with industry and other key stakeholders to identify remaining barriers to exploration and how these might be resolved, and to ensure that developers communicate fully and effectively with local communities.

Oil

In 2014 the UK ranked fifth in the OECD for security of supply for crude oil and we could have met two thirds of our demand through domestic production. Our security of oil supply is strengthened by access to well-established global oil markets for both crude and transport fuels, which continue to grow to meet world demand.

Resilience

We will continue to work with the energy sector, across government and with bodies such as the Environment Agency, to ensure that the UK’s energy systems and legacy are resilient: identifying developing risks; learning the lessons of events, such as extreme weather, that disrupt supply; and taking appropriate action to mitigate these risks. We will also continue to maintain and test emergency response arrangements. We are looking closely at the resilience of the downstream oil sector and will consider action if necessary.

We will:

• review the operation of the capacity market
• support development of North Sea oil and gas
• support the safe development of shale gas, and ensure that local communities share the proceeds through generous community benefit packages
• build on the National Infrastructure Plan, to deliver the energy infrastructure we need

1.2 How DECC is doing

Security of electricity supply

This is measured using an indicator called Loss of Load Expectation. This gives an indication of the amount of time per year that National Grid may need to call on a range of back-up balancing tools.

1.1 Hours

is the number of hours National Grid is likely to need to use such tools in 2015 to 2016

The lower the Loss of Load Expectation, the more secure the electricity system. The government has a target to make sure it does not go above 3 hours. 1.1 hours shows that we have very high levels of electricity security. It does not mean there will be a loss of supply for that number of hours.

Source: National Grid Winter Outlook 2015/16 Report, p.2

Resilience of the UK’s gas system

This is measured by an assessment of how the system would cope if it lost its largest single piece of infrastructure.

112-113%

is how much demand could be met if the largest piece of gas infrastructure failed, even if demand was higher than usual in a severely cold winter.

This shows the UK could maintain gas supply even in the most difficult circumstances we are likely to face.

Source: DECC Statutory Security of Supply Report 2015, p.14

2. Keeping bills low: keep energy bills as low as possible for households and businesses

Lead Ministers: The Rt Hon Amber Rudd MP, Secretary of State for Energy and Climate Change and Lord Bourne of Aberystwyth, Parliamentary Under Secretary of State for Climate Change

Lead official: Clive Maxwell, Director General, Consumers and Households

2.1 What DECC is doing

We will build an energy system that works for consumers. This means keeping bills as low as possible for hard-working families and businesses. To achieve this we will: control policy costs on bills by cutting subsidies where possible and ensuring value for money; reinvigorate competition in response to the recommendations of the Competition and Markets Authority; support consumers to reduce costs through our energy efficiency programmes; and provide targeted financial support for the individuals and businesses that need it most. In particular, we will protect the most vulnerable households from high energy bills, as part of the action the government is taking to provide security for working people.

Controlling subsidies

We have already taken action to control spend under the Levy Control Framework (LCF), which manages the costs of DECC low carbon electricity policies on bills. In November 2015 the Office of Budget Responsibility’s projections showed that the LCF’s costs were forecast to be £11.2bn in 2020/21 (nominal prices). This equates to £9bn in 2011/12 prices, which is £1.4bn (almost 20%) over the agreed LCF cap of £7.6bn, which is why action was needed.

It is only right that when the costs of renewables fall, subsidies should also fall. We have therefore announced changes to the Renewables Obligation and Feed-in-Tariff programmes (subsidy schemes for demand-led low carbon electricity generation) to bring those costs under control, and published our response to consultations on these changes in December 2015. All of the proposed actions have the potential to save consumers in the region of £500m a year from 2020 to 2021.

The above forms part of the package of measures we announced at the Autumn Statement to reduce the projected cost of green policies on the average annual household energy bill by £30 from 2017. The bulk of these savings will come from reforms to the current Energy Company Obligation (ECO) scheme, under which energy suppliers deliver energy efficiency measures to households. This will be replaced from April 2017 with a new cheaper domestic energy efficiency supplier obligation which will run for 5 years. The new scheme will upgrade the energy efficiency of over 200,000 homes per year, saving those homes up to £300 off their annual energy bill, tackling the root cause of fuel poverty and delivering on the government’s commitment to help 1 million more homes this Parliament.

