Select Committee on Trade and Industry Minutes of Evidence


Further Memorandum by energywatch

  energywatch was set up under the Utilities Act 2000 and came into being in November 2000. We represent all gas and electricity consumers in England, Scotland and Wales and have particular regard for the needs of low income, elderly, disabled, chronically sick and rural consumers.

  Our mission is to be an independent consumer champion, dynamic in developing safe, confident and assertive consumers. We are committed to improving the services provided to all gas and electricity consumers.

  In October, energywatch consulted with organisations representing a range of interests from big businesses to the fuel poor about Government's Energy Policy Review. There was a unanimous view that an energy policy is needed, which enables industry to compete, delivers energy when it is needed and does so safely. Put simply, energywatch believes that the Energy Policy Review should be assessed in the light of affordability, security and safety.

  Given the imminent dependence of the UK on energy imports, how can the UK maintain a secure energy supply? What mix of fuels would maximise security?

SUPPLY SECURITY

  The United Kingdom has been in the fortunate position of having relatively cheap home produced energy available over the past decades. However it is possible, that by 2020 we will be importing 90 per cent of both our gas and oil needs if no action is taken. Consideration needs to be given to whether this situation can be left to markets to resolve, having assessed political risks associated with importing from the Middle East, Russia and Africa which have the world's largest reserves.

  The review should put a value on security which takes full account of the risks and costs of interruptions in supply as well as the costs of providing contingency arrangements such as storage. Against this background the aim should be to maximise domestic energy production until the additional costs of doing so are equal to the "value" of security.

INFRASTRUCTURE SECURITY

  The review needs to consider whether there will be continued sufficient investment into our networks to ensure that performance levels are progressively improved, subject to reasonable costs. energywatch remains doubtful as to whether auctions, proposed for creating investment signals for the gas transportation network, will be sufficiently effective.

  A further issue relating to energy security is that existing European infrastructure has not been designed to transport gas to the UK. Up until now, there has been no incentive to invest in extra network capacity to a country that has only needed to import relatively small quantities of gas from continental Europe. There needs to be confidence that the right investment signals are in place to deliver this infrastructure investment. We may not be able to rely entirely on markets to do this, given the current lack of liberalisation on mainland Europe.

What sort of security do we need in both absolute and relative terms?

  There needs to be a commitment to enabling renewables and CHP to deliver as much low or no-carbon electricity for UK energy consumers as is possible, subject to it being at reasonable cost. However, we need to be realistic about what can be delivered. Other approaches have to be considered in order to maintain a level of domestic energy production, which meets our needs.

  We need and expect PIU to provide an analysis of what is and might be realistic means of delivering energy security in the context of a low carbon economy in terms of our generation mix. Measures must also be in place to track the development of different sources of generation that are both planned and built. We must be ready to adjust our policy assumptions in the light of developments.

Is there a conflict between achieving security of supply and environmental policy? What is the role for renewables, and Combined Heat and Power schemes?

  We need the maximum amount of renewable and CHP generation that it is possible to develop at reasonable cost. It can provide long-term energy security and low carbon sources of electricity and has the potential to provide a win-win situation.

  Renewable technologies are as yet untried in the context of delivering major, baseload demand. There may be problems in the development of technology that has yet to prove it can deliver baseload consistently. We must also monitor development and operating costs because we cannot ignore the impact such costs could have on industrial and commercial consumers' position relative to those in other European economies. We also need to address the impediments faced by CHP generators in the context of the New Electricity Trading Arrangements.

What scope is there for further energy conservation?

  There is considerable scope for further energy conservation. Nevertheless, it is necessary to be realistic about people's motivation and expectations in terms of what it is reasonable to expect energy conservation to deliver in lowering demand and carbon emissions. For example it is important to recognise that only 50 per cent of the UK's current housing stock will have been replaced by 2050. But even if energy conservation programmes are extremely successful our demand for energy is not likely to decrease sufficiently to reduce carbon emissions by the amount recommended by the Royal Commission on Environmental Pollution. This is a major challenge for every organisation that is interested in how consumers use energy, including energywatch.

  Energy conservation has an important role in delivering affordable energy to the fuel poor who will be badly affected if energy prices do rise. Government's Fuel Poverty Strategy is a good start and is clear evidence of its commitment to ending fuel poverty. However it is evident that more resources need to be found for the strategy to deliver the eradication of fuel poverty. The agencies working with consumers on the ground to implement the strategy need to see a clear Government vision. There are many organisations involved in energy efficiency delivery and at present their services lack sufficient co-ordination. This fragmented approach affects the ability to target eligible consumers for energy efficiency measures. We hope that Warm Zones may provide approaches for more integrated service provision which can then be implemented generally.

What impact would any changes have on industrial competitiveness and on efforts to tackle fuel poverty?

  We feel this is a very significant issue. The PIU, in its final report, should identify the possible impact so that the Fuel Poverty Strategy can be reviewed in the light of potential increases in energy prices.

  In addition to the wider economic impact of higher gas and electricity prices for UK consumers there will also be an impact on our quality of life. If we lose our competitive position as a consequence of higher prices it may have a significant impact on jobs as industry and inward investment is lost.

Is any change of Government policy necessary? How could/should Government influence commercial decisions in order to achieve a secure and diverse supply of energy?

  Government has a unique role to play in creating a framework to enable the right investment decisions to be made. This includes setting the taxation regime and establishing effective planning processes which deal fairly with all stakeholders. This must be complemented by more effective guidance to Ofgem and other government agencies to ensure that there is a joined up view of our country's energy requirements when they implement their various policies.

  We also expect the Government to establish the framework for a UK energy policy which delivers environmental benefits. This must be in the context of equally valid principles of affordability, security and safety.

28 November 2001


 
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