Annex 1: Conclusions and recommendations
A potential generating gap?
1. By 2016, it is likely that between 15 and
20GW of electricity generating plant will be decommissioned. This
amounts to nearly a quarter of total UK generating capacity. Over
the next 9 years, therefore, very substantial investment in new
generating capacity and energy efficiency will be required if
the lights are to stay on—even in the absence of demand
growth. Further substantial investment on a comparable scale
may be required in the following decade. (Paragraph 15)
2. The Energy White Paper, published in February
2003, addressed the need for carbon reductions across the economy
but did not set specific targets for the electricity generating
sector. However, it endorsed the view set out in the PIU report
that new gas-fired generating plant, renewables and energy efficiency
could make up for the potential generating gap left by the decommissioning
of older coal and existing nuclear plant. (Paragraph 18)
3. Following the Climate Change Programme review
and the current Energy Review, the Government should set targets
for specific sectors of the economy including transport, the domestic
sector, and the electricity generating sector for the level of
carbon reductions to be achieved by 2020. It should also ensure
that such targets, together with any targets set for absolute
reductions in energy demand, are incorporated within departmental
business plans and Public Service Agreements in order to ensure
that policy development takes full account of the need to reduce
carbon emissions. (Paragraph 22)
4. We have serious concerns about the ability
of the Government to model reliably and in a timely fashion future
energy and emissions forecasts. This is reflected in the fact
that the updated energy projections are two years late, the unwillingness
to accept earlier that the Climate Change Strategy was seriously
off course, and the difficulties which the Government experienced
in setting an emissions cap for Phase 1 of the EU Emissions Trading
System. As a first step, the Government should ensure that it
puts in place a transparent and credible system for updating these
forecasts regularly every two years. Ultimately, it would be
more appropriate for some form of sustainable energy agency)—
clearly independent of government—to perform this role.
(Paragraph 28)
Filling the gap—energy efficiency, renewables,
and other lower carbon options
5. There is little evidence as yet that the Government
has succeeded in doubling the rate of energy efficiency improvements,
as envisaged in the Energy White Paper. Indeed, given the importance
the Government attaches to this objective, it is surprising that
progress against the energy intensity ratio is not regularly reported
and that it is not even included in the newly revised suite of
68 Sustainable Development indicators. The Government must address
this glaring anomaly. (Paragraph 35)
6. The Environmental Audit Committee has highlighted
on previous occasions the failure by Government departments—in
particular, the Treasury—to take decisive action on energy
efficiency. What is abundantly clear is that it will require a
coordinated package of regulatory and fiscal policy instruments
which offers much more in the way of both carrots and sticks,
and that this must be accompanied by high-profile campaigns to
raise awareness among the public. Far greater political leadership
is required and far higher priority accorded to energy efficiency
if the Government is to achieve the carbon reductions set out
in the Energy White Paper. As part of such a strategy, we would
also urge the Government to consider setting absolute targets
for reductions in demand as a way of stimulating the growth of
energy services and guaranteeing the level of carbon savings achieved.
(Paragraph 40)
7. The UK lags well behind almost all other EU-15
countries in terms of the percentage of electricity generated
from renewables, and it is now certain—as indeed the EAC
has been forecasting for several years—that the Government
will fall far short of the 10% renewables target set for 2010.
However, the evidence presented to us indicated that renewables
can deliver 20% of electricity generated by 2020. In this sense,
the vision set out in the Energy White Paper is still achievable,
though it will require a far greater degree of commitment in terms
of implementation than has hitherto been demonstrated. (Paragraph
49)
8. The retro-fitting of super-critical boilers
could enable coal plants to improve their efficiency and contribute
substantially to carbon reductions. More significantly, the development
of carbon capture and storage (CCS) could reduce carbon emissions
from coal-fired plant by 80%. Indeed, the Energy White Paper singled
this technology out as being of such importance as to warrant
an urgent 6 month research project to take it forward. It is scandalous
that so little progress in developing clean coal and carbon capture
and storage has been made, and even the flagship BP-led DF1 project
at Peterhead remains dependent on the establishment of a long-term
financial framework which would provide greater confidence to
investors. (Paragraph 51-53)
9. Distributed generation could fundamentally
alter the structure of electricity networks in the UK. Micro-CHP,
in particular, could deliver at peak winter periods as much as
the current fleet of nuclear power stations, and could be a key
technology for addressing both energy efficiency and fuel poverty.
