Annual Energy Statement 2014
Edward Davey on the publication of the Government’s Annual Energy Statement 2014.
Check against delivery
Mr Speaker, today I am publishing the Government’s Annual Energy Statement and supporting papers alongside the annual update on Electricity Market Reform.
This fulfils the commitment set out in the Coalition agreement to present an annual statement of energy policy to Parliament.
Mr Speaker, this will be the last Annual Energy Statement in this Parliament before the next General Election. It sets out the significant progress the Government has made since 2010.
Mr Speaker, in 2010, it wasn’t just the country’s finances that needed immediate action. It would be fair to say that back in 2010 the UK faced an energy crisis too.
A historic record of underinvestment in energy infrastructure that threatened our energy security.
A decade of rises in energy costs, with consumers getting a raw deal from the Big 6 energy suppliers - in a market that had too little competition.
And even on climate change, plenty of legal obligations to cut emissions, but little practical policy to achieve them cost-effectively.
Today’s energy statement shows how we have turned this situation around.
Given how fast bills had risen in the last Parliament and how fuel poverty had increased in the last Parliament, helping consumers has been a top priority.
Starting with those on lowest incomes.
Payments to vulnerable people to help with bills have been protected and expanded under this Coalition - with the addition of the Warm Homes Discount. This year Warm Homes Discount will mean a £140 cut in bills for 2 million households most in need.
So despite all the pressures on energy bills, this policy and other government measures have helped cut the number of households in fuel poverty during this Parliament, down by over 100,000 in England alone.
Yet I strongly believe we should be doing more to help people out of fuel poverty and after this summer’s consultation, we are finalising the first new Fuel Poverty Strategy in over a decade.
But we also needed to help every household Mr Speaker and that meant reform of the energy markets. To promote choice and competition.
Ofgem’s Retail Market Reforms now mean energy bills are easier to understand and tariffs are simpler, providing consumers with greater ability to shop around.
Slow switching times were also clearly a barrier to competition and so those times are being slashed in half this year, and Ofgem is consulting on its roadmap for moving to 24 hour switching, with a decision due by the new year.
Thanks to our deregulation, there are now a dozen new suppliers taking on the Big 6 to give consumers more choice and competition.
In the past, we had switching between the Big 6, driven by doorstep selling. Or too often misselling. Switching that favoured the Big 6.
Now we have switching that favours the consumer.
3.5 million people switched their electricity supplier over the last twelve months – with 1.2 million moving away from the Big 6 to the smaller suppliers.
The independents now boast over 2 million customers and regularly top the best buy tables.
uSwitch have recently talked about a new atmosphere of aggressive pricing proving competition is indeed hotting up.
And after years of rising bills, there have been no new price rise announcements from the Big 6 this year, reflecting that increasing competition and the efforts the Government has made to reduce policy costs.
And on policy costs, the latest review of prices and bills I am publishing later today shows that this year we estimate that policy costs now account for 7% of an average household energy bill.
This is down from the 2013 levels of 9% - as a result of the package of measures announced in the Autumn Statement last year.
And I will be placing copies of this review in the libraries of the House this morning.
But even these lower costs are, on average, more than offset by the bill savings our policies deliver through energy efficiency.
By 2020, household energy bills are estimated to be, on average, around £92 lower than they would have been if we just sat on our hands and did nothing.
For example, three quarters of a million homes are already benefiting from lower bills thanks to the Government’s energy efficiency policies – the Energy Company Obligation and the Green Deal.
And we have also acted to help business with energy costs. With my Rt Hon Friend the Secretary of State for Business, Innovation and Skills, we introduced a number of measures to help limit energy costs for those electricity-intensive industries most at risk from carbon leakage. These will reduce the impact of policies on eligible industries by up to 80 per cent in 2020.
But we can and will do more. With policies from our Electricity Demand Reduction to our leading role in reforming Europe’s carbon market.
Most importantly for consumers, however, as a result of the first annual competition assessment that I announced in last year’s Annual Energy Statement, Ofgem has now referred the gas and electricity markets to the Competition and Markets Authority.
This is the right way to restore trust in our energy markets, and to ensure consumers get the best deals possible.
As well as affordable energy, Mr Speaker, people want to know the power will be there when they flick the switch.
Yet Ofgem’s report on energy security back in 2010 – Project Discovery – showed the sheer scale of the problem we were then facing, with a fifth of our existing power stations set to close by the end of the decade.
It suggested that the mid-decade period we are now coming to would be particularly challenging as power plants came off line.
Yet as today’s Annual Energy Statement demonstrates, we have acted to turn round that dire situation.
In the short-term, our plan ensures we will comfortably meet supply security standards this winter and next.
As National Grid confirmed last week they now have new balancing measures in place that will ensure the risk of supply disruption will remain at very low levels over the next few years and well within reliability standards.
And looking further ahead at future electricity supply challenges this decade, as part of Electricity Market Reform we are reintroducing a capacity mechanism to the UK.
Mr Speaker, we have delivered all major Electricity Market Reform milestones.
