Speech

Energy UK conference

Speech by Energy Secretary Edward Davey to the Energy UK Conference.

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

The Rt Hon Edward Davey

Introduction

Many thanks Angela for that introduction.

Let me take this opportunity to thank you for the efforts you have made over the last two years as Energy UK Chief Executive, to keep open the lines of communication between Government, the energy industry and the public.

It hasn’t been easy at times. But I have always appreciated your candour and forthright approach.

You came to Energy UK in July 2012 after seven years at the British Banker’s Association.

Now, we have a saying in the Liberal Democrats that in politics you should always “march towards the sound of gunfire”.

I get the sense that has been your motto in public life too!

The contribution of the energy industry

The work of the energy industry is crucial to the country.

Keeping our homes warm. Our businesses powered. Supporting the very fabric of our modern, connected, switched-on society.

The jobs you support, the taxes you pay, the economic contribution you make.

And at the same time taking a full role in the drive to lower the carbon emissions that are imperilling our climate – and our way of life.

Much of this work goes unseen and taken for granted.

As a society, we have grown used to continuous uninterrupted supplies of power.

So we don’t always appreciate the gargantuan efforts made, by the industry, by generators, suppliers, distributors, regulators, to keep the lights on.

The fire this week at Didcot power station has reminded us, yet again, that the work you do is not only critical, but potentially dangerous too.

And it is a great credit to the safety regimes in place – and to the emergency services swift response - that no one was hurt.

Once the inspection of the Didcot plant is complete, National Grid will consider what consequences, if any, flow from this event in terms of security of supply.

Grid will confirm their outlook next week, but I am assured that there is no risk to electricity supplies this winter.

Over the past few years National Grid has been working with Ofgem to assess, and consult on, how best to balance the system over the next few years.

And with the new flexible balancing measures announced in June, they have the tools they need to manage the network comfortably within the reliability standards.

But maintaining and increasing this degree of comfort – and at a cost that society can afford - not just for this winter, but through the decade and beyond - will require us to see through the wide ranging reform of our energy infrastructure and markets set in place by the 2013 Energy Act.

And because our energy and climate future is inextricably linked with that of our neighbours, it will require us to achieve an ambitious and flexible European energy framework that will ensure that we can remain energy secure and go energy clean for the lowest possible cost.

So it is energy security I want to concentrate on today – and that huge historic European energy security and 2030 climate policy deal that could be agreed this week.

I want to explain the work we’ve been doing – tirelessly – on energy security.

And why – thanks to the work of so many in the energy industry and beyond – the US Chamber of Commerce continue to rate the UK as the most energy secure country in the EU.

More energy secure than Germany, France, Italy and indeed all the other 27 European countries in the EU.

And why American business continues to rate the UK more energy secure than the US, China, Japan, Australia, Canada and Russia.

But before I discuss energy security and this week’s European deal, but let me dwell for a moment on issues around price and affordability in the UK – and on the particular challenges that consumers in the UK face – not least as that was the main subject of my speech here last year.

Trust in energy suppliers

For at this Energy UK conference last year, I delivered a tough message.

Trust between those who supply energy and those who use it had been breaking down – and is yet to be mended.

Fair or not to particular energy firms, the spotlight of scrutiny that larger energy suppliers have been under in recent times has not always been kind.

On the service that consumers are receiving. And on the premium they are paying for their energy.

I am pleased that many of you are recognising the urgency of your challenge - the need to regain the trust of the public – your customers.

To improve the service they are getting. To keep prices as low as possible. To be open and transparent.

And, to be fair, there has been some progress made in the last twelve months.

Since the beginning of the year, there have been no new price rise announcements from the Big 6 suppliers – reflecting the efforts the Government has made to reduce policy costs and reflecting increased competition.

For with switching now becoming easier and faster, consumers are increasingly seeking out the best deals and better customer service.

The industry has, in particular, responded to my calls for faster switching times – and all the big players are on track to have halved their switching times by the end of this year. Good.

Already, the latest figures from Energy UK show that 3.5m people switched their electricity supplier over the last twelve months – with 1.2m moving away from the Big 6 to the smaller suppliers.

The independent suppliers now have over 2 million customers and are regularly topping the best buy tables.

The latest assessment by Cornwall Energy suggests market penetration by the independent suppliers in the dual fuel market has boomed to 9%, the highest since competition began in the late 1990s.

The Big 6 lost 5% of the market over the last year alone.

So the competition that this Government has championed was clearly needed – and it is working and it is beginning to bite – meaning better deals, better service, and lower prices.

But your challenge is not over. And I want to see more progress for consumers.

As Amber Rudd will set out to you this morning, there is still a lot of ground to make up.

The independent review by the Competition and Markets Authority now under way is the most objective means of getting to the bottom of problems that remain and making sure they are fixed.

The CMA will rightly be asking you tough questions. It’s an independent enquiry, so it’s up to them to choose those questions.

But I’d be surprised if they didn’t ask – for example - why it always seems to take so long for falls in wholesale prices to feed through to falls in retail prices?

And whether that is really justified by hedging strategies that are claimed to protect consumers?

If the CMA finds the industry wanting, it has the powers to act - decisively. To demand radical and permanent changes to the industry, if it believes those are necessary.

That’s why the CMA has my full support in its work.

The Labour Party of course are proposing an 20 month Government imposed price freeze – which would destroy the very competition that has been so painstakingly built up.

Last November, they launched a consultation on their policy which closed in March this year.

