Energy Priorities

Energy priorities speech by Energy Minister, Matthew Hancock.

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

The Rt Hon Matt Hancock MP

This morning, I want to set out my priorities for energy policy.

It is commonplace these days to say that we have a triumvirate of energy policy objectives, a trilenma equal and in opposition to each other: security of supply, tackling climate change and keeping fuel bills down.

All three are important.

But we must be clear that they are not equal. And they need not be opposites.

First comes security of supply. They are not equal because if you can’t keep the lights on, keep the computers going and keep our homes warm - then little else matters. There won’t be any appetite to tackle climate change and bills would rise due to the cost of any emergency measures.

And they are not opposite: get the policies right, and you can address all three at once.

Securing our supplies through investment and tackling carbon emissions in a way that cuts into costs. That is our policy.

Those must be our goals.

Right now is an exciting time in energy.

Investment in our energy security had been lacking before 2010.

By contrast, we are investing heavily. Between 2010 and 2013 we secured £45 billion of investment in electricity infrastructure - almost half way through the £100 billion investment we need in our electricity sector by 2020.

Since 2010, an average of £7bn has been invested each year in UK renewable electricity, double the previous five years, and we’re one of the most attractive places in the world to invest.

In the decade that follows, new nuclear, first at Hinkley Point then elsewhere, will develop.

Hinkley Point C will provide a stable source of clean power from 2023, generating enough electricity to power nearly 6 million homes - twice the domestic consumption of London.

Hinkley Point may be the first new nuclear station, but it won’t be the last. In June NuGen concluded an updated land option agreement for the Moorside new nuclear site in Cumbria.

Meanwhile: Wylfa on Anglesey; Sizewell in Suffolk and Oldbury in South Gloucestershire are all moving forward. With these five sites, the nuclear industry plans to develop around 16 gigawatts of new nuclear power. Three further sites are in an earlier stage of development.

It’s exciting not just because the scale, but because now our Energy Market Reforms are bedding in.

The UK’s Climate Change Act’s carbon budgets guide both investors and Government.

Our Electricity Market Reforms have created a market for low carbon electricity, whilst the Levy Control Framework has capped costs for consumers.

And this year, our first Capacity Auction will ensure that the essential security of supply offered by flexible gas plant will be properly recognised and remunerated

Between 2010 and 2013 we secured £45 billion of investment in electricity infrastructure - almost half way through the £100 billion investment we need in our electricity sector by 2020.

Renewable electricity capacity in the UK has more than doubled since 2010.

And, in the decade that follows, new nuclear, first at Hinkley Point then elsewhere, will develop.

Be in no doubt that we are committed to helping investors deliver this and have reformed the electricity market system to make it possible.

Together with new nuclear, shale gas has great potential. It’s an opportunity we cannot afford to miss. It has the potential to bolster our energy security, provide jobs and help with carbon emissions

Alongside securing supply, delivering shale is my top energy priority. It is our duty to ensure we don’t ignore this vital energy opportunity – it is something that I feel very strongly about. Leaving shale gas in the ground means missing out the potential for up to £10 billion economic return.

Until we explore its potential we cannot know just how big the scale of this is. But we do know the scale of the potential.

In 2003, we were a net exporter of gas. By 2025 we expect to be importing close to 70% of the gas we consume. By making the most of our own domestic resources we safeguard our domestic supply. Shale gas represents a huge potentially economic opportunity for local communities. For the North of England in particular, the jobs and local growth opportunities have the potential to be huge. That’s why I am committed to making sure this is a British industry that creates an industry booming with new jobs, and a thriving northern economy. That means national colleges and British firms in the supply chains

And as the greenest fossil fuel, shale gas can provide a bridge to a much cleaner future. We have to extract it carefully, cautiously, and with deep respect for the natural environment.

But it would be a great mistake if we didn’t take action to tap our shale reserves. Imagine if we had ignored the vast potential reserves of North Sea Oil?

Shale is a fledgling industry and there is a lot of work to be done to really get this going, but we know it is in our national interest to explore its potential and we are beginning to see traction.

We are today publishing “Shale Made Simple” setting out the clear facts and benefits of shale: to energy security; to help with carbon emissions; and to jobs and growth.

It’s also in the interest of local communities.

Industry has committed to a minimum package of community benefits, including £100,000 per exploratory well and at least 1% of revenues if a site goes into production. Some operators have committed to go further.

Local councils will retain 100% of the business rates they collect from productive shale gas developments, which could be, worth up to £1.7m a year for a typical 12 well site.

And we are developing a sovereign wealth fund to ensure all join in the spoils.

All of this is being done within a robust regulatory framework, safety and planning regimes to encourage the responsible development of shale gas.

Offshore, too we must maximise economic recovery of oil and gas from the UK continental shelf, and we are doing it.

I’ve just signed off the biggest ever licensing round.

To ensure that we are doing everything possible to incentivise investment we commissioned an Oil and Gas Review in June 2013, led by Sir Ian Wood. He has looked in depth at the issues that need to be addressed to ensure longevity of the industry and our resources and we are now fastracking these recommendations alongside the fiscal review, again with the goal of maximising extraction. I’m delighted Andy Samuel will be its CEO and can drive forward progress.