We see no reason why it should not begin to contribute substantially
by 2020 and would urge the DTI and Ofgem to take a more proactive
approach in developing the microgeneration strategy. (Paragraph
62)
10. With the possibilities afforded by energy
efficiency, renewables, distributed generation, and carbon capture
and storage, it is abundantly clear that new nuclear build is
not the only option for lower-carbon electricity generation within
the UK. Indeed, the Government is spoilt for choice. It is all
the more disappointing, therefore, that so little has been achieved
since the Energy White Paper in developing these alternatives.
The failure to do so will exacerbate the potential generating
gap and will result in an even greater reliance on gas over the
next ten years than would otherwise have been the case. (Paragraph
63)
The Nuclear Option
11. The past history of the nuclear industry
gives little confidence about the timescales and costs of new
build. This does not mean that a new generation of nuclear power
stations cannot be built to time and cost, but it does mean that
investors have little basis for assessing the risks involved and
may therefore require a higher rate of return. (Paragraph 70)
12. Nuclear can do nothing to fill the need for
20GW of new generating capacity which will arise by 2016, as it
simply could not be built in time. The Secretary of State himself
acknowledged that it might take 17 years before the first of a
fleet of new nuclear power stations could become operational.
Even if planning, licensing, and construction stages could be
reduced to 10 years in total, the earliest possible date for the
first of a series would be 2017—still too late to plug the
immediate gap. For the period beyond 2017 nuclear could begin
to make a contribution)—though, given the fact that successive
nuclear plants might only come on stream at perhaps 18 month intervals,
it might not be until around 2030 that the full generating capacity
of a nuclear programme would be available. (Paragraph 80)
13. Uranium mines can only supply just over half
the current demand for uranium, and the situation is likely to
become more acute as secondary sources—such as military
stockpiles from decommissioned weapons—decline in importance.
Such concerns, which are shared by the nuclear industry itself,
may depress investment in new nuclear capacity, while the possibility
of further large rises in the price of uranium could significantly
alter the economics of nuclear power and render it less attractive
to investors. (Paragraph 89)
14. At present nuclear power can justifiably
be regarded as a low-carbon source of electricity. However, the
extent to which this can be sustained needs to be examined.
There is some evidence to suggest that the level of emissions
associated with nuclear might increase significantly as lower
grades of ore are used. Given the concerns expressed by the nuclear
industry itself over the adequacy of uranium supplies after 2015,
we regard this as a serious issue and one which can hardly be
resolved in the time-frame of the current Energy Review. In view
of its importance, the Government should consider asking the Royal
Commission on Environmental Pollution to report on carbon emissions
associated with all generating technologies. (Paragraph 95)
15. The risk of a major accident at a nuclear
power plant may be remote but the consequences can be huge. This
is reflected in the need for governments to underwrite the industry
against losses in excess of Euros 700 million. Moreover, the risks
of terrorist attacks on nuclear installations and the risks associated
with any further proliferation of nuclear power are serious.
(Paragraph 103)
16. No country in the world has yet solved the
problems of long-term disposal of high-level waste. The current
work being conducted by CoRWM will not be sufficient to address
the issue of waste associated with new nuclear build. In particular,
a further study to identify the likely costs of the latter would
be required in order to reduce investment risk. (Paragraph 108)
Generating Costs, Markets, and Policy Instruments
17. Uncertainties in world markets for fossil
fuels, in the regulatory framework which will apply, and in the
pace of technological development—particularly with regard
to renewables—make it very difficult to predict the future
costs of different forms of generation. It is likely that we will
see significant and perhaps unexpected changes in such costs over
the next 20 years, and attempts to produce comparative figures
in terms of costs per kilowatt hour are therefore of limited value.