We also announced that we intend to provide an exemption for Energy Intensive Industries, including the steel industry, from the policy costs of the Renewables Obligation and Feed-in Tariffs, to ensure that they have long-term certainty and remain competitive. This will be subject to consultation and EU State Aid approval.

Competition

More generally, ensuring effective competition in the energy market is at the heart of our approach to keeping bills as low as possible. As well as implementing the recommendations of the Competition and Markets Authority’s energy market investigation, due to be published in 2016, we will continue to support consumers by making switching quicker, easier and more reliable, with the aim of allowing switching in one day by 2018.

We will continue to enable consumers to take greater control of their energy bills. By the end of 2020 every household and small business will have been offered smart electricity and gas meters giving them accurate bills, up to date information on their energy use and the ability to switch energy suppliers more easily. To make the most of the opportunities provided by smart meters, by early 2017 Ofgem will enable “half hourly settlement”. This will enable energy suppliers to offer new time of use tariffs so households can reduce their bills by adjusting their energy use depending on the price of electricity.

And as well as competition in supply, the government also wants to see a competitive electricity generation market, with government out of the way as much as possible by 2025. Our efforts to promote innovation should strengthen this competition, finding cheaper, clean technologies to drive down costs for the whole sector.

Support for households

Energy efficiency measures can also help consumers reduce their demand and lower their energy costs. We will support low-cost measures on energy efficiency with the goal of insulating a million more homes before the end of this Parliament, where possible focussing domestic energy efficiency schemes at those in greatest need. The government will also continue to provide financial support to those at risk of fuel poverty through schemes including the Warm Home Discount and Cold Weather Payments. We will extend the Warm Home Discount to 2020 to 2021 at current levels of £320m a year, rising with inflation.

Support for business

Although the energy intensity of the UK economy has fallen by 24% since 2004, there remains significant untapped potential for energy saving in the business sector. Realising this potential will improve businesses’ productivity and will also support growth. But the business energy tax and policy framework is complex and businesses tell us it does not provide the incentive it could to reduce energy consumption. The government has therefore consulted, through the Business Energy Tax Review, on how to reduce administrative burdens while improving the effectiveness of policy in driving cost-effective energy and carbon savings. A government response to that consultation is expected at the 2016 Budget.

We have been actively considering where and how to support small and medium sized enterprises (SMEs), building on the successful SME Guide to Energy Efficiency. In our work with local government we are exploring how further support can be provided to SMEs on energy efficiency.

The public sector is also a major energy consumer, spending around £4bn each year. We are therefore investing a further £295m in public sector energy efficiency over 5 years to cut energy costs, save carbon and free up resources for other priorities.

We will:

• implement the recommendations of the Competition and Markets Authority investigation that we triggered
• ensure that every home and business in the country has a smart meter by 2020, delivered as cost-effectively as possible so consumers have instant, accurate bills and can switch to an alternative provider within 1 day
• support low-cost measures on energy efficiency, with the goal of insulating a million more homes over the next 5 years, supporting our commitment to tackle fuel poverty

2.2 How DECC is doing

Impact of government policies on average annual household energy bills

-£90

was the impact of government policies on the average household dual-fuel bill in 2014 i.e. bills were £90 lower than they would have been without government policies. The average dual-fuel bill for 2014 was estimated to be £1,369.

Source: DECC Policy impacts on prices and bills 2014

The percentage of fuel poor households living in housing at energy efficiency Band E or above

87%

is the percentage of fuel poor households that were living in housing at energy efficiency Band E or above in 2013, an improvement from 79% in 2010.

We have a fuel poverty target to ensure that as many fuel poor homes as is reasonably practicable achieve a minimum energy efficiency rating of Band E by 2020, and Band C, by 2030. The bespoke fuel poverty energy efficiency rating methodology is used for this purpose.

Source: Annual Fuel Poverty Statistics Report, 2015

Impact of government policies on average annual energy bills of Energy Intensive Industries eligible for all available government support

11%

was the impact of government policies on this group’s average energy bills in 2014.