So, this investment in shale and offshore, in new nuclear and renewables, is vital to secure our energy supplies.

And because our reforms have introduced competitive markets they will drive down costs. Yet these are only two of the objectives. We must also tackle climate change. All sides of the debate now accept the risk posed by climate change. The question is what to do about it?

I am clear our response has to be both cost effective and dogma free. The best way to tackle climate change is to do so in a way that also cuts costs.

This requires three things: more innovation, more competition, more efficiency.

First innovation.

Innovation cuts costs. It’s cheaper to print a book than copy out the manuscript by hand; the jet engine democratised foreign travel after 1945, and for the cost of a pocket calculator we have access to more processing power than the engineers who worked on Apollo 11.

Likewise, innovation in low carbon technology has a critical role to play in driving down costs.

Pound for pound, investment in research has more power to cut carbon emissions than any subsidy regime. This includes renewables, nuclear and shale. We have identified serious cost cutting potential in 11 technology families, including nuclear, bioenergy, offshore wind and marine.

Of course, to be effective our efforts to tackle emissions have to be part of a global plan.

So I welcome this week’s US-China joint announcement on climate change and clean energy co-operation.

China’s stated goal of reaching peak carbon no later than 2030 is unprecedented, showing that climate change is no longer an exclusive concern of the industrialised West.

Indeed, the role that developing countries will have to play in tackling emissions underlines the importance of putting cost-effectiveness at the heart of this agenda.

That is why we must show leadership on this issue.

We are world leaders in offshore wind, pioneers of civil nuclear and remain at the cutting edge of low carbon energy research.

What we can do is demonstrate to the world that is possible to move to a low carbon future at low cost to the economy.

For three technologies alone: heat, building energy efficiency, and carbon capture and storage, these savings could amount to £80 billion by 2050.

Our innovation programme is supporting over 160 companies, to develop innovative low carbon technology.

For example, we’ve awarded more than £15 million to fund 20 offshore wind demonstration projects, helping companies develop and test new turbines, new fabrication techniques and advances in subsea cabling.

We’ve also committed more than £18 million to the field of energy storage research. Cost effective energy storage has the potential to save the energy system over £4 billion by 2050.

This is part of a wider investment in energy innovation across the public sector.

Between them, the members of the Low Carbon Innovation Coordination Group will spend over £1bn on low carbon innovation between 2011 and 2015.

We are restlessly on the side on research and innovation yet we must we must be open-minded about which technologies have the greatest potential.

New technology like the next generation of nuclear power; like the next generation of hydrogen and electric cars or continual improvements to solar power which is set to make it cost-competitive even in cloudy old Britain. All these have huge potential.

Of course, we don’t know which innovations will advance which technologies will achieve the greatest carbon reduction at the lowest cost. So we need to create a level playing field which rewards the best. It is unknowable.

This brings me onto the need for competition. We can cut the cost of low carbon energy by making the different technologies compete for subsidy.

We have introduced a competition for subsidy to incentivise efficiency with the eventual aim of technology neutral auctions for all low carbon generation. Unlike fixed subsidies, competitive auctions capture the benefit of technological innovation incentivising low carbon energy generation at a lower cost.

Over time, as technologies mature and the price of carbon rises, we expect lower-cost technologies to gain a larger market share. Eventually subsidies will be phased out altogether.

So, backing innovation and creating a competitive framework for low carbon power, are both vital.

And third can bring down costs today by investing in energy efficiency.

Of course insulation is important but new technology has huge potential here too.

And this is where smart meters come in. The Smart Meters programme will replace 53 million meters with smart gas and electricity meters by 2020.

Empowering people to manage their own energy consumption will put an end to estimated billing, help people understand their energy use and let them choose the tariff that suits them best.

Smart meters let consumers pay less at times when it’s cheaper to generate electricity and will help balance supply and demand on the National Grid.

And they allow consumers to manage their energy use and bills. Devices like Nest and the Hive’s Active Heating System already allow consumers to cut their bills by managing their home heating. I know because I do it.
And they will link to smart meters that will allow for the widespread use of Home and Building Energy Management Systems. With the global market for these systems estimated at £1 billion in 2022, this will be a major opportunity for British business. Our mission is to continue to deliver for hardworking consumers…

…to realise the cost-cutting potential in our economy.

There is still much more to do…

…and so much more cost-cutting potential remains untapped…

…but I am proud of the progress that’s been made.

…and as households continue to gain unrivalled access to insulation, and more control over their own energy

It is the cheapest way to go green and we are right behind it.

Tackling climate change at lowest costs is a huge challenge.

But I have confidence that the ingenuity of mankind can rise to these challenges as we have risen to great challenges before. From the ruins of war came the NHS, from the lunacy of Maoism free, markets in China have brought the fastest rise for the greatest number, in living standards the world has ever seen.

Human creativity, our capacity to innovate, our ability to solve problems with the right incentives - these can once again be harnessed in the service of coming generations. So too can Britain’s native resources: our seas our shale and our science.

So let us work together to build a better, brighter future for us all.

Published 13 November 2014