As this was billed a full public consultation, I for one would like to see Labour publish all the replies they’ve received on their ideas – the responses to their consultation – from industry, investors, consumer groups or others.

Maybe Caroline Flint will enlighten you this afternoon.

Domestic energy security

But let me turn to the wider issue of energy security.

When the Coalition Government came to power, we inherited a record of historic underinvestment in energy infrastructure, that, if neglected, threatened an energy security crisis - specifically on the security of electricity supply.

A fifth of our existing power stations were scheduled to close by the end of the decade because they were old, inefficient or polluting.

Electricity transmission and distribution networks needed major repair, replacement and investment.

No new nuclear power stations had been commissioned for decades.

And while renewable generation was growing slowly – the pace of growth was far too slow to plug the gap.

So our approach has had to deal with not only the challenge of ensuring supplies of power in the short term, but also investing in future energy security, for the end of this decade and beyond

As I mentioned earlier, National Grid announced in June new balancing measures to ensure supplies if necessary.

This includes putting in place supply reserves from power-stations that would otherwise be closed or mothballed.

And extending existing demand measures to reward more large energy users who have the flexibility to reduce their use of National Grid power at peak times and who wish to volunteer for payments to use that flexibility if needed.

And with these measures in place National Grid and Ofgem are confident that the risk of supply disruption will remain at very low levels over the next few years.

And for the medium term, we have also significantly improved the outlook by our actions.

We are on track to re-introduce into Britain a capacity mechanism – an approach common in many US states and other countries round the world.

And we are on course to run the first capacity auction for our new Capacity Market this December.

This will help ensure we get the best out of our existing electricity generation fleet and drive new investment in gas powered supply and cost effective demand side response.

But while these measures will provide a degree of comfort, without major investment in generating capacity, and without a drive to reduce demand through energy efficiency, the long-term problem remains.

And that is why we have put in place one of the best and most comprehensive financial and legal frameworks for energy policy anywhere in the world.

In just four years under this Coalition, we have surpassed the total electricity investment achieved under the last Government in thirteen years. With over £45 billion invested in electricity generation and networks alone.

Better still, the UK is fast becoming Europe’s foremost low-carbon energy investment hot spot.

Only China and the US recorded more new-build renewables asset finance in 2013 than the UK. And we are leading the European low carbon race on new nuclear and carbon, capture and storage.

So we are on course to meet our future energy security needs and our future low carbon needs.

But of course there can be absolutely no complacency.

Driving investment into the system will remain one of the priorities for my Department for many years to come.

And in this we are working very closely with industry to ensure that across the piece the right framework is in place.

A framework that encourages investment while protecting the interests of the taxpayer and consumer.

And I am confident that we are getting the balance right.

As Fatih Birol – Chief Economist of the International Energy Agency said recently, UK energy policies “can be an example for many countries to get inspiration from”.

But I am increasingly clear that the energy security challenge we face is not just domestic.

European energy security

We are an open trading nation that imports energy from our neighbours in Europe and from farther afield.

Getting the framework right in Europe has the potential to greatly enhance our energy security, boost that investment we need, maintain the competitiveness of our economy and reduce prices for our consumers.

On Thursday, the Prime Minister will be travelling to Brussels to secure a European energy deal that has the potential to confirm and enhance our energy security for the decades to come. And boost our low carbon transition.

The ambitious and flexible framework of reform that the UK has been championing will provide the certainty we need to invest in the energy infrastructure of the future – at the lowest possible cost.

Ambitious because it will put Europe in the driving seat as we approach a global climate change deal next year.

As the Prime Minister said at the United Nations, we will be pushing EU leaders to cut emissions by at least 40 per cent by 2030.

Flexible because to ensure that growth reaches all parts of the low carbon landscape and to ensure we don’t block new technologies from the market, we want all member states to have the flexibility to invest in the best energy mix that works for them.

We have to be particularly sensitive to the key concerns of those countries who, unlike the UK, are over reliant on Russian energy.

So we will be making crystal clear to our European colleagues that the policies and investments we need for improving energy security are the same policies and same investments Europe needs for tackling climate change.

That means developing further and faster a fully functioning internal market in energy that moves gas and electricity around wherever it is needed.

Being able to trade energy more freely in Europe means we can maximise the use of home grown European energy, and reduce imports from outside the continent.

This will loosen the choke-hold of energy dependency on Putin’s regime, reducing the need for gas imports from Russia.

With the right deal we can send a clear message to Russia and the world: the EU will be reducing our energy imports.

We will not be over-reliant for energy on any one country in the future.

And we will not allow any country to use energy to bully any member of our union.

And the business community – including many of you here – have been at the forefront of pushing for a robust European deal on climate change.

Many of you recognise that the right 2030 framework can be a central driver for economic recovery and growth. Green growth.

Stimulating investment and job creation through the supply chain.

Creating a level playing field for UK companies to compete across Europe.

And providing the environment to reduce costs for your customers.

Conclusion

Be clear. The European Council this week is a historic moment.

The UK has played a critical leadership in getting us to this point. By setting up the Green Growth Group with energy and environment ministers from climate ambitious member states, I have been able to work with my European colleagues, to help shape the debate over two years.

By actively building alliances with our European partners, with business and NGOs, we are showing that we able to deliver real EU reforms – EU reforms that are right for Britain.

Right for energy security.

Right for investment.

Right for climate change.

And crucially, right for our consumers.

That’s what we’re doing in Europe.

It’s what we’ve done here in the UK.

Setting long term energy and climate change policy that answers the energy trilemma.

Thank you.

Published 22 October 2014