In such circumstances, absolute differences in generating costs
matter less to investors than long-term certainty with regard
to costs and income; while if market and regulatory frameworks
cannot provide such certainty, investors will inevitably focus
on short-term rewards. (Paragraph 116)
18. No simple answer can be given to the question
of the likely cost of nuclear power. The cost will vary depending
on the degree of risk which investors perceive is involved.
This in turn will depend on a complex web of factors including
the nature of the market, and the regulatory and policy framework
which is in place. In this respect, there can be radical differences
between countries, as the contrast between Finland and the UK
demonstrates. (Paragraph 118)
19. Any new investment in generating capacity
outside the framework of the Renewable Obligation will almost
certainly be in gas, and we will inevitably be dependent on new
CCGT plants for most of the 15GW to 20GW of new generating plant
we will need by 2016. However, while there may be a certain degree
of scaremongering on the part of the industry, it is by no means
certain that the current highly liberalised UK electricity market
will in fact provide timely investment in new generating capacity
and ensure security of supply. Given the central importance
of this issue, we find it strange that it is not included in the
issues on which the Government is seeking views as part of the
current Energy Review. The Government must therefore consider
as part of that review whether there is a need to amend the current
UK electricity trading arrangements in order to provide some form
of capacity incentive and promote longer-term investment perspectives.
(Paragraph 123)
20. It is sometimes argued that a greater reliance
on gas, as envisaged in the Energy White Paper, would result in
an increase in carbon emissions from the power generation sector
as a whole. However, this is not necessarily true as substantial
further carbon reductions of up to 40% could be achieved simply
by replacing inefficient coal plant with new CCGT. (Paragraph
129)
21. Current policy instruments for low-carbon
generation are failing to provide a secure long-term funding framework
which will offer sufficient confidence to investors. As a result,
progress in certain critical areas such as off-shore wind and
carbon capture and storage is in danger of stalling. The Government
must increase the amount of capital funding available for key
low-carbon technologies. It should also consider as part of the
Energy Review the possibility of either banding the Renewables
Obligation to offer a variety of incentives for different technologies
or else introducing guaranteed contracts for tranches of low-carbon
generation. (Paragraph 141)
22. The Government has stated that it will not
provide any form of direct or indirect financial support for a
new generation of nuclear power stations. We welcome this. Nuclear
is an established technology which, like coal and gas, has benefited
in the past from very large financial subsidies. In this respect,
it contrasts strikingly with emerging renewables such as offshore
wind and marine, where financial support is initially required
to bring them to market and generate the cost-reductions which
will enable them over time to compete with other forms of generation.
(Paragraph 148)
23. Governments should make clear to consumers
and taxpayers that low-carbon technologies have an explicit price
premium: we cannot move to low-carbon power generation on the
basis of cheap energy. (Paragraph 154)
The Energy Review
24. It is notable that the July 2005 monitoring
report from the Sustainable Energy Policy Network gave no indication
whatsoever of the need for a wide ranging energy review, other
than a cursory reference to the Prime Minister's statement that
a decision on nuclear needed to be made during this Parliament.
This must show either that the Sustainable Energy Policy Network
monitoring process is itself flawed, or that there is in fact
no need at this stage for a review; and we are therefore concerned
that the Review does not appear to have resulted from a due process
of monitoring and accountability. (Paragraph 161)
25. Since the Energy White Paper, we would agree
that various changes justify the need for a thorough review of
implementation. However, the nature of the Energy Review itself
is unclear and the case for a wider ranging review of energy policy
has not been made. It will fail to command the support of stakeholders,
the public and politicians if what emerges is significantly different
from the course that was charted in the Energy White Paper without
a proper explanation of how circumstances have altered sufficiently
to justify such a change and without further wide-ranging consultation
on the nature of the change. (Paragraph 163)
26. A key theme underpinning the review is the
Government's argument that a decision on energy, and specifically
nuclear generation, has to be made: 'doing nothing is not an option'.
