The Coalition Government is working to transform Britain’s energy landscape.
This month I will introduce the Energy Bill, which proposes the biggest reforms to Britain’s power sector since privatisation, aimed at bringing on around £110 billion of investment in new infrastructure by the end of the decade.
This transformation will be good for the economy, and will boost a sector that has excellent potential for growth both in the short term and well into the future.
It will be good for consumers, who will be better insulated from high and volatile fossil fuel prices.
And it will help us meet our carbon reduction targets as we deliver on our ambitious plans to decarbonise the economy.
I don’t apologize for focusing on electricity in the Energy Bill. In the hackneyed phrase, it keeps the lights on. And the challenges we face in electricity generation are crucial ones.
But I am not for a moment losing sight of the fact that almost half of the final energy consumed in the UK is used to provide heat.
Around three quarters of this is for heating buildings; the rest is in manufacturing processes.
Most heat currently comes from burning natural gas. And generating heat causes around a third of UK greenhouse gas emissions.
We do not hear enough about this part of the carbon equation. I intend to change that, so I am very pleased that the Energy Institute and the CHPA have organised this event.
We cannot meet our emissions reduction targets, or indeed our renewables targets, without tackling heat.
To meet our long-term climate goals, carbon emissions from buildings must eventually be near zero, and emissions from industry will need to be around a third of what they are now. That means changing the way we generate, distribute, and use heat.
So in March, we published a Strategic Framework for Heat. This is a sensible plan, focussed on building a market for low-carbon heat, supporting economic growth and protecting consumers by taking cost-effective measures.
It considers how we will manage demand, change the way we heat buildings, set up heat networks, and realise the potential for efficient, low-carbon industrial heat. We will follow up this framework up with practical proposals to make it a reality - with a document we will publish early next year.
Our approach - starting with energy efficiency, encouraging low-carbon networks in urban areas and renewable heating in rural off-grid areas, and moving more slowly in the on-grid suburban areas - met with overwhelming support.
Starting with energy efficiency, as we do for all kinds of energy, is no more than common sense. As the US Energy Secretary Stephen Chu has said, “energy efficiency is not just low-hanging fruit, it is fruit lying on the ground.”
We have launched the Green Deal, a radical new scheme which allows households and businesses to pay for energy efficiency measures such as insulation through savings on their energy bills.
I want the Green Deal to drive a new £10 billion market in energy efficiency, and to make a lasting difference to energy demand.
And on Monday, we launched the UK’s comprehensive Energy Efficiency Strategy, which sets out a path to radical improvements in energy efficiency.
By 2020 the UK could be saving 196 Terawatt-Hours of energy, mostly from more efficient heating and transport.
Consumers have a pivotal role to play. Relatively minor changes in the management and use of heat can significantly reduce bills. When multiplied across communities, cities and regions, the impact on our energy systems can be huge.
So in policy terms, I put demand first. But let me turn to heat supply.
We need to use low-carbon and renewable heat for our buildings.
Levels of renewable heating at present are incredibly low. We need to prime the renewable heat market, so that the supply chain builds up.
That’s why we have introduced the world’s first Renewable Heat Incentive for non-domestic heat, and the Renewable Heat Premium Payment scheme. We are currently consulting on RHI for homes.
Responses to our heat strategy included some helpful challenges on heat for buildings.
There were concerns about the reliance on electricity decarbonisation to achieve our heat targets, about the future of the gas grid, and on meeting peak winter heat demand.
My officials are currently working through these issues with industry, including many of those here today. I know that a number of the DECC heat team are here to participate in the rest of the day’s events, and these very questions are the ones that you will all be grappling with together.
We were also encouraged to do more on consumer behaviour, and of course we are very concerned about protecting the most vulnerable. We have commissioned social research in this area, and of course we are learning from our work on RHI, the RHPP scheme and the Green Deal.
On 1 November we announced the winners of the third and final strand of this year’s RHPP social landlords competition. We are now providing over £9m support, to a total of 132 projects.
This will result in nearly 5,000 renewable heating installations going into social housing over the coming months, helping tenants to stay warm, helping keep their bills down, and providing support to industry.
Heat is a local issue. Low-Carbon Heat networks, providing heat to dense urban areas, will be an important part of Britain’s energy future.
Up to half of the heat demand in England is in areas with high enough heat density to make heat networks feasible. But that doesn’t mean they will all be practical, or profitable.
We need to know more about the commercial realities and the barriers. Again, that is one of the purposes of today’s event.
