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The Bigger Picture for Energy in the UK: Current Policies and the Energy Bill

Jim Watson, Research Director

Eversheds conference: Connecting Projects to the Grid18th June 2013

Overview

1.UK climate change targets and the electricity sector

2.Other energy policy goals: security and affordability

3.Meeting the goals: Energy Bill 2012/13

The UK’s low carbon transition

Keep the lights on at the same time

Source: Committee on Climate Change

The UK’s low carbon transition:CCC projection for 2020

Source: Committee on Climate Change (May 2013)

12GW of fossil and 3.5GW of nuclear plant retiresEU renewables target: 30-35% of electricity by 2020Energy efficiency; two CCS demos; 5GW unabated gas

The UK’s low carbon transitionCCC scenarios for 50g/kWh in 2030

Source: Committee on Climate Change (May 2013)

The UK’s low carbon transitionCCC scenarios for 50g/kWh in 2030

Source: Committee on Climate Change (May 2013)

Reducing emissions:progress to date

Source: Department of Energy and Climate Change

CO2 emissions are down 19% since 1990

But emissions rose 20% (1990-2009) on a consumption basis

Important for many reasons:• High energy prices since mid 2000s• Geopolitics and conflicts (e.g. Iraq war;

Russia-Ukraine gas disputes)• Impacts of extreme weather events (e.g.

power blackouts; hurricane Katrina)• Ageing and/or inadequate infrastructure

(power plants; gas storage capacity)

Debates often focus on international risks, but many risks closer to home

Domestic energy sources are not always more secure than imports

Maintaining energy security

1980 1985 1990 1995 2000 2005 2010

-200.0

-100.0

0.0

100.0

200.0

300.0

400.0

500.0

600.0

Exports Pipeline Imports LNG Imports Net Imports

TW

h

Source: DECC

Maintaining energy securityFrom gas exporter to importer / trader

Maintaining energy security:from gas exporter to importer

Source: DECC Energy Security Strategy (2012)

Maintaining energy securityFrom gas exporter to importer / trader

Maintaining energy security:will the lights stay on?

Scenarios from DECC and Ofgem

Source: National Grid 10 Year Statement (2012)

Maintaining energy securityFrom gas exporter to importer / trader

Maintaining energy security:will the lights stay on?

Three scenarios from National GridGone green and accelerated growth meet govt targets

Maintaining energy securityIncreasing / more complex power flows

Source: National Grid 10 Year Statement

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

100

200

300

400

Gas Electricity

Inde

x (2

000

= 10

0)

Gas prices have trebled since 2000

Electricity prices have doubled since 2000

Affordability:Domestic gas & electricity prices

Affordability: domestic electricity and gas prices

Affordability: what is causing higher bills?

AffordabilityImpacts of policies to 2020 (DECC)

Affordability: what is causing higher bills?

Trade-offs between policy goals

Energy Bill 2012/13: main elements

1.Emissions performance standard (EPS)To stop new, unabated coal plants being built

2.Capacity mechanismTo make it easier to justify investment in capacity that is not often used (to balance intermittent renewables)

3.Long term contracts for differenceTo give greater certainty to potential investors in capital intensive, low carbon plant (nuclear, offshore wind and CCS)

4.Carbon price floor already implemented: £15.70 / tonne from April 2013

Energy Bill 2012/13:levy control framework

2011-12 2012-13 2013-14 2014-150

1000

2000

3000

4000

5000

Renewables Obligation Feed in Tariffs Warm Home Discount

All

ow

ed S

pen

din

g (

£m)

Source: House of Commons Library

Source of finance for CfDs: cap on funding via consumer bills will rise to £9.8bn by 2020:

Click to add titleEnergy Bill 2012/13:some areas of debate

Main controversy is about 2030 electricity decarbonisation target. Narrowly voted down in the House of Commons: will be debated again today

Role of unabated coal. Current version of the Bill does not guarantee existing stations will close

Energy demand reduction (& response) incentives have been included in the capacity mechanism, though very late in the process

Provisions for smaller generators debated, but not yet included. Proposed ‘green power auction market’

Click to add titleEnergy Bill 2012/13:some unanswered questions

Will the government take up enabling powers to implement decarbonisation target in 2016 (alongside 5th carbon budget)?

Contract prices are being administratively set (see, for example, debate on Hinkley C). How and when will there be a transition to more competitive approach?

Until then, how will consumers be protected from paying too much for new low carbon power plants?

Will the Bill be ‘fit for purpose’ for smaller players and independents? Clear links to market competition issues

How much demand reduction & demand response will the capacity mechanism deliver?

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Thanks

http://www.ukerc.ac.ukhttps://twitter.com/watsonjim2

Source: DECC

Energy Bill 2012/13:contracts for difference