Andrea Leadsom speech to Utility Week Energy Summit about the Future of Energy in the UK
Good afternoon. It’s a pleasure to address such a well-attended meeting of people from all parts of the energy system.
I have been asked to speak about the future of energy in the UK. Now is an exciting time to discuss this subject. In the last few years, we have seen rapid progress in new energy technologies, dramatic reductions in costs, and a multitude of new suppliers entering the electricity market.
And just in the last few months, we have seen periods when the contribution of coal-fired power to the national grid fell to zero, for the first time in more than 130 years. Unquestionably, we have entered a period of transition.
The physicist Niels Bohr famously said that ‘prediction is very difficult, especially about the future’. He could have added, ‘and especially when things are changing very rapidly’. So I am not going to make any predictions.
Instead, I will describe what I see as our direction of travel, and I will set out the principles of energy policy to which this Government is committed.
As many of you know, I have spent much of the last two months campaigning for change. With the people of Britain now having voted to leave the European Union, a change of great national significance is ahead of us.
But when it comes to our energy policy, I would like to start by emphasising what will stay the same.
As my friend the Secretary of State for Energy and Climate Change said last week, there is no change to the challenges we face. As a Government, we remain fully committed to providing families and businesses with energy that is secure, affordable and clean.
There is no change to our commitment to work with other countries in pursuit of these goals. Our relationships with the United States, China, India, Japan and our European friends will remain central to our efforts to attract investment, to spur innovation, and to counter the threat of climate change.
And there is no change to our commitment to a clear energy policy framework and a strong, investment-friendly economy – making the UK one of the best places in the world to live and do business.
So we have a continuity of aims, and of principles.
As we consider the future of energy in the UK, I’d like to set out how these principles will guide our approach to each part of the energy trilemma.
First, security. Energy security is non-negotiable, and is our top priority.
In the electricity sector, security of supply still requires baseload power. We know that the make-up of this baseload cannot go unchanged. Within the next two decades, virtually all of our existing nuclear fleet is due to retire. And within the next ten years, our goal is to phase out entirely the use of unabated coal.
Put together, that means at least a third of our current electricity generation comes from plants that will need to be replaced.
This Government will not duck the difficult decisions about investment in our energy infrastructure. We have been clear that we expect to bring on power generation from both new nuclear and new gas plants.
That’s why we are commissioning the first new nuclear power station in a generation, and working with developers, who have set out proposals to develop 18GW of new nuclear power stations at six sites across the UK.
At the same time, we have announced plans to use the Capacity Market to buy more capacity and to buy it earlier, to ensure there is adequate incentive for investment in new gas and other forms of generation.
In the long-term, while the security of our electricity supply is likely to remain as essential as it is now, I expect us to achieve it through increasingly diverse means.
The National Grid’s ‘Future Energy Scenarios’, published today, estimates that the maximum potential by 2040 of electricity storage and interconnectors could be 15 GW and 23 GW respectively. I have seen similarly impressive estimates for the potential of demand-side response.
The shift in this direction is already beginning. Electricity storage technology is seeing some dramatic reductions in cost: for example, the cost of lithium-ion technology has fallen by 14% per year between 2007 and 2014.
And on top of the 4GW of interconnectors already operating, we have nearly 8GW of additional capacity in the pipeline for which Ofgem has given regulatory approval.
I know that experts disagree about what is the right energy mix for the future, almost as much as politicians do. As the Government, we cannot simply wait and see, and yet neither can we plan the future in every detail.
Our approach has to be to make some strategic investments, and to put in place a system that will deliver a rational result.
The Capacity Market – our insurance policy for security of electricity supply – is such a system. The auctions we hold under this system will decide how much we rely in future on gas, storage, and demand side response.
I cannot tell you what those proportions will be. But I can tell you, with confidence, that we will be guaranteeing security of supply at the lowest available cost.
That brings me to the second objective: affordability.
This Government is committed to keeping bills low for families and businesses – and to acting as a consumer champion. I fully expect that to remain an objective of energy policy in this country for years to come.
What makes this a challenge is that our energy bills depend more than anything on wholesale prices, set in the global markets, which are largely outside any government’s control.
So our priority is to ensure a competitive UK energy market that benefits all consumers. In that respect, we are seeing real progress.
There are now 33 independent suppliers in the domestic retail energy market, up from just 7 in 2010. Independent suppliers now have over 15% of the dual fuel market, up from only 1% in 2010. I hope and expect that this trend will continue.
Working together with Ofgem, we are also making it easier and quicker to switch suppliers. Between January and March this year, 2 million energy accounts were switched, and more than half of those moved to newer suppliers.