But, in the context of the Government's confidence in liberalised
markets, we are at a loss as to what the nature of such a decision
could amount to, and the Secretary of State was himself unable
to clarify matters. (Paragraph 165)
27. The Energy Review is only one of a number
of important reviews currently being undertaken. It is extremely
unsatisfactory, for example, that it has been launched before
the publication of the long-delayed Climate Change Programme review.
Moreover, the Stern Review of Climate Change is not due to report
until the Autumn—after the Energy Review has itself reported—even
though logically it should come first. This does not inspire
confidence about the extent of coordination within and between
different parts of Government. (Paragraph 168)
Conclusions
28. By 2016, it is likely that between 15 and
20GW of electricity generating plant will be decommissioned.
This amounts to nearly a quarter of total UK generating capacity.
Over the next 9 years, therefore, very substantial investment
in new generating capacity and energy efficiency will be required
if the lights are to stay on—even in the absence of demand
growth. Further substantial investment on a comparable scale may
be required in the following decade. (Paragraph 169)
29. At the same time, the UK is facing the unprecedented
challenge of achieving radical reductions in carbon emissions
in an effort to combat global warming—as reflected in the
difficulty of achieving the UK 2010 carbon reduction target. The
electricity generating sector accounts for nearly a third of total
emissions and it will therefore need to play a significant role
in achieving such reductions, and indeed the achievement of the
2050 target will depend heavily on the nature of investment in
generating capacity over the next two decades. The Energy White
Paper of 2003 addressed the need for carbon reductions across
the economy but did not set specific targets for the generating
sector. However, it endorsed the view set out in the Performance
and Innovation Unit (PIU) report that new gas-fired plant, renewables
and energy efficiency could make up for the potential generating
gap. (Paragraph 170)
30. Over the next ten years, nuclear power cannot
contribute either to the need for more generating capacity or
to carbon reductions as it simply could not be built in time.
The potential generating gap during this period will need to
be filled—largely by an extensive programme of new gas-fired
power stations, supplemented by a significant growth in renewables.
Contrary to popular belief, a further 'dash for gas' would result
in significant carbon savings. Moreover, it is not clear how much
effect the replacement of older coal and nuclear plant by gas
will have on the security of total electricity supplies, as we
will in any case become highly dependent on foreign imports of
fossil fuels for our total energy requirements (Paragraph 171)
31. Including over twice as much natural gas
for industrial and domestic uses as we use for electricity generation.
By 2016 at the latest, substantial further investment in generating
capacity will be needed, and there are a number of different lower-carbon
technologies which could contribute on a large scale—including
renewables, microgeneration, offshore wind, nuclear, and carbon
capture and storage. But there is substantial evidence to show
that progress in deploying key technologies—in particular
carbon capture and storage, off-shore wind, and microgeneration—is
inadequate. The real issue which the Government is failing to
address is whether the policy and regulatory framework in place
is sufficient to stimulate the growth of lower-carbon generation
on the scale required. (Paragraph 172)
32. All lower-carbon generating technologies
are more expensive than coal and gas, and will require a long-term
funding framework in order to reduce investment risk and ensure
that the necessary investment takes place. The current highly
liberalised UK electricity market structure is too short term
and fails to provide such a framework. Indeed, it is not clear
whether it will even ensure that enough investment takes place
to keep the lights on by 2016. There are a number of options
open to the Government to address this—including the introduction
of some form of capacity payment, the development of low-carbon
generation contracts, and the modification of the Renewables Obligation
to provide a range of incentives for different technologies.