The average total gas and electricity bill for these users in 2014 was estimated to be £9.6m, although there is large variation in this group. In 2020 the range of support measures available to eligible EIIs could reduce the cost of policies on their energy bills by up to 80% compared with what they would pay in the absence of support.

Source: DECC, Estimated impacts of energy and climate change policies on energy prices and bills, November 2014

Number of smart electricity and gas meters in operation

4.2 million

is the number of domestic and non-domestic smart and advanced meters that are operating across Great Britain.

This is during the Foundation Stage of roll-out. The main installation stage starts in 2016, with 53 million meters to be installed by the end of 2020.

Source: Smart Meters, Great Britain, Quarterly report to end March 2016

Number of homes with at least one insulation measure installed since the start of this Parliament

173,000

Source: Household Energy Efficiency National Statistics, headline release March 2016

3. Decarbonisation: secure ambitious international action on climate change and reduce carbon emissions cost-effectively at home

Lead Ministers: The Rt Hon Amber Rudd MP, Secretary of State for Energy and Climate Change; Andrea Leadsom MP, Minister of State; and Lord Bourne of Aberystwyth, Parliamentary Under Secretary of State for Climate Change

Lead official: Katrina Williams, Director General, International, Science and Resilience

3.1 What DECC is doing

The government is taking action on climate change alongside international partners to safeguard our long-term economic and national security. We are committed to meeting our carbon target of at least an 80% emissions reduction by 2050, as set out in the Climate Change Act. And we are committed to doing so in a way that keeps the cost of action as low as possible, to ensure value for money for our families and businesses.

Our system of Carbon Budgets in the UK – which caps the volume of greenhouse gas emissions the UK can emit during 5-year periods – sets us very clear milestones on the path to achieving that goal. UK emissions are continuing to fall against the backdrop of a growing economy and we are on track to meet the second and third carbon budgets. However, we need to take action across the economy - on transport, heat, agriculture, buildings, industry and waste - if we are going to meet our fourth and fifth Carbon Budgets (2023 to 2027 and 2028 to 2032 respectively). We will set the level of the fifth Carbon Budget by the end of June 2016 and publish plans on how we will meet all of these carbon commitments by the end of the year.

Heat

Decarbonising our heating supplies will be a key challenge. Some examples of the action we are taking include providing over £300m of funding for local heat infrastructure over the next 5 years, and generating enough heat to support the equivalent of over 400,000 homes. We are also increasing funding for the Renewable Heat Incentive to £1.15bn by 2020 to 2021, while reforming the scheme with a focus on improving value for money and reducing costs, improving cost control and budget management, and exploring the best way to support households that are less able to pay. By the end of 2020 to 2021 we expect to have supported sufficient additional renewable heat installations to warm the equivalent of over 500,000 homes.

We also intend to bring together heat with energy efficiency in buildings, to reduce carbon through a combination of demand reduction and efficient generation. In the short term we are looking at the performance of boilers and conventional heating systems. We will continue to develop a long-term strategy to drive low carbon and renewable heat through a stable, coherent and affordable framework.

Electricity decarbonisation

We have also made significant progress in decarbonising the electricity sector to meet our 2050 obligations. Government subsidies have enabled many renewable technologies to be cost-competitive and we are already on track to deliver 30% of our electricity from renewables by 2020, while also meeting the government’s commitment to end any new public subsidy for onshore wind and changing the law so that local people have the final say on wind farm applications. One of the most cost-effective contributions we can now make to further reducing emissions in the power sector is replacing coal-fired power stations with gas. We will consult in Spring 2016 on proposals to close all unabated coal power stations by 2025 and restrict their use by 2023, if we are confident that enough new gas generation will come forward to ensure security of supply.

On carbon capture and storage, we will consider the advice from Lord Oxburgh’s CCS Advisory Group as we explore our future approach to this technology for both power and industrial processes.

Offshore wind could potentially also make an important contribution, if the technology can move quickly to cost-competitiveness. Support will be strictly conditional on the delivery of the cost reductions we have seen already accelerating. If these are achieved, the government could support up to 10GW of offshore wind in the 2020s.

