DEPARTMENT FOR
BUSINESS, ENTERPRISE AND REGULATORY REFORM News Release (Reference
2007/080) issued by The Government News Network on 23 October 2007
"We need to
ensure that the market delivers enough energy supply in five
years' time, in ten years' time and in fifteen
years' time," was the message from Energy Minister,
Malcolm Wicks, as a new report was published into security of
energy supplies.
The Energy Markets Outlook report provides energy market
information on security of supply, looking forward over a
fifteen-year time span. The intention is to help develop a shared
understanding of the longer-term outlook for energy supply and
demand, and to help understand emerging risks that could affect
security of supply.
Malcolm Wicks said:
"Security of energy supply is one of the fundamental
challenges this country faces. We need to ensure that the market
delivers enough energy supply in five years' time, in ten
years' time and in fifteen years' time.
"We have one of the strongest and most diverse energy
markets in the world which has seen many billions of investment.
This includes proposals on the table for more than 14 gigawatts of
new electricity generation capacity and a quadrupling of our gas
import capacity over the last few years.
"Decisions are being taken, the market is delivering
investment, but we can't let our guard down.
"Underpinning this is the need to move as quickly as
reasonably possible towards a low-carbon economy. The sooner the
world tackles climate change the better, both economically and
environmentally. The best way of reducing emissions from energy is
to use less. But whatever the exact composition of the future
energy mix is, it must clearly involve a far greater role for
renewable energy."
The report highlights key signals to the market, including:
* Significant medium-term opportunities for the construction of
new electricity generation capacity in response to expected demand
and plant closures. This is consistent with the conclusion set out
in the Energy White Paper that around 20 to 25 gigawatts (GW) of
new generation will be required by 2020. Companies have already
announced over 14 GW of new generation.
* Delivery of new gas capacity and planned new infrastructure
should more than compensate for reduction in indigenous production
in the medium term, although whether the infrastructure is
actually used to deliver gas will depend on the market price.
Further investment will be needed to avoid market tightness around
the middle of the next decade and in subsequent years. Alongside
pipeline supplies, the global Liquefied Natural Gas market
provides an opportunity to access additional sources of gas on a
more flexible basis.
* The future use of other fuels - coal, oil and nuclear fuels -
is unlikely to be limited by resource availability. There may be
scope for additional indigenous coal production.
* There is a continued need for skills and resources in the
engineering and construction sectors in order for new
infrastructure to be provided. Delays caused by the planning
system also have a major impact on the deliverability of new
infrastructure and the Government's proposals for planning
reform are intended to address this.
* Increases in the price of carbon should encourage investment in
new, low-carbon generating capacity in the long term. In the short
term, however, uncertainty about the future of the carbon market
may cause delays in investment in new generating capacity. This
could potentially be one cause of temporary market tightness in
the years ahead, if this uncertainty is sustained.
* Greater deployment of renewables will have an important role to
play in cutting carbon emissions. Maintaining security of supply
while expanding the use of renewable energy sources is achievable,
given the UK's significant primary renewable resources,
although this will involve some additional costs.
The Energy Markets Outlook report was developed in conjunction
with the energy regulator, Ofgem.
Ofgem Chief Executive Alistair Buchanan said:
"The past couple of years have shown that competitive
markets can deliver substantial investment in new and diverse
energy supplies. But if investment is too late customers can
suffer by having to cut production or deal with much higher prices
to manage temporary shortages. We hope this report will help the
energy industry and customers understand the risks and the need
for investment in the future so that they can take appropriate actions"
Alongside the publication of the Energy Market Outlook report
will be a new online resource, which contains additional detail on
security of supply, including background analysis and links to
other sources of information.
Notes to editors:
1. This is the first Energy Markets Outlook report, and fulfils a
commitment we made in the Energy White Paper in May 2007. It
builds on the Joint Energy Security of Supply (JESS) working group
report, and is intended to be the first stage in a dialogue
between the Government, companies, market participants and other
interested parties.
2. The Energy Markets Outlook, which has been developed with the
help of Ofgem and National Grid, looks at security of supply and
its drivers over a time horizon of up to fifteen years. It covers
electricity, gas and other fuels including coal, oil, nuclear fuel
and renewables. It also looks at supply chain issues such as the
availability of skilled staff, materials and labour for the
construction and operation of new infrastructure.
3. The report and the online resource can be found at: http://www.berr.gov.uk/energy/energymarketsoutlook/page41839.html
4. Welcoming the publication of the report:
Jeremy Nicholson, Director, Energy Intensive Users Group said:
"Energy intensive users, who provide employment to 700,000
people in the UK, have every interest in improving their own and
others' understanding of the risks affecting security of
supply. These users are the first to feel the effects of energy
market tightening and so need to be prepared for the possibility.
There will always be uncertainty about the future, but a frank and
open dialogue initiated by the Energy Markets Outlook can only
help our understanding of the risks, helping energy producers and
users to manage them most effectively."
David Porter, Chief Executive of the Association of Electricity
Producers, said:
"We estimate that electricity generators have to invest over
£20bn by 2020 in order to replace retiring plant and meet rising
demand. The Energy Market Outlook should help to provide clarity
about government's perceptions of strategic risks and hence
reduce the risk of unexpected and unhelpful changes in public
policy. We welcome the opportunity that it offers for constructive dialogue."
Professor Jonathan Stern, Director of Gas Research, Oxford
Institute for Energy Studies said:
"The analysis in this report is clearly a step forward from
the old JESS, as it covers a broader set of sectors and looks at
security of supply from more dimensions. I also welcome the
Government's emphasis on the consultative nature of this
exercise. They are recognising that nobody has all the information
about possible future developments in energy markets. What we need
is a constructive dialogue, and this provides the basis for that
process to take place."
Department for Business, Enterprise & Regulatory
Reform
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