Energy policy finally lights on efficiency

10th December 2012


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Decarbonisation target deferred for energy sector, while energy-intensive industries will be protected from price rises, under revised Energy Bill

Reducing demand for electricity as well as securing a future low-carbon supply will now feature in energy policy after the government belatedly listened to advice from MPs and others to focus more on energy efficiency as part of its planned electricity market reform (EMR).

At the same time as unveiling the Energy Bill, which aims to unlock £110 billion of investment in new energy supply infrastructure over the next decade, the energy and climate change secretary, Ed Davey, published a consultation on plans to reduce demand for electricity, having earlier also issued an energy efficiency strategy.

“Too often, governments have neglected the role that energy demand reduction can play in managing our energy system,” said Davey. “Yet measures that reduce demand can contribute in a more cost-effective way to meeting our energy and climate goals than supply-side measures.

Although energy demand in the UK has been flat since 1970, electricity consumption has increased by more than 65% over the same period. Recent analysis by DECC forecasts that demand could rise by at least a further 30% by 2050.

The energy and climate change committee warned in July that the government’s plans for EMR needed to promote energy efficiency, labeling an earlier draft of the Bill as “fundamentally flawed by the lack of consideration given to demand-side measures”.

The Bill presented to parliament by Davey still contains little mention of energy efficiency, but the consultation on proposals to reduce electricity demand, which include the introduction of feed-in tariff and payments for investing in more efficient products, may lead to potential amendments to the Bill. During the passage of the Bill, proposals will be added to promote energy efficiency through electricity demand reduction, says DECC.

David Symons, director at global environment and engineering consultancy WSP, welcomed the energy efficiency consultation but warned the scale of the challenge is huge and contrasted the government’s plans with those of its major EU competitors.

“There remains a significant gap between the [current] situation and the government’s aspirations to reduce total energy use by 12% by 2020. There is also a big gap between UK aspirations and targets already in place today in Europe. In Germany, for example, there is a target to reduce energy consumption by 20% by 2020 and by 50% by 2050 compared to 2008,” he said.

Meanwhile, the Energy Bill itself has not completely removed lingering uncertainty among potential investors in energy generation over the direction of government policy. In a compromise among coalition partners, the government has deferred a decision on setting a 2030 target to cut carbon emissions from the UK’s power sector until at least 2016.

The Bill will enable energy firms to raise £7.6 billion by the end of the decade from consumers to help fund the development of low-carbon generation facilities, including nuclear, solar and wind, but the lack of a carbon intensity target for the energy sector could hinder ongoing investment, according to investors.

“Uncertainties still exist due to the lack of a decarbonisation target,” commented Simon Ellis, managing director, Legal & General Investments, while Mark Stewart, UK head of energy for EC Harris, warned that the delay in setting a target “now means that we risk losing momentum at a time when investment in renewables is needed.”

Energy industry suppliers too are similarly concerned that the absence of a commitment to decarbonise the sector will stymie long-term investment.

“We welcome the government's proposal to amend the Bill to include a power to set a 2030 target. While being an important first step, we believe we need to get on with setting the actual figure; leaving it until 2016 presents the risk of reducing both the scale and pace of much needed long-term investments,” said Steve Burgin, UK president of power generation business Alstom.

And, Ditlev Engel, chief executive of wind turbine company Vestas, wrote in the Guardian: “The failure to establish a firm 2030 power sector carbon cap prolongs uncertainty for the supply chain where investment time horizons extend well beyond 2020. This is a significant missed opportunity.”

Davey, however, insists the reforms will encourage investment and said the levy on consumers will add less than £100 to average domestic bills. The government has, however, pledged to shield energy-intensive industries from rising energy costs as a result of the changes.

Industries consuming a lot of energy will be exempt from any additional costs arising from the EMR, DECC has confirmed. The exemption, which must be cleared with the European Commission, will ensure the UK retains the industrial capacity to deliver a low-carbon economy, says the energy department.

The electricity demand reduction consultation closes on 31 January 2013. The government expects the Energy Bill to achieve assent during 2013 and the reforms to start coming into effect during 2014.

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