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New report sheds light on the energy debate
"We need to ensure that the market delivers enough energy supply in five years' time, in ten years' time and in fifteen years' time," was the message from Energy Minister, Malcolm Wicks, as a new report was published into security of energy supplies.
The Energy Markets Outlook report provides energy market information on security of supply, looking forward over a fifteen-year time span. The intention is to help develop a shared understanding of the longer-term outlook for energy supply and demand, and to help understand emerging risks that could affect security of supply.
Malcolm Wicks said:
"Security of energy supply is one of the fundamental challenges this country faces. We need to ensure that the market delivers enough energy supply in five years' time, in ten years' time and in fifteen years' time.
"We have one of the strongest and most diverse energy markets in the world which has seen many billions of investment. This includes proposals on the table for more than 14 gigawatts of new electricity generation capacity and a quadrupling of our gas import capacity over the last few years.
"Decisions are being taken, the market is delivering investment, but we can't let our guard down.
"Underpinning this is the need to move as quickly as reasonably possible towards a low-carbon economy. The sooner the world tackles climate change the better, both economically and environmentally. The best way of reducing emissions from energy is to use less. But whatever the exact composition of the future energy mix is, it must clearly involve a far greater role for renewable energy."
The report highlights key signals to the market, including:
* Significant medium-term opportunities for the construction of new electricity generation capacity in response to expected demand and plant closures. This is consistent with the conclusion set out in the Energy White Paper that around 20 to 25 gigawatts (GW) of new generation will be required by 2020. Companies have already announced over 14 GW of new generation.
* Delivery of new gas capacity and planned new infrastructure should more than compensate for reduction in indigenous production in the medium term, although whether the infrastructure is actually used to deliver gas will depend on the market price. Further investment will be needed to avoid market tightness around the middle of the next decade and in subsequent years. Alongside pipeline supplies, the global Liquefied Natural Gas market provides an opportunity to access additional sources of gas on a more flexible basis.
* The future use of other fuels - coal, oil and nuclear fuels - is unlikely to be limited by resource availability. There may be scope for additional indigenous coal production.
* There is a continued need for skills and resources in the engineering and construction sectors in order for new infrastructure to be provided. Delays caused by the planning system also have a major impact on the deliverability of new infrastructure and the Government's proposals for planning reform are intended to address this.
* Increases in the price of carbon should encourage investment in new, low-carbon generating capacity in the long term. In the short term, however, uncertainty about the future of the carbon market may cause delays in investment in new generating capacity. This could potentially be one cause of temporary market tightness in the years ahead, if this uncertainty is sustained.
* Greater deployment of renewables will have an important role to play in cutting carbon emissions. Maintaining security of supply while expanding the use of renewable energy sources is achievable, given the UK's significant primary renewable resources, although this will involve some additional costs.
The Energy Markets Outlook report was developed in conjunction with the energy regulator, Ofgem.
Ofgem Chief Executive Alistair Buchanan said:
"The past couple of years have shown that competitive markets can deliver substantial investment in new and diverse energy supplies. But if investment is too late customers can suffer by having to cut production or deal with much higher prices to manage temporary shortages. We hope this report will help the energy industry and customers understand the risks and the need for investment in the future so that they can take appropriate actions"
Alongside the publication of the Energy Market Outlook report will be a new online resource, which contains additional detail on security of supply, including background analysis and links to other sources of information.
Notes to editors:
1. This is the first Energy Markets Outlook report, and fulfils a commitment we made in the Energy White Paper in May 2007. It builds on the Joint Energy Security of Supply (JESS) working group report, and is intended to be the first stage in a dialogue between the Government, companies, market participants and other interested parties.
2. The Energy Markets Outlook, which has been developed with the help of Ofgem and National Grid, looks at security of supply and its drivers over a time horizon of up to fifteen years. It covers electricity, gas and other fuels including coal, oil, nuclear fuel and renewables. It also looks at supply chain issues such as the availability of skilled staff, materials and labour for the construction and operation of new infrastructure.
3. The report and the online resource can be found at: http://www.berr.gov.uk/energy/energymarketsoutlook/page41839.html
4. Welcoming the publication of the report:
Jeremy Nicholson, Director, Energy Intensive Users Group said:
"Energy intensive users, who provide employment to 700,000 people in the UK, have every interest in improving their own and others' understanding of the risks affecting security of supply. These users are the first to feel the effects of energy market tightening and so need to be prepared for the possibility. There will always be uncertainty about the future, but a frank and open dialogue initiated by the Energy Markets Outlook can only help our understanding of the risks, helping energy producers and users to manage them most effectively."
David Porter, Chief Executive of the Association of Electricity Producers, said:
"We estimate that electricity generators have to invest over £20bn by 2020 in order to replace retiring plant and meet rising demand. The Energy Market Outlook should help to provide clarity about government's perceptions of strategic risks and hence reduce the risk of unexpected and unhelpful changes in public policy. We welcome the opportunity that it offers for constructive dialogue."
Professor Jonathan Stern, Director of Gas Research, Oxford Institute for Energy Studies said:
"The analysis in this report is clearly a step forward from the old JESS, as it covers a broader set of sectors and looks at security of supply from more dimensions. I also welcome the Government's emphasis on the consultative nature of this exercise. They are recognising that nobody has all the information about possible future developments in energy markets. What we need is a constructive dialogue, and this provides the basis for that process to take place."
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