Wider economy

Innovation has a key role to play in driving the development of cheaper clean technologies, which is why we will more than double DECC’s innovation programme to £500m over this Parliament, providing start-up funding for promising new low-carbon technologies and research but only giving significant support to those that clearly represent value for money.

We will take a more targeted approach to innovation spend, ensuring that we target those technologies that can make the greatest contribution to our carbon and security of supply objectives and where the UK has a natural competitive advantage. We are also investing £250m in an ambitious nuclear research and development programme, enabling the UK to be a global leader in innovative nuclear technologies. This will include a competition to identify the best value small modular reactor (a small scale nuclear generator) design for the UK, paving the way towards building one of the world’s first small modular reactors in the UK in the 2020s. DECC is developing a small modular reactors policy position and plans for the competition will be brought forward in early 2016.

However, the government cannot decarbonise the economy alone. We will therefore work with local authorities, cities, regions and communities to enable them to develop their own policies to support low carbon investment.

In the longer term, a stable and credible carbon price will be key to cost-effective decarbonisation both domestically and internationally, driving market-based rather than government-led change. In the coming Parliament we will continue to work with others in Europe to push for further reforms to strengthen the EU Emissions Trading System.

Working with the EU to ensure the ongoing development of the Energy Union will also be important. With a fully functioning internal energy market at its heart, it supports our decarbonisation efforts by providing a framework that will deliver credible long term plans and predictability for investors, but which will also provide us and other Member States with the flexibility essential to set our own domestic policies which reflect national priorities.

International climate change

Internationally the UK already played a leading role in delivering a global climate deal in Paris in 2015, as we committed to in our manifesto. We will continue to play a leadership role alongside other countries to implement the agreement. Paris is the beginning of a global change in efforts to shift to a clean economy. The agreement drives us forward on our path to limiting global temperature rises to below 2 degrees and we will play our part to ensure all countries take action and create a level playing field to enable markets to thrive.

The UK government will also provide at least £5.8bn of funding through the International Climate Fund between 2016 and 2021, to help the world’s poorest countries adapt to climate change and to promote clean growth; of this, DECC’s share will be £2bn. The UK’s climate finance will rise by 50% compared to 2011 to 2016, including at least £1.7bn in 2020.

We will:

• continue to support the UK Climate Change Act
• cut emissions as cost-effectively as possible, while not supporting additional distorting and expensive power sector targets
• provide start-up funding for promising new renewable technologies and research but will only give significant support to those that clearly represent value for money
• end any new public subsidy for onshore wind and changing the law so that local people have the final say on wind farm applications

3.2 How DECC is doing

UK greenhouse gas (GHG) emissions to date during the current Carbon Budget period

1072 MtCO2e

total emissions for 2013 and 2014 combined

Emissions in 2014 (514.4 MtCO2e), showed a 36% reduction since 1990 levels and a 14% reduction since 2010 levels. The UK net carbon emissions target for CB2 (2013 to 2017) is 2782 MtCO2e and we are currently on track to meet this.

Source: 2014 UK greenhouse gas emissions: final figures - data tables

4. Energy legacy: manage the UK’s energy legacy safely and responsibly

Lead ministers: Lead Minister: The Rt Hon Amber Rudd MP, Secretary of State for Energy and Climate Change and Andrea Leadsom MP, Minister of State.

Lead official: Katrina Williams, Director General, International, Science and Resilience

4.1 What DECC is doing

The government has a responsibility to manage the legacy of our energy industries sustainably and responsibly. This means discharging our legal liabilities effectively and managing the security risks from the legacies of our nuclear and coal industries, and other energy liabilities.

Nuclear decommissioning

The government is providing £11bn to 2020 to 2021 for the Nuclear Decommissioning Authority (NDA) to tackle the UK’s civil nuclear legacy safely, securely and cost-effectively, while minimising the burden to taxpayers. The NDA – a Non-Departmental Public body responsible to Parliament through DECC – is responsible for delivering the decommissioning and clean-up of the UK’s 17 civil nuclear legacy sites. Sellafield accounts for around 75% of the total estimated lifetime cost of decommissioning the civil nuclear legacy. Earlier in 2015 a change was made to the commercial model operated at Sellafield, improving value for money; this will come into operation in April 2016.

