Significantly reducing greenhouse gas (GHG) emissions from the energy sector by 2030 is an essential first step towards meeting the UK’s climate change targets. A “cleaner” more efficient low-carbon energy system should be balanced with maintaining a “secure” supply of energy and ensuring the cost of energy to consumers is “affordable” – these three aims are often referred to as the energy “trilemma”.
As the 2010-2015 Parliament draws to an end, we wanted to show what a UK energy system that successfully tackles the energy trilemma might look like in 2030 and what challenges will need to be overcome during the next Parliament to help achieve this 2030 vision. We issued a call for evidence in November 2014 and received 91 pieces of written evidence. In this section we outline, drawing on the evidence we received, our vision of the energy system in 2030 and highlight the key challenges which will need to be overcome to help achieve it.
Our vision for the UK energy system
By 2030 the UK energy system is highly decarbonised. There is a diverse mix of energy sources. Low-carbon technologies such as renewables and nuclear play an integral role. As renewable energy technologies have matured, their costs have fallen, increasing the role of the market and reducing the role of the state.
Some fossil fuels are still used because of their relatively low cost and because the life of many assets has been extended into the 2030s. Gas, in particular, is used to heat homes and provide a flexible source of power. There is a modest amount of shale gas extraction supplementing the remaining reserves from the UK offshore production. The process of extracting shale gas is carefully regulated and the potential environmental impacts are being closely monitored. Some carbon capture and storage technology has been fitted to new and existing fossil fuel power stations. Combined Heat and Power is increasingly used to maximise the efficiency of the fuels that are used.
Demand-side measures have developed and this has helped to reduce the need for new supply-side infrastructure and manage the high proportion of intermittent renewables on the system. Smart meters, the smart grid, storage technologies and interconnection to Europe play an important role along with improved energy efficiency programmes. There is a significant increase in the number of communities producing their own heat and electricity.
A transparent energy system has empowered consumers routinely to switch energy supplier in order to find the best deals. Consumers understand the costs associated with decarbonising the energy system but have supported policies designed to facilitate this goal in light of the threat posed by climate change. The most vulnerable energy customers have been supported by cost-effective Government policies and the number of consumers in fuel poverty has fallen dramatically.
A significant carbon price is influencing investment decisions in favour of more low-carbon electricity and penalising the use of fossil fuels. The carbon price is set by a credible, well-functioning and widely respected EU Emissions Trading System – Europe’s main climate and energy policy instrument. A price of carbon has spread around the world to other emissions trading systems which are increasingly linked to one another in order to benefit from cheaper carbon reduction opportunities. As an early adopter of carbon pricing and low-carbon technologies, the UK is starting to reap a competitive economic advantage over other countries which have been slower to reduce their dependence on fossil fuels.
Challenges for the next Parliament
In order to achieve this 2030 vision, the Government will need to overcome a number of obstacles. We have outlined what we believe to be the three most important challenges.
1. Maintain political stability and leadership
It is critical that the Government maintains political consensus on the need to tackle climate change. This must be underpinned with a stable and consistent policy framework. It is estimated that the UK will need over £100 billion of investment to achieve its energy transition. The Government must prioritise giving investors’ the confidence they need to invest. This includes continuing to provide long-term certainty about future policy developments. The Government must, therefore, set the fifth carbon budget and ensure it has the policies required to meet it. We were very pleased to see the leaders of the three main political parties agree to work together to tackle climate change regardless of the outcome at the general election.
Most of the investment required to achieve the energy transition will go towards building new power generation in the form of low-carbon and renewable technologies such as wind, solar and nuclear. A lot of good work has already been done and significant amounts of investment in new projects has already been made. In order to continue to bring forward this investment, and avoid a hiatus, the Government must prioritise clarification of the future of the Levy Control Framework (LCF) and the allocations of Contracts for Difference early in the next Parliament. The LCF budget should be set annually on a rolling basis looking forward at least seven years to give investors better visibility. Government must also continue to incentivise a diverse energy mix, including more traditional forms of energy generation such as gas (building on maximising economic recovery of UK reserves), allowing the market to find the best solution and ensuring new companies are able to enter this market, thereby promoting value for money for the benefit of all consumers.
The UK has a proud history of helping to set the climate change agenda on the international stage. It has played a key role, alongside the EU, in negotiating the Kyoto Protocol and other international commitments. The Government must continue to provide strong international leadership on climate change. It must work hard to secure a global climate deal at United Nations Framework Convention on Climate Changes COP 21 in Paris at the end of 2015. This deal must stabilise greenhouse gas concentrations in the atmosphere at a level that will prevent dangerous human interference with the climate system. This is currently defined as “keeping global average temperatures below 2°C”. If the Government wishes the UK to continue its lead on climate policy it must recognise the growth in the UK’s consumption-based emissions. In addressing the challenge of stabilising greenhouse gas emissions, the Government must address the impact of embedded emissions, which have previously been of concern to the Committee.
The UK also played a key role in establishing the world’s first and largest carbon emissions trading system, the EU ETS. It has demonstrated that it is possible to operate an international market in carbon emissions allowances. However, the oversupply of allowances has seen the carbon price stabilise at a level too low to encourage investment in low-carbon technology, incentivise emissions reductions and decarbonise the economy. It is therefore imperative that the Government pushes hard for the EU ETS to be reformed as soon as possible.
2. Support and promote new technologies
So far demand-side measures, such as energy efficiency, demand-side response (DSR) and electricity demand reduction (EDR), have been the Cinderella of energy policy. This is despite being one of the most cost-effective ways of reducing carbon emissions. The Government’s efforts to kick start an energy efficiency market, through the Green Deal, have largely failed. Similarly, companies developing DSR and EDR technologies are justifiably concerned that the Government is not treating them equally with supply-side technologies. The Government must bring about a step-change in energy efficiency by adopting a policy that genuinely engages the consumer and drives down energy demand. It must also develop policies which give equal weight to demand-side measures alongside supply-side measures so that they can compete on a level playing field.
The next generation of technologies has the potential to revolutionise the energy system. The high cost involved in researching and developing these technologies means that companies often require support from Government. The Government must support R&D in innovative technologies as well as in existing renewable and low-carbon technologies such as nuclear and CCS to ensure that they can effectively contribute to the energy transition. The Government must be careful, however, that it does not base policy decisions on the assumption that these technologies will be commercially viable in time to contribute significantly to meeting the UK’s climate targets. This is particularly the case with CCS.
3. Build consumer trust
Consumer trust in the energy market is low. There is a perception that energy companies, network operators and even some switching sites are profiting at the expense of their customers. This could undermine the Government’s efforts to move to a low-carbon energy system. The Government needs to build greater trust in both its policies and the energy companies that will deliver it. It needs to be honest about the costs and benefits of decarbonising the energy system to ensure consumer buy-in. Without this trust the vision of a cleaner, more affordable and secure energy system could be jeopardised.
In order to ensure that our 2030 vision, of a highly decarbonised energy system, is realised it will be critical that the Government seek to address the three challenges we have outlined – maintaining political stability and leadership, supporting and promoting new technologies, and building consumer trust. We hope that the next Energy and Climate Change Committee will find this report helpful and take a close interest in these issues over the course of the next Parliament.