Primary energy mix in the United Kingdom, 1970 to 2017
The energy policy of the United Kingdom refers to the United Kingdom's efforts towards reducing energy intensity, reducing energy poverty, and maintaining energy supply reliability. The United Kingdom has had success in this, though energy intensity remains high. There is an ambitious goal to reduce carbon dioxide emissions in future years, but it is unclear whether the programmes in place are sufficient to achieve this objective.[citation needed] Regarding energy self-sufficiency, UK policy does not address this issue, other than to concede historic energy security is currently ceasing to exist (due to the decline of North Sea oil production).[citation needed]
The United Kingdom historically has a good policy record of encouraging public transport links with cities,[citation needed] despite encountering problems with high speed trains, which have the potential to reduce dramatically domestic and short-haul European flights. The policy does not, however, significantly encourage hybrid vehicle use or ethanol fuel use, options which represent viable short term means to moderate rising transport fuel consumption. Regarding renewable energy, the United Kingdom has goals for wind and tidal energy. The 2007 White Paper on Energy set a target that 20% of the UK's energy must come from renewable sources by 2020.
Areas of focus for energy policy by the UK government have changed since the Electricity Act 1989 and the Gas Act 1986 privatised these utilities. The policy focuses of successive UK governments since the full liberalisation of gas and electricity markets in 1998 and 1999[1] have included managing energy prices, decarbonisation, the rollout of smart meters, and improving the energy efficiency of the country's building stock.
Overview
The 2007 white paper: "Meeting the Energy Challenge" set out the government's international and domestic energy strategy to address the long term energy challenges faced by the UK, and to deliver four policy goals:
To put the UK on a path to cut carbon dioxide emissions 60% by 2050, with real progress by 2020;
To ensure that every home is adequately and affordably heated.
The scope of energy policy includes the production and distribution of electricity, transport fuel usage, and means of heating (significantly Natural Gas). The policy recognises: "Energy is essential in almost every aspect of our lives and for the success of our economy. We face two long-term energy challenges:
Tackling climate change by reducing carbon dioxide emissions both within the UK and abroad; and
Ensuring secure, clean and affordable energy as we become increasingly dependent on imported fuel."
The policy also recognises that the UK will need around 30–35GW of new electricity generation capacity over the next two decades as many current coal and nuclear power stations, built in the 1960s and 1970s, reach the end of their lives and are set to close.
The 2006 Energy Review reintroduced the prospect of new nuclear power stations in the UK. Following a judicial review requested by Greenpeace, on 15 February 2007 elements of the 2006 Energy Review were ruled 'seriously flawed', and 'not merely inadequate but also misleading'. As a result, plans to build a new generation of nuclear power stations were ruled illegal at that time. (See Nuclear power in the United Kingdom for details). In response, the government ran "The Future of Nuclear Power" consultation from May to October 2007. The Government's response to the consultation conclusions, published in January 2008, state "set against the challenges of climate change and security of supply, the evidence in support of new nuclear power stations is compelling."
The January 2008 Energy Bill updated the legislative framework in the UK to reflect government policy towards the energy market and the challenges faced on climate change and security of supply. Key elements of the bill addressed nuclear, carbon capture and storage, renewables, and offshore gas and oil. A framework to encourage investment in nuclear power within a new regulatory environment was simultaneously published in the January 2008 nuclear white paper.
Though energy policy is an area reserved to the UK government under the Scotland Act 1998 that established devolved government for Scotland, the Scottish Government has an energy policy for Scotland at variance with UK policy, and has planning powers to enable it to put some aspects of its policy priorities into effect.
Net Zero strategy
In 2021, the UK Government published its Net-Zero strategy to reduce the country's emissions to net zero by 2050 compared to the 1990 baseline.[2] The strategy sets out a path for sectors and industry in the UK to reach net-zero, including power, fuel supply & hydrogen, industry, transport, heat & buildings, and removal of greenhouse gas emissions. The purpose of the policy relates to climate action, where countries must bring down their greenhouse gas emissions to meet the Paris Agreement target of stopping planetary scale warming to prevent dangerous climate change. The policy is an update to the 2008 Climate Change Act.
