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
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?
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.
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
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
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