The first allocation round for Contracts for Difference is now open for bids and the the first Capacity Market auction will take place in December.
But these measures alone will not guarantee the UK’s longer term energy security.
For the next decade, we are building a diverse lower carbon energy mix, predominantly home-grown, that ensures we will not be over-reliant on one source, one fuel or one import market.
With the 2013 Energy Act gaining Royal Assent on 18th December last year, we now have one of the best legal and financial frameworks to support the cost-effective growth of low carbon electricity anywhere in the world.
Record investments of £45 billion in electricity generation and networks since 2010 have put us on target to meet our future low carbon power requirements.
Indeed, in four years under this Coalition, the available evidence suggests we have surpassed the total electricity investment in the whole of the previous decade under the last Government.
Average annual investment in renewable electricity has more than doubled this Parliament with 2013 a record year.
We now have more installed offshore wind capacity than the rest of the world.
Onshore wind, the cheapest of the large-scale renewables, now supplies 5% of our electricity. And the good news is have a strong investment pipeline for more onshore wind - worth up to £5.8bn to 2020.
And then there’s Solar – £6.4bn of investment since 2010.
Biomass and Bio Energy – £6.3bn.
Mr Speaker, renewable electricity generation has more than doubled this Parliament.
Indeed, in the first quarter of 2014, 19% of UK electricity was being provided by renewable resources.
With our continued focus on renewables – from our community energy strategy to our work on tidal and marine power – this is set to rise much further still.
But it’s not just renewables that have seen massive investment.
Over £16bn has been invested in onshore and offshore electricity networks since 2010.
Interconnection projects worth £1bn have been delivered.
And projects in the pipeline aim to more than double our interconnector capacity by the 2020s. Including another link to France – with a cable in the Channel Tunnel. And a link to Norway’s hydropower capacity – with what would be the longest subsea cable in the world.
Then we have £2.5bn in gas-fired power plants. Over £3.8bn in gas transmission and distribution networks.
Over £40 billion in the North Sea - a doubling of private investment on the UK’s continental shelf since 2010, and development capital expenditure higher in 2013 than at any point in the last decade.
And last year the Government agreed key terms for the first new nuclear power station in a generation at Hinkley Point C. And the UK has Europe’s only two commercial scale Carbon and Capture Storage projects. A strong set of low carbon electricity options.
All this investment has been achieved in the face of considerable fiscal restraint – with largely private sector investment rebuilding our energy infrastructure.
Before I leave energy security, Mr Speaker, there is one international aspect I should raise with the House which has domestic implications – namely the response by the G7 and EU to Russian aggression against the Ukraine, and the increasing threats by Russia to use energy supplies as a weapon.
It is vital that we co-operate internationally, to help our allies especially in eastern and central Europe and the Baltics, many of whom are highly dependent on energy imports from Russia.
But it is also vital that we remember how fortunate the UK is, to have such diversity in its oil and gas supplies. So we should not turn our back on the shale gas opportunity. For as we decarbonise our economy, we will still need large amounts of oil and gas in the next three decades for heating and transport.
The implementation of the Wood Review I commissioned last year, to maximise economic recovery from the North Sea, remains an urgent task.
So I am delighted to confirm today that Andy Samuel has been appointed as the new Chief Executive of the Oil and Gas Authority I am establishing.
Finally Mr Speaker, we have achieved this turn around in energy security and energy investment, whilst continuing to reduce the UK’s greenhouse gas emissions.
I was delighted to announce in February 2014 that the UK had met its first carbon budget, covering the period 2008 – 2012.
We are also on track to meet the even more demanding reductions required to meet the second and third carbon budgets.
And I was particularly pleased - after a cross-government review - to confirm our 4th Carbon Budget would not be changed.
This government has delivered on its commitments under the Climate Change Act.
But to deliver on climate change, we need international action too. So in September, I published the Government’s strategy for achieving a legally binding global climate change deal in 2015.
And with successful agreement last month on the EU’s 2030 energy and climate change framework – based on the UK’s proposed blueprint - Europe is now well placed to lead on the world stage and secure the global deal that is so crucial for future generations.
Mr Speaker, despite political differences, energy policy has enjoyed a high degree of cross-party consensus over the last decade or so. And I’m pleased that this remains the case today on the vast majority of our policies.
The 2013 Energy Act enjoyed the same level of cross-party consensus that the Climate Change Act enjoyed in 2008. And that’s crucial for the long term investment decisions energy infrastructure needs.
Of course there remain differences between the parties. An anti-competitive approach towards the energy market in parts of the Labour party – and an anti-renewables, anti-wind tendency in parts of the Conservative party. And all parties have members with a history of opposition to nuclear power.
But it is imperative, Mr Speaker, that these tendencies are resisted, particularly in the run up to the General Election. Short term populism is the most dangerous enemy energy and climate change policy has.
After the hard won gains for the UK’s energy and climate change these last four years, I urge Rt hon and hon Members from across the House, to cleave to the consensus we have achieved.
That is the best way to keep energy bills down, to keep the lights on and to keep our pledges to our children to tackle climate change.