Energy markets
A Research and Markets review estimated the 2006 total market value of UK inland energy consumption was £130.73bn. Consumption by the energy sector was valued at £28.73bn, while the value of consumption by the non-energy sector was £128.2bn, with transport being the largest component of the non-energy sector.[3] The UK is currently proposing wide-ranging reforms of its electricity market, including measures such as contracts for difference for generators and a capacity market to ensure security of supply in the latter half of this decade.
The UK's electricity demand stabilised in 2017, with consumption reaching 307.9terawatt-hours (TWh), marking a 12% decrease from 2007. Consumption was evenly distributed among the residential, commercial, and industrial sectors, with each accounting for roughly one-third. The industrial sector experienced a significant reduction of 18% in consumption, dropping from 113TWh in 2007 to 93TWh in 2017. Meanwhile, residential sector consumption decreased by 14%, influenced by higher prices and the adoption of energy-efficient appliances, whereas the commercial sector saw a more modest decline of 4%.[4]
In 2017, the percentage of electricity supply derived from primary energy sources was as follows:[4]
In November 2015, it was announced by the UK Government that all coal fired power stations would be closed by 2025.[5][6]
Ironbridge ceased operations in late 2015. Then in 2016, three power stations closed at Rugeley, Ferrybridge and Longannet. Eggborough closed in 2018 and has been granted consent to convert into a gas fired power station. Lynemouth power station was converted to run on biomass in 2018 and Uskmouth is being converted. It has been announced that Cottam will close in 2019 and Kilroot will also close imminently.
In May 2016, for the first time solar power produced more electricity than coal, producing 1.33TWh over the month compared to 0.9TWh from coal.[7] On 21 April 2017, for the first time since the 19th century, the UK had a 24-hour period without any generation from coal power.[8] As of 2018, the use of coal power is decreasing to historic lows not seen since before the Industrial Revolution. Coal supplied 5.4% of UK electricity in 2018, down from 7% in 2017, 9% in 2016, 23% in 2015 and 30% in 2014.[9]
Gas
During the 1980s and early 1990s, there was a massive expansion in gas-fired generation capacity, known as the Dash for Gas. The rapidity of construction of gas-fired plants (compared to coal-fired or nuclear plants) was especially attractive due to the high interest rates of the period.
Natural gas looks set to take a smaller part in providing future UK energy needs. Domestic production from the North Sea gas fields continues to lessen. And despite investment to enhance pipelines and storage of imported natural gas (mostly from Norway) there is a reluctance to allow too great a reliance on Russia and its gas exports for energy needs.
By 2021, North Sea oil and natural gas production is predicted to slip 75 percent from 2005 levels to less than one million barrels per year. Oil and coal reserves for all of Europe are among the most tenuous in the developed world: for example, Europe's reserves to annual consumption ratio stands at 3.0,[10] perilously low by world standards.
A new "dash for gas" was announced by energy secretary Amber Rudd in November 2015. This is required to fill the gap between the closure of all coal-fired power stations by 2025 and the delayed opening of new nuclear power stations.[11][12]
Following the UK Government's January 2008 decision to support the building of new nuclear power stations, EDF announced that it plans to open four new plants in the UK by 2017. It is unlikely that more nuclear power stations will be built in Scotland as the Scottish Government is opposed.
From the mid-1990s renewable energy began to contribute to the electricity generated in the United Kingdom, adding to a small hydroelectricity generating capacity. Renewable energy sources provided for 6.7 per cent of the electricity generated in the United Kingdom in 2009,[13] rising to 11.3% in 2012.[14]
By mid-2011, the installed capacity of wind power in the United Kingdom was over 5.7gigawatts[15] and the UK was ranked as the world's eighth largest producer of wind power. Wind power is expected to continue growing in the UK for the foreseeable future, RenewableUK estimates that more than 2GW of capacity will be deployed per year for the next five years.[16] Within the UK, wind power is the second largest source of renewable energy after biomass.[13]
UK electricity generation from renewable energy in 2012[17]
Source
GWh
%
Onshore wind
12,121
29.4
Offshore wind
7,463
18.1
Shoreline wave/tidal wind
4
0.0
Solar photovoltaics
1,188
2.9
Small scale hydro
653
1.6
Large scale hydro
4,631
11.2
Bioenergy
15,198
36.8
Total
41,258
100
In 2017, the UK's renewable energy contribution to the total primary energy supply (TPES) was 9.7%, closely aligning with the International Energy Agency's (IEA) average of 9.9% for the same period. Moreover, renewables accounted for 29.6% of the UK's total electricity production, surpassing the IEA's average of 24.6% for electricity generated from renewable sources.[4]
There is a steady increase of fuel usage driven by an increasingly affluent and mobile population, so that fuel use increased by ten percent in the decade ending 2000. This trend is expected to be mitigated by increased percentage of more efficient diesel and hybrid vehicles.