With more suppliers in the market, and consumers better able to switch between them, we are starting to see cost reductions in the global markets being more reliably passed on to consumers.
The report of the Competition and Markets Authority, published last week, contains a strong set of recommendations designed to further improve consumer engagement, and to protect those least able to benefit from competition.
The Secretary of State and I are keen to see these measures implemented as quickly as possible, and to work with industry to rebuild trust in an energy market that delivers a fair deal to all consumers.
The third corner of the energy trilemma is of course decarbonisation.
And it’s here that I’d like to be especially clear, to correct any misperceptions people may have about the implications of the EU referendum result.
Decarbonising our energy system is not some abstract regulatory requirement; it is an essential responsibility that we hold towards our children and grandchildren, as the only way to effectively counter the threat of climate change.
However we choose to leave the EU, let me be clear: we remain committed to dealing with climate change.
The UK’s Climate Change Act was passed by a majority of 463 votes to three. That is really quite extraordinary. The will of Parliament has rarely been expressed so strongly and unambiguously.
This Government has got on with the job. We have achieved record levels of investment in renewable energy: in 2014, 30% of all Europe’s renewable energy investment took place in the UK.
We have surpassed our own expectations: solar power capacity has now reached over 10GW, with 99% of that having been installed since 2010.
We are on track for 35% of our electricity to come from renewables by 2020, and our overall emissions have fallen by a third since 1990.
This is a fantastic success story, of which industry and government can both be proud.
In this context, I make no apology for the fact that we have had to take some steps to reduce costs. Our responsibility is to manage public spending carefully and sensibly.
When the costs of renewables falls dramatically, it cannot be in our interests to pay generators above the odds, while the public foots the bill. Even with the steps we have taken, we still expect our spending on clean energy to double during the course of this Parliament.
With the announcement last week of our intention to legislate for a 57% reduction in emissions for the Fifth Carbon Budget, our expectations for the future are clear. This is a further step towards our 2050 target of an 80% reduction, which implies the large-scale decarbonisation not only of the power sector, but also of heating and transport.
Just as with security of supply, so also with decarbonisation: we cannot and should not plan every detail.
We see a strategic case for the UK to build more offshore wind power, and so we have committed to support up to 10GW of new projects in the 2020s, provided the costs continue to come down. At the Budget earlier this year, we announced funding of up to £730m a year, for three auctions during the course of this Parliament in which offshore wind projects can compete.
But in the long-term, it is the market that will decide the contributions of the different technologies – first through auctions, and then directly as clean energy begins to deploy without subsidy.
This approach will give us confidence that we are decarbonising at the least cost.
And I believe that it is in all of our interests to reach the point where clean energy can deploy without subsidy, and the government can remove itself from the market, as soon as possible
Jobs and Skills
Before I conclude, I would like to mention one more priority, which complements the other three. That is the creation of high-quality UK jobs, throughout the energy sector.
For many years, oil and gas has been our largest industrial sector, contributing £19bn to the economy and supporting 375,000 jobs. In the last year, we have seen over 8,000 jobs lost from this sector, and we know that more are at risk.
We have responded to the difficult conditions facing the industry by providing tax measures worth £2.3bn, to ensure the UK has one of the most competitive tax regimes for oil and gas in the world, safeguarding jobs and investment.
We have published a new strategy for maximising economic recovery from the UK continental shelf. And we have established the Oil and Gas Authority, which is already helping industry to drive down costs and improve efficiencies.
At the same time, the investments in new energy generation that I have described today will create new opportunities.
The new nuclear supply chain could support 30,000 jobs over the coming years, and the shale gas industry to create more than double that number.
Firms related to low carbon goods and services were estimated to employ over 460,000 people in the UK in 2013, and there are already reports of oil and gas fabricators using their expertise to develop offshore wind projects.
As we navigate the transition of our energy system, we must continue to invest in our skills, so that our workforce can successfully adapt to whatever new conditions arise.
To conclude: As we consider the future of energy in the UK, it is worth sparing a thought for the past.
The UK has a rich history of leadership in energy innovation. The world’s first coal-fired power station was built by Thomas Edison in London, in 1882. The world’s first commercial nuclear power station was opened by the Queen in Cumbria in 1956.
When those plants fired up for the first time, their builders could have little idea of the future scale of the new energy industries they were opening up. But we have benefitted from their pioneering efforts throughout the decades since.
Our job now is not to predict the future, but to create the conditions for innovation.
That will give us the best chance of ensuring that a system of secure, affordable and clean energy is our lasting legacy. Thank you.