We are also planning for the future disposal of the radioactive waste that will be produced. In particular, we are working towards the establishment of a Geological Disposal Facility (GDF) for higher activity radioactive waste, and will continue work towards finalising the process to deliver planning consents and secure willing communities to host a GDF.

Coal liabilities

We will also continue to manage the government’s coal mining legacy, administering the concessionary fuel entitlements and personal claims for those previously involved in coal mining. DECC also sponsors the Coal Authority, which manages the public safety and environmental legacy issues of past coal mining.

Oil and gas decommissioning

As many sites in the UK Continental Shelf meet the end of their life, we will work with industry and the Oil and Gas Authority (OGA) to ensure decommissioning is delivered in a safe, efficient, and cost-effective manner whilst minimising the risk to the environment and other users of the sea.

4.2 How DECC is doing

The Nuclear Decommissioning Authority’s (NDA) performance against its business plan objectives

The NDA is the key institution in managing our nuclear legacy in a safe and cost-effective manner.

The NDA’s Q2 (mid-year) report for 2015-16, shows that of 84 targets looking at site restoration, spent fuels, nuclear materials, integrated waste management, business optimisation and critical enablers:

• 4 targets are now complete
• 67 are green (on target)
• 5 are amber (behind target with possibility of recovery)
• 8 are red (behind target)
• 1 is on hold.

Whilst the delays on the 8 red targets are regrettable and have an impact on the cost and schedule of individual projects and programmes (most notably at Bradwell, where it is estimated that the missed targets will push back the site programme target, to achieve care and maintenance by 2016, by at least 2 years), new plans are in every case either in place or being agreed, all of which are manageable within the NDA’s overall business plan. Overall, this demonstrates strong performance against the NDA’s business plan targets.

Source: NDA Quarterly Performance Report Quarter 2 status for 2015-16

The performance of the Coal Authority against the objectives set out in its annual report and accounts

94%

of the Coal Authority’s 2014 to 2015 objectives achieved.

This indicates that good progress continues to be made against its 5 year plan.

Source: The Coal Authority Annual Report and Accounts 2014 –15, p.12

Delivering efficiently in DECC

What DECC is doing

As a department we are committed to reducing our operating costs over the Parliament, while continuing to improve the efficiency and effectiveness of our services. We have a number of approaches including:

• the introduction of new flexible approaches to resourcing to ensure we align people with the right skills to our priorities
• the development of our people’s capability to improve efficiency and enable work to be delivered at the correct grade
• the sharing of services with other government departments
• participation in the government’s Functional Leadership programme to deliver efficiencies in corporate functions
• changes to the NDA’s practices, to deliver better value contracts and top class commercial procurement, and plans to delay non-safety-critical projects and reflect the latest advances in nuclear decommissioning research
• changes to procurement practices across DECC, with the introduction of category management and improved standards for contracts

All changes will be subject to a positive business case that demonstrates best value for money.

How DECC is working collaboratively across government

We will work collaboratively with Cabinet Office, HM Treasury and other government departments to deliver transformational change in key areas, including:

• developing digital solutions that meet common standards set by the Government Digital Service and utilise cross-government platforms such as GOV.UK Verify, GOV.UK Pay or GOV.UK Notify as part of departmental digital services wherever this demonstrates the best value money solution for government
• rationalising our estate in a joined-up way, looking to develop ‘government hubs’ with other government departments, releasing land for housing where possible and participating in the development of the new commercial property model
• delivering savings in our commercial relationships including through spend on common goods and services, delivered in partnership with Crown Commercial Services. Continuing to build our commercial capability and working with Crown Commercial Services to contribute to the government’s 33% commitment of spend with small and medium sized enterprises by 2020.
• working in partnership with: the Cabinet Office to deliver Arm’s Length Body (ALB) transformation plans; Infrastructure and Projects Authority on major projects programmes and prioritisation; and reducing losses through fraud and error alongside developing a debt management strategy