United Kingdom space and hot water heating consume a greater share of end use compared to the US and more mild southern European or tropicalclimates. With regard to building and planning issues affecting energy use, the UK has developed guidance documents to promote energy conservation through local councils, especially as set forth in Part L of the Building Regulations (Conservation of Fuel and power).[20] The associated document. Part 2B, addresses commercial uses, and is generally complete as to heating issues; the guidance is lacking on lighting issues, except with guidelines for local switching of lighting controls. In particular there are no standards set forth for illumination levels, and over-illumination is one of the most significant unneeded costs of commercial energy use.
In 2017, the Total Primary Energy Supply (TPES) in the UK primarily consisted of natural gas at 38.6% and oil at 34.5%. Nuclear energy accounted for 10.4%, while coal was at 5.4%, and electricity contributed a smaller share of 0.7%. Renewables, encompassing biofuels, wind, solar, and hydro, collectively made up 10.4%. Overall, this marked a 16.7% reduction in the TPES since 2007.[22][4]
As a consequence, government no longer has the ability to directly control the energy markets. Regulation is now carried out through the Office of Gas and Electricity Markets (Ofgem) in Great Britain, and the Northern Ireland Authority for Utility Regulation (NIAUR),[23] while energy policy is largely limited to influencing the operation of the market. Such influence is exerted through taxation (such as North Sea Oil Tax[24]), subsidy (such as the Renewables Obligation), incentives, planning controls, the underwriting of liabilities (such as those carried by the Nuclear Decommissioning Authority), grants, and funding for research.
1990s to 2000s
The UK Government continued to make reforms throughout the 1990s in the interests of creating a competitive energy market. VAT was first applied to domestic energy in 1994.[1]
When the Labour Government came to power in 1997, the commitment to creating a competitive energy market was maintained, with new Energy Minister John Battle MP also emphasising the government's social obligation to protect the poorest households and its environmental commitments.[1]
The Labour Government introduced Winter Fuel Payments for people aged over 60 and, in its first major piece of energy legislation, passed the Utilities Act 2000. This legislation implemented a licensing system for energy suppliers and created the Gas and Electricity Market Authority and Ofgem as a regulator, and the Gas and Electricity Consumer Council (known as Energywatch) as a statutory body with responsibility for protecting and promoting the interests of gas and electricity consumers in Great Britain.
In 1999, the process of full liberalisation of the gas and electricity markets had been completed when all UK households were able to switch their gas or electricity supplier. Households were encouraged to save money on their gas and electricity bills by switching between different energy providers, with about a third of gas and electricity customers switching between 1998 and 2003.[25] By the mid-2000s, the market was dominated by what became known as the Big Six energy suppliers, consisting of British Gas, EDF Energy, E.ON, Npower, Scottish Power, and SSE.
Parliament also passed the Warm Homes and Energy Conservation Act 2000, a private member's bill introduced by Conservative MP David Amess, which set out the government's Fuel Poverty Strategy – defining "fuel poverty" as any household living on a lower income in a home which cannot be kept warm at reasonable cost – with a commitment to eliminate fuel poverty by 2016.
