This is a time of dramatic change in the energy industry – a decade of change – change on a scale we have not seen since the roll out of electricity grids across the country all those decades ago.
From the tumbling cost of batteries to super-efficient lightbulbs, from cleaner forms of electricity generation to the commercial promise of, and now the reality, of electric vehicles, I think we are seeing intense technological innovation in every part of the energy system.
We should all bear in mind that as exciting as innovation is, it’s all for a purpose. This is an exciting moment. And many of you in this room are helping us deliver that change.
But this is not just innovation for innovation’s sake. It will reduce the impact we have on the planet.
The opportunities created by new energy technologies do have this purpose. They are the backbone to a thriving economy, infrastructure on which the rest of the economy depends. And they must make people’s lives better.
The role of Government is to create the right framework. We must harness new technology to deliver more secure, cleaner energy at a lower cost. That is our goal: an energy system which is reliable and clean and cheap.
There have been many changes over the past few months in the political world, including the creation of my new Department – one of the big innovations of this new Government.
But our priorities have not changed. The consumer is still at the front of my mind in every decision we make. We will do all we can to keep costs down for households and businesses.
Theresa May has spoken of an economy that works for everyone.
And it is obvious not least from the Competition Market Authority (CMA) report that some people have benefited much more than others from increased competition in retail energy markets. It found that there is £1 billion of detriment to consumers, a challenge that has to be addressed.
For markets to enjoy the public support that is essential, people need to have confidence that if they trust a reputable, long standing, blue-chip brand, they will not suffer for it.
Indeed, for years many people have assumed loyalty will bring reward – mutually - not to be associated with naivety.
The challenge for policy-makers and the industry is to show it understands this and it will treat all customers fairly.
The creation of the new department places action on climate change where it belongs; as central to Britain’s economic future.
In the run up to Copenhagen, and before the Climate Change Act, the creation of DECC reflected the need to bring climate change action to the top of the political agenda.
But now the debate about whether to reduce emissions is over. The question, post the remarkable Paris agreement, is how you make it happen and in so doing, how to capture the huge economic opportunity of climate change action for UK businesses.
That is why bringing together climate, energy, business and industrial strategy is so important. Indeed, the imperative to act on the low carbon economy will underpin our industrial strategy.
Consumers and Climate
Cutting pollution and protecting consumers are often set up in opposition.
But the two objectives do not have to be at odds. Indeed, we can only achieve the kind of transformation of our, and the global energy system, needed if it is economic to do so.
Things have to be done differently from what was being done in the past. We need to nurture technologies which are both cheap and clean. We need the cheap option to be the clean option.
How do we do that? Through innovation. The kind of innovation we are seeing across our energy system.
We need energy which is cheaper and as reliable as coal and carbon free. Despite the progress of many low carbon technologies, we do not yet have the complete answer. We need to ensure all of our innovation is driving toward that goal of cheap, clean energy.
That is why today I am announcing the establishment of the Energy Innovation Board. Chaired by Sir Mark Walport, the Government’s Chief Scientific Adviser, and reporting to the Prime Minister, the Board will bring together all the different parts of Government funding energy innovation and ensure they are working together
A Smarter Energy System
Innovation, as you know, does not just come through developing new pieces of kit – a cheaper way to make nuclear or a more efficient solar farm.
We also need to create the environment for innovation to thrive. A key role for Government is making sure the rules of our energy system do not get in the way of that innovation.
The liberalisation of our energy market that began in the 1980s has been copied across the world – it brought down costs for consumers and encouraged new entrants. Our expertise in creating markets is as much a world-leading export as our automative sector.
However, our current energy system of rules and regulations was set up to move power from big power stations, down long wires, to people’s homes and businesses. It has served us very well.
But new technology is challenging that model:
- Millions of people’s homes and thousands of businesses are now mini-power stations, using technologies like solar panels to generate their own electricity;
- The roll out of electric vehicles will accelerate this trend, helping improve air quality while potentially providing new capacity to balance the Grid;
- Advances in storage technologies offer the promise of managing the grid more effectively, more cheaply, avoiding the need for expensive new power stations or wires;
- Improved information technology means energy consumers can help balance the grid by agreeing to automatically switch things off, again reducing their own electricity bills and the overall cost of the system;
- These technologies create opportunities for new businesses and business models, new consumer offerings and new markets. All of these are good news for consumers, for our energy system and for the economy.
At the same time, intermittent technologies like solar and wind are creating new challenges for the system.
Many of the fears about their impact were overblown. It was said our power system could not cope with a significant percentage of our power coming from renewables.
The doubters have been proven wrong. We now get 14% of our electricity from intermittent sources and our electricity supply remains the most reliable in Europe.
But we must recognise this intermittency does add some costs. So the challenge for Government and regulators is to design a system that can both better manage intermittency and take advantages of the innovations in storage, demand-side response, interconnection and IT to create a truly smart energy system.
This challenge was recognised in Energy UK’s 2030 pathways work.
The first step is making sure our hardware is fit for purpose. The smart meter roll-out is one of the most exciting and significant infrastructure challenges the Government is overseeing.
By 2020 every home and small business will have had the offer of a new smart meter. In many cases they will be replacing meters based on technology that is more than 100 years old.
But this is not just technology for technology’s sake. This is about making peoples’ lives easier: ending the use of estimated bills followed by sudden demands for hefty sums; making it easier to switch suppliers and tariffs; providing better information on where you can stop wasting energy to keep your bills down.
Our assessment sees nearly £6 billion of benefits to consumers from the smart meter programme. It will save £11 off the average bill by 2020 rising to nearly £50 by 2030.