The Government will need to consider what changes to the market
structure are required as part of the Energy Review. (Paragraph
173)
33. Nuclear power raises a variety of issues
which would need to be satisfactorily resolved before any decision
to go ahead is taken. These include long-term waste disposal,
public acceptability, the availability of uranium, and the carbon
emissions associated with nuclear. There are also serious concerns
relating to safety, the threat of terrorism, and the proliferation
of nuclear power across the world. Moreover, given the fact that
substantial changes in the relative cost of energy technologies
are likely to occur over the next 20 to 30 years, it is by no
means clear whether investors will wish to commit themselves to
70 years of nuclear generation. There are striking similarities
here to the position in 1980 when a similar large scale programme
of nuclear new build eventually resulted in the construction of
only one new reactor Sizewell B. (Paragraph 174)
34. A Government decision to support a major
programme of nuclear new build must also take account of the impacts
on investment in other areas—notably energy efficiency,
renewables, carbon capture and storage, and the development of
distributed generation systems. The potential of these various
technologies over the next 20 to 30 years is immense, and any
public subsidies for nuclear must be weighed against the substantial
progress towards reducing carbon emissions and ensuring a greater
degree of security of supply which these alternatives could achieve
with similar subsidies. However, as all forms of lower-carbon
generation will require financial support, the Government should
accept that the shift to a sustainable energy strategy cannot
be based - at least in the medium term—on maintaining low
energy prices. (Paragraph 175)
35. The Government should be doing far more to
promote progress in these other areas. Carbon capture and storage
will, in particular, be of crucial importance in view of forecasts
which show increasing use over the next thirty years of fossil
fuels—especially in developing countries such as China and
India. Renewables and distributed generation could also contribute
hugely in both a national and global context—but any of
the technologies involved warrant special support to bring them
to market and achieve the cost-reductions which will make them
competitive. (Paragraph 176)
36. While this inquiry has focussed primarily
on supply side issues, we cannot emphasise enough that reducing
demand is also a vital component on the path to a sustainable
energy strategy. There is, as yet, little evidence to suggest
that the Government has succeeded in doubling the rate of energy
efficiency improvements as envisaged in the Energy White Paper.
Far more decisive action and political leadership is required,
and we would also urge the Government to consider setting absolute
targets for reductions in demand as a way of stimulating the growth
of energy efficiency and guaranteeing the level of carbon savings
achieved. (Paragraph 177)
37. The nature of the current Energy Review is
unclear—whether it is specifically fulfilling the Prime
Minister's desire to make a decision on nuclear, whether it is
a review of electricity generating policy, whether it is a wider
review of progress against the Energy White Paper, or whether
it is reopening the broad policy debate which the White Paper
itself encompassed. We are also concerned that it does not appear
to have resulted from a due process of monitoring and accountability,
and that the process by which it is being conducted appears far
less structured and transparent than the process by which the
White Paper itself was reached. (Paragraph 178)
38. If the Energy Review is focussed mainly on
electricity generation and, in particular, a decision on nuclear,
then it is unclear what the nature of such a decision could be
and the Secretary of State himself was unable to explain this.
Indeed, the Government has always argued that its role is not
to prescribe the fuel mix, and it has invested much effort in
developing a fully liberalised market which will determine for
itself such investment decisions. The frequent statements that
it must make a decision on energy, and specifically on nuclear,
fundamentally conflict with such an approach and would therefore
represent a major U-turn in energy policy. Moreover, if the
Government does indeed come to a decision on nuclear, it is unclear
why it should not also come to a decision on off-shore wind, marine,
or micro-CHP—let alone the array of possible measures to
support energy efficiency. Yet we never hear Government ministers
talking in such terms. (Paragraph 179)
39. If, on the other hand, the Energy Review
is a wider ranging review of policy it will fail to command the
support of stakeholders, the public and politicians if what emerges
is significantly different from the course that was charted in
the Energy White Paper without a proper explanation of how circumstances
have altered sufficiently to justify such a change and without
further wide-ranging consultation on the nature of the change.
It is also unsatisfactory that it was launched before the publication
of the long-delayed Climate Change Programme Review and will be
concluded before the Stern Review has reported. This does not
inspire confidence about the extent of coordination within and
between different parts of Government. (Paragraph 180)
40. We remain convinced that the vision contained
in the White Paper—with its focus on energy efficiency and
renewables as cornerstones of a future sustainable energy policy—remains
correct. What is now needed is a far greater degree of commitment
from the Government in implementing it. Alongside, more attention
needs to be given to technologies such as clean coal and carbon
capture and storage, both of which may have a significant role
to play nationally and globally. (Paragraph 181)
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