Select Committee on Environmental Audit Sixth Report


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)




 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 16 April 2006