As a long-standing proponent of localism, I believe this is one of the most exciting proposals in our strategy, and I look forward to announcing more on this in the spring.
I know that a great deal is happening already. I’m not only thinking of the potential district heating project in my own constituency.
Through our City Deals programme, we already helping cities to develop their plans for district heating.
Central government is not going to build their networks for them, clearly. But we know from the experience in London and from the ‘Big Offer’ that a small amount of help in the initial phase of a project can go long way.
It can help to move projects to the point of commercialisation - where the Green Investment Bank and commercial lenders can take up the reins, investing in heat network projects with profit-making potential.
And I can today announce that my Department will shortly be providing around £1 million to at least four cities - Manchester, Newcastle, Nottingham, and Sheffield - to undertake feasibility studies on exciting new district heating projects within their cities.
We hope to be able to extend this to other cities soon, as the Big Offer proposes. And we are also working with the Green Investment Bank to ensure that the projects can be taken to the next stage in the process.
London contains an example of the potential. The Greater London Authority is supporting 25 heat network projects. These have the capacity to leverage over £230 million of investment.
I’m grateful to the CHPA and its members for its engagement in this area and for the Big Offer proposals which have been published today.
This is a comprehensive range of measures, including some bold, no-regrets proposals. Such steps are needed to build confidence among consumers, to build capacity in the supply chain, and to build local capability.
I have asked my officials to work with the CHPA and I look forward to seeing the fruits of this work in March.
I am very positive about this programme. But I must mention the UK District Energy Association. When I want to speak to the big energy supply companies I can talk to a single body - Energy UK. But I cannot speak to a single body about district heating.
Many of the good ideas in the Big Offer - such as standardised documents, consumer codes and self regulation - would be much more powerful if they clearly had the backing of the whole industry. That is my challenge to you.
I’d like to turn to Combined Heat and Power. CHP capacity has already delivered significant energy and emissions savings, and provides around 7% of the electricity currently on the grid.
Decarbonisation of the grid will eventually cancel out the emissions-saving potential of natural gas fired CHP, but I am keen to try to find ways to bring forward new natural-gas-fired CHP capacity for as long it continues to deliver lifetime CO2 savings.
I am as keen as you are to bring clarity to policy in this area. That is why I have commissioned detailed costing and modelling work to understand the extent of the time window for fossil fuelled CHP, and to consider what would give the most benefit for least cost. This work will inform the March heat policy proposals.
In the meantime, the Energy Efficiency Strategy confirms the importance of CHP as an industrial energy efficiency measure, and indicates that natural-gas-fired CHP projects will be eligible for consideration for Green Investment Bank funding as a non-domestic energy efficiency measure.
CHP is also identified in the Energy Efficiency Strategy as one of the technologies that can further contribute to a more energy efficient society at both the micro and the macro level.
Renewable CHP of course has a longer-term future. We currently give CHP an up-lift through the Renewable Obligation mechanism, and our consultation on expanding the non-domestic RHI includes a CHP-specific tariff.
Finally, I’d like to say a little about industrial heat.
Considerable progress has already been made in reducing the carbon intensity of UK industry. While industry has averaged growth of around 1% per year since 1990, emissions have reduced by 46%, which shows that carbon emissions and economic growth can be decoupled.
That transformation must continue. I want British industry to thrive and increase its international competitiveness, not despite the need to be greener, but because of it.
Going low-carbon can provide efficiency benefits and can drive innovation - and by developing new skills and engineering knowledge, UK industries can position themselves to seize business opportunities in the global low-carbon economy of the future.
The opportunity for innovation spans a range goods, services and forms of production. A strong UK industry helps us rebalance our economy away from the public and services sectors and back to manufacturing.
I don’t need to tell this audience that heat is used in a diverse range of industrial processes, over a wide range of temperatures.
We recognise that the demands for heat vary a great deal between different industries. And it follows that the potential for making carbon reductions and efficiency savings is also highly sector-specific. So we need to address the challenge and seek out the opportunities on a sector-by-sector basis.
In the new year, therefore, we will be working with industry and academics to understand and articulate routes to decarbonise each of the key industry sectors.
We need you to engage with us if we are going to make this credible. Can I use this platform to urge you all to contribute.
Heat poses some big policy challenges, but it also presents us with opportunities - opportunities to diversify our energy supply and hence improve our energy security, opportunities to drive growth and new investment, opportunities to innovate and create the low-carbon economy that will prosper in the future.
Government works best when it partners with industry, and I encourage you to keep in close contact with my officials as this work is progressed.
And I look forward to setting out our policy proposals in March.