But the roll-out is only the beginning. The wider application of smart technology means there are even greater potential savings to be made.
That is why today, in partnership with Ofgem, we are launching a call for evidence on how we get there.
The aim is to harness the potential of storage, demand side response and other technologies to create the most efficient, most productive electricity system in the world.
This means reassessing regulation which is biased against storage and aggregators so they can compete on a level playing field with large-scale generation.
If we do this right, a smart system could save consumers up to £40 billion in the coming decades.
We need to make sure price signals across the market reward the flexibility we need to balance our system at the lowest possible cost.
This includes removing any barriers so that domestic suppliers can offer time-of-use tariffs to keep bills as low as possible.
Getting the market right is the first step. This does not mean relying on subsidies, but allowing the market to bring forward innovative solutions.
Upgrading our Energy System
This transformation from a one-way system to a digital, smart one will be central to our upgrade of our energy infrastructure.
We want decentralised energy to compete with large-scale new generation. Why? Because the competitive tension is best for consumers.
And putting consumers at the heart of our energy strategy means building on our genuine strengths.
We cannot allocate subsidies to every technology that asks for them. Our focus will be on key technologies that have the potential to scale up and the potential to come down in cost and where the UK has a comparative advantage.
Above all, that means offshore wind and nuclear have a big role to play, alongside greater interconnection with grids in neighbouring countries. We remain strongly supportive of new interconnectors.
Brexit does not change the advantages of linking our electricity market with those of Europe. This trade is mutually beneficial for British business and consumers, and for our European counterparts. In any negotiation, you find a fixed point of mutual common ground.
The changes to the auction system for CFDs announced yesterday underline that determination to focus on our strengths.
And also our determination to get costs down. Again, this is not just to protect consumers, but to build commercial momentum so we have a chance of delivering global-scale reductions in emissions.
These technologies are where Britain has a history and expertise. We are building world-leading centres across the country.
Our nuclear cluster in Cumbria is a great example. Anchored by Sellafield and the site of the new proposed nuclear reactor in Moorside, we have developed the Centre of Nuclear Excellence. Today I was at the Economic and Financial Dialogue with the Chinese Government, and this will be an important relationship going forward.
It brings together industry, researchers and local Government to develop our world-leading expertise in fuel, decommissioning and engineering. This drives jobs and growths and attracts people to the area.
We are seeing something similar in offshore wind. Along the East Coast we are seeing new businesses being established and prospering. Hull, Middlesbrough and Hartlepool have welcomed major manufacturing facilities. Great Yarmouth‘s deep water harbour was chosen as the assembly base for the East Anglian One offshore project. The Humber is becoming the location of choice for operators to service the giant wind farms off the East coast.
British skilled workers and innovators working with international investors to create industries of the future.
Nurturing these centres of excellence will help the UK create the sophisticated supply chains across the country in sectors that have significant potential to grow.
Alongside the progress we’ve made in new technologies, a crucial part of upgrading our infrastructure is to take unabated coal power plants off the system.
Many of these highly-polluting power plants are decades old and not as reliable as they were. The proposal to give a clear date for their closure helps cut our emissions.
But crucially, it also provides a clear signal for investors, particularly in new gas-fired power stations.
We released our consultation yesterday on how to close unabated coal-fired power stations, while ensuring we retain our high levels of reliability.
As the Climate talks in Marrakech get under way, there can be no stronger signal of our commitment to set a compelling example to the rest of the world of how to cut carbon pollution.
Industrial Strategy and Climate
Over the coming weeks and months, I will be setting out in more detail how we will develop and work together with you on the Industrial Strategy to ensure we have an economy that works for all.
Energy and clean technology will be central to our vision of a future economy.
The global challenge to decarbonise, reinforced by the success of the Paris climate talks last year, is also an enormous economic opportunity for our companies, scientists and engineers.
We have much to be proud of in the UK. We have seen emissions fall by 38% since 1990. This is substantially more than both Germany and Denmark. We will have around 35% of our electricity from renewables by 2020. We are revitalising our nuclear industry, with the decision on Hinkley a crucial first step.
But we know we have much more to do – particularly in how we heat our homes and business and how we travel.
The upcoming Emissions Reduction Plan will be an important statement of our seriousness to reduce carbon emissions and a crucial plank in our wider Industrial Strategy.
We cannot yet know all the technological solutions that will get us to our 80% goal. But we know we need to lay the groundwork during this Parliament and the next for the technological transformation we need to see in the late 2020s and 2030s.
There are opportunities for every part of the country in this transformation.
If UK expertise and brilliance can nurture the cheap, clean technologies of the future we will not only help mitigate the risks, we can help grow our economy, building on our strengths and expertise in places across the UK.
As a Government, we have already shown we will not duck the tough choices. We signed the agreement to support a new power station at Hinkley Point C in Somerset. The review we undertook showed that this was a strong, strategic decision on the future of energy in our energy system.
The announcements on new CFD auctions and coal we made yesterday, alongside the changes we have made to the Capacity Market over the past year, provide a clear signal to investors, both from within the UK and outside. It shows the seriousness we have for a long-term plan.
And with today’s call for evidence on smart systems, we have placed ourselves on the side of the incredible innovations we are seeing across our energy market.
The changes we are making are about upgrading our country’s infrastructure. They are about putting affordability and security front and centre.
We want to move from a 20th Century energy system to a smart, clean system fit for the 21st Century.
Everyone recognises the opportunity and I am delighted to be part of it.