In 2008, Ofgem launched its Energy Supply Probe as its first major investigation of competition in the electricity and gas markets since the full liberalisation of the two markets. The probe found there were a range of features in these markets that weakened competition, but found no evidence of a cartel or that retail energy price rises could not be justified by wholesale costs.[26][27]
2010 to 2017: Energy Act
In the run-up to the 2010 election, the Labour Government passed the Energy Act 2010. Among other reforms, this introduced the Warm Home Discount scheme, which came into effect in 2011, and which placed a legal obligation on larger energy suppliers to deliver support to people living in fuel poverty or in a fuel poverty risk group. This replaced a number of other schemes giving reduced tariffs to some low-income customers.[28]
Partly in response to increasing concerns about the pricing of energy tariffs by suppliers, Ofgem followed up its Energy Supply Probe with a Retail Market Review, which it launched in November 2010.[29] The review found that complexity in the gas and electricity markets was a barrier to consumers and competition. It found that 75% of consumers were on their supplier's standard "evergreen" tariffs (also called "Standard Variable Tariffs" or SVTs), the more expensive default option than fixed-term tariffs that would save them money over a set period of time. It also found that energy prices tended to rise in response to wholesale cost increases more quickly than they fell with decreases, and that competition was weakened by significant barriers that were preventing new suppliers from entering the market. They proposed a series of measures including changing some license conditions of suppliers, to make pricing more transparent and reduce barriers for new suppliers to compete for customers, as well as working to improve consumer trust in price comparison websites.[29]
The Coalition Government elected in 2010 published their own white paper on energy in 2011, which focused on decarbonisation and security of supply, but which backed Ofgem's findings and proposed reforms.[30] Advocates for further reform included the consumer group Which? and Consumer Focus (later Consumer Futures), the statutory body formerly known as Energywatch.[31]
The government later announced its intention to force energy suppliers to offer their cheapest tariffs to consumers, and subsequently made amendments in the Energy Act 2013 to give Ofgem greater powers.[31] In 2014, the government amended the legislative Fuel Poverty Strategy for England to target improving as many fuel poor homes as is reasonably practicable to a minimum energy efficiency rating of Band C, by the end of 2030.[32]
On 24 September 2013, the Leader of the Labour Party and former Secretary of State for Energy, Ed Miliband, announced plans to freeze energy bills for 20 months if Labour won the next general election, saying the move would save average households £120 and businesses £1,800.[33] The announcement was criticised by energy suppliers, and labelled "Marxist" and potentially "catastrophic" by the government, but was supported by around two-thirds of the British public.[34]
By the end of the year, the government acknowledged that there was largescale dissatisfaction among the British public about the perception that the large energy suppliers were overcharging their customers.[35]
After working with the Office of Fair Trading and the newly established Competition and Markets Authority (CMA), to again assess competition in the energy market, on 26 June 2014, Ofgem referred the energy market in Great Britain to the CMA for an investigation.[36][37] An interim report by the CMA, published in 2015, claimed that energy suppliers were overcharging customers by as much as £1.7 billion.[38] The CMA's findings and proposed remedies, published in 2016, included a price cap for energy customers who were on prepayment meters – but were widely criticised for not going far enough.[39][40]
By March 2017, Citizens Advice, which had taken on the funding and responsibilities of Consumer Futures to advocate for energy consumers, was calling for the government to extend the prepayment meter cap to more low-income households.[41]
In the run-up to the 2017 general election, Prime Minister Theresa May made a commitment that the Conservative Party manifesto would include a policy to apply price controls to energy bills. May wrote in The Sun newspaper, saying that "the energy market is not working for ordinary working families" and that if she was re-elected she would introduce a price cap policy that would save households up to £100 each.[42]
There was pressure from other members of her Cabinet to change the policy after the election result forced May to form a minority government,[43][44] but also pressure from other MPs to go ahead including an open letter signed by 192 MPs, over 70 of whom were Conservative MPs.[45] The Prime Minister reiterated her commitment to her flagship energy policy in a speech at the Conservative Party Conference in October 2017.[46] It was announced that the price cap, or "safeguard tariff", would be implemented by Ofgem and would cap prices for electricity and gas for the 11 million households on standard variable tariffs.[47]
United Kingdom legislation
Domestic Gas and Electricity (Tariff Cap) Act 2018
An Act to make provision for the imposition of a cap on rates charged to domestic customers for the supply of gas and electricity; and for connected purposes.
The Domestic Gas and Electricity (Tariff Cap) Bill 2018 was introduced in legislation and had its first reading on 26 February 2018, following a period of pre-legislative scrutiny from the cross-party Business, Energy and Industrial Strategy Select Committee.[48] The legislation completed its passage through Parliament on 18 July 2018 and received royal assent the next day as the Domestic Gas and Electricity (Tariff Cap) Act 2018 (c. 21).[49]
The Tariff Cap Act stipulated that the price cap would be in place from the end of 2018 until 2020, when Ofgem would recommend whether the cap should remain on an annual basis up to 2023. Ofgem would also review the level of the cap at least every 6 months while it is in place.[49]
In September 2018, Ofgem proposed that the initial level of the "default tariff price cap" would mean that energy suppliers would not be allowed to charge more than £1,136 a year for a typical dual fuel customer paying by direct debit, and that this would save the 11 million British households on default or standard variable tariffs an average of £75 a year on their gas and electricity bills.[50]
The price of the cap is set for each unit (kWh) of gas and electricity used, plus a daily standing charge, so that it varies with consumption. Ofgem designed the cap level to take into account several factors: wholesale energy costs (how much a supplier has to pay to get the gas and electricity to supply households with energy), energy network costs (the regional costs of building, maintaining and operating the pipes and wires that carry energy across the country), policy costs (the costs related to government social and environmental schemes to save energy, reduce emissions and encourage take-up of renewable energy), operating costs (the costs incurred by suppliers to deliver billing and metering services, including smart metering), payment method uplift allowance (the additional costs incurred through billing customers with different payment methods), headroom allowance (allowing suppliers to manage uncertainty in their costs), the return on suppliers' investments, and VAT (5% tax added to the level of the tariff).
In November 2018, Ofgem finished its consultation and published its decision that the first level of the cap would be set at £1,137 a year for a typical direct debit dual fuel bill in November 2018.[51] This came into force from 1 January 2019. At its initial level, the cost of electricity for those on default tariffs was capped at 17p per kWh, and gas was capped at 4p per kWh. Dual fuel users would pay no more than £177 a year for the standing charge, electricity-only users would pay no more than £83, and gas users £94.[52]
The first change in the level of the price cap was announced in February 2019, with the cap rising by £117 for typical direct debit dual fuel bills from 1 April 2019.[53] In October 2020, the government extended the energy price cap by a year, until at least the end of 2021.[54]
In the 2020s, several consumer-facing suppliers went into liquidation including Bulb Energy, Avro Energy, Green Supplier and Orbit Energy.[55]
In August 2022, Ofgem announced that the price cap would be reviewed every three months instead of every six months, in reaction to wholesale price volatility. Thus the review in October 2022 would be followed by another in January 2023.[56]
1 2 3 4 5 6 The government's Energy Price Guarantee (EPG) between 1 October 2022 and 30 June 2023 reduced the unit cost of electricity and gas so that a typical dual-fuel Direct Debit bill for a domestic consumer would be £2,500, rather than the energy price cap levels.[68]
In response to the marked increase in the default tariff cap from April 2022, on 3 February the Chancellor, Rishi Sunak, announced measures to support domestic gas and electricity customers in England, Wales and Scotland. There would be a £200 discount on energy bills, to be given in the autumn and paid back by customers in later years. In addition, from April a non-repayable £150 council tax rebate was given to households in England in tax bands A to D (estimated to be 80% of homes), and local councils received £144million to provide discretionary funding to other residents. The devolved administrations received around £715million so they could provide comparable support, and there was an expansion of the Warm Homes Discount scheme.[72][73]
With further price rises expected in October, Sunak announced a further package on 26 May. The bills discount was doubled to £400 and changed to a non-repayable grant, instead of a loan;[74] other "cost of living" support included a £650 payment to households on means-tested benefits, £300 to pensioner households and £150 to individuals receiving disability benefits.[75] The £400 discount would be paid to domestic electricity customers in England, Scotland and Wales as six monthly rebates (or vouchers for non-smart prepayment meters) of £66 or £67, from October 2022 to March 2023 inclusive.[76]
Following her appointment as Prime Minister on 6 September 2022, Liz Truss announced on 8 September 2022 that a new "Energy Price Guarantee" effective from 1 October 2022 to 30 September 2024 would pay a subsidy to energy and gas suppliers, in order to limit typical household energy costs to £2,500 per year. Comparable support would be offered to businesses, public sector organisations (under a six-month scheme running to 31 March 2023) and to households who do not pay directly for electricity or mains gas, such as those in park homes or on heat networks.[77] The cost of this package of support was uncertain since it depended on future wholesale prices, but was estimated at over £100bn per year by the Institute for Fiscal Studies.[78] On 17 October, cost-saving measures indicated by incoming chancellor Jeremy Hunt included limiting universal assistance to six months, ending on 1 April 2023, with support beyond then to be determined by a Treasury-led review.[79][80] On 17 November 2022, Hunt announced in his autumn statement that the subsidy would be reduced from April 2023, increasing the costs for a typical household to £3,000 per year,[81] but in his March 2023 budget the chancellor reversed this decision and kept the subsidy at the £2,500 level until the end of June.[82]
Energy supply and decarbonisation policy history
Early 2000s: climate change rises up the agenda
In 2005, the Chancellor Gordon Brown commissioned Nicholas Stern to look into the economics of climate change. The influential Stern Report concluded that climate change was the "greatest and widest-ranging market failure ever seen".[1]
Joining over 170 other nations, the UK committed to reduction[83] of carbon dioxide emissions, with consequent constraints to its energy policy. The UK produced four percent of the world's greenhouse gases as of 2003, compared to 23 percent by the US[84] and 20 percent for the rest of Europe. The long-term reduction goal for carbon emissions is 80 percent decrease by 2050. A scheme of trading for carbon emission credits has been developed in Europe that will allow some of the reduction to arise from economic transactions.
Road transport emissions reduction has been stimulated since 1999 by the banding of Vehicle Excise Duty. Bands for new vehicles are based on the results of a laboratory test, designed to calculate the theoretical potential emissions of the vehicle in grammes of CO2 per kilometre travelled, under ideal conditions.[85]
The UK government has one project in the planning stage for natural gas fed power generation with carbon capture by seawater. This facility is contemplated at Peterhead, Scotland, a relatively remote exposure to the North Sea.
Prof Kevin Anderson raised concern about the growing effect of air transport on the climate in a paper[86] and a presentation[87] in 2008. Anderson holds a chair in Energy and Climate Change at the School of Mechanical, Aerospace and Civil Engineering at the University of Manchester in the UK.[88] Anderson claims that even at a reduced annual rate of increase in UK passenger air travel and with the government's targeted emissions reductions in other energy use sectors, by 2030 aviation would be causing 70% of the UK's allowable CO2 emissions.
Energy white paper, 2003
The UK Government published its white paper on energy ("Our Energy Future – creating a Low Carbon Economy") in 2003, establishing a formal energy policy for the UK for the first time in 20 years. Essentially, the white paper recognised that a limitation of carbon dioxide (CO2 – the main gas contributing to global climate change) was going to be necessary. It committed the UK to working towards a 60% reduction in carbon dioxide emissions by 2050, and identified business opportunities in so doing: a recurrent theme throughout the document was "cleaner, smarter energy". It also claimed to be based on four pillars: the environment, energy reliability, affordable energy for the poorest and competitive markets.
The White Paper focused more on analysing the issues than in providing detailed policy responses. Some detail began to filter through in a series of follow-on documents, including an Energy Efficiency Implementation Plan (April 2004) and the DTI Microgeneration Strategy "Our Energy Challenge" (March 2006). Nonetheless, most of the policies were a continuation of business as usual, with emphasis on market-led solutions and an expectation that consumers act rationally, for example in installing energy efficiency measures to make running cost savings.
In November 2005 it was announced that the government, under DTI leadership, would undertake a full-scale energy review, and over 500 organisations and individuals made detailed submissions as part of this review. Officially, the review was to take stock of the outcomes to date of the white paper, which a particular focus on cutting carbon (emissions of which remained stubbornly high) and to look in more detail at security of supply, as the UK's oil and gas production from the North Sea had peaked, and Russia was seen as being a high-risk supplier of gas.
Unofficially, it was widely felt that the real reason behind the review was to allow nuclear power back into the energy debate, as it had been sidelined in the 2003 white paper. That document had said "This white paper does not contain specific proposals for building new nuclear power stations. However, we do not rule out the possibility that at some point in the future new nuclear build might be necessary if we are to meet our carbon targets. Before any decision to proceed with the building of new nuclear power stations, there will need to be the fullest public consultation and the publication of a further white paper setting out our proposals." The energy review was therefore to be this public consultation.
European Union Emissions Trading Scheme 2005
The European Union Emissions Trading Scheme (EU ETS) is a cap and trade system covering the European electricity generation sector and energy intensive industries.[89] Introduced in 2005, it provides a mechanism through which the European price of carbon can be gradually increased to take into account negative externalities, such as the social and environmental impact of emissions, which would not normally be considered.
The inability of the market to reflect the full cost of carbon is known as a market failure. The importance of accounting for the full cost of carbon in investment decisions was highlighted by the influential Stern Review of the Economics of Climate Change which found that the cost of taking action to reduce emissions now is much less than the cost to the economy if no action is taken and adaptation is required at a later date.[90]
The EU ETS operates by setting an overall cap on emissions and allocating tradable permits to participants in the scheme. If a participant wishes to emit more than their allocation they must purchase additional permits from a participant who does not require their full allocation. The price of carbon is escalated slowly by reducing the amount of credits in circulation, gradually increasing the incentive for businesses to seek low-carbon alternatives.[91]
Rather than forcing all participants to reduce emissions by a set amount, cap and trade systems allow individual organisations to respond in the most effective way, whether by reducing emissions or buying extra permits, thereby reducing the overall cost of achieving emissions reductions.[91]
In practice however, whilst providing certainty over the pace and scale of EU emissions reductions, the EU ETS has failed to raise the price of carbon sufficiently to steer behaviour away from carbon-intensive practices.[91] This failure can be attributed to the presence of a surplus amount of credits in the system, both due to the application of the principle of precedent, whereby free permits were allocated to actors whose business is completely dependent on producing emissions, and a lack of data on actual emissions when the original cap was set.[91]
The failures identified are not failures of the cap and trade system itself, rather failures in its implementation. Emissions trading remains the Government’s preferred option for reducing emissions, an approach also supported by the Stern Review.[90] Steps can be taken to improve the effectiveness of the EU ETS, in fact, the presence of surplus credits would start to be addressed from 2013, after which the cap will be tightened each year and the number of credits in the system reduced. However, given that the initial cap appears to have been set too high, the carbon price may remain low, and subject to volatility, for some time after this date until the cap is tightened sufficiently.
Due in part to failures in the implementation of the EU ETS and a discrepancy between EU and UK emissions reduction targets, the EU scheme is not consistent with the pace and scale of change required to meet UK decarbonisation targets. As such, the carbon price set by the EU ETS has not been certain or high enough to encourage sufficient investment in low-carbon electricity generation in the UK.[89] The UK Government has therefore identified that additional incentives are required to ensure that progress towards meeting the UK emissions reduction targets continues to be made. Furthermore the measures should be coherent with the EU ETS so that the UK can continue operating within the scheme until an additional incentive is no longer required. The introduction of the Carbon Price Floor is intended to achieve these aims.
Setting a Carbon Price Floor will prevent the price of carbon in the UK falling below a target level by topping up the carbon price set by the EU ETS when necessary.[89] The target level chosen by the Government must be high enough to provide a strong signal to investors that low-carbon electricity generation represents a secure, long-term investment. A secondary aim is to encourage a change in dispatch decisions for existing generation, favouring the use of less carbon-intensive generation over more traditional forms when both are available. The carbon price floor is intended to provide greater certainty on future carbon prices, protecting investors in UK low-carbon initiatives from the volatility of the EU carbon price. This has the effect of reducing the amount of risk that investors are exposed to and decreasing the cost of capital for low-carbon investment.[89]
In setting the Carbon Floor Price, the Government must achieve a balance between encouraging investments in low-carbon generation without unfairly impacting existing generators, undermining the competitiveness of UK industry or increasing electricity prices unduly.[89] For these reasons, the introduction of a Carbon Floor Price is insufficient on its own to deliver sufficient investment and is supplemented by a proposed change in the support mechanism for low-carbon generation to a form of Feed-in tariff, discussed below.
Energy Review, 2006
In the light of a fast changing world energy context, increasing dependence on oil and gas imports, concerns about carbon emissions, and a need to accelerate investment in electricity infrastructure and power stations the UK Government undertook the 2006 Energy Review. One aspect of the 2006 Review dealt with development of nuclear power. Greenpeace challenged the government's process of consultation on proposals to develop nuclear power and following a judicial review requested by Greenpeace, on 15 February 2007 the consultation process was ruled 'seriously flawed', and 'not merely inadequate but also misleading'. As a result, plans to build a new generation of nuclear power plants were delayed while the UK Government reran the consultation process in a way that complied with the court's decision. See Nuclear power in the United Kingdom for details.
Contents
The Energy Review Report 2006 came out as a broader and more balanced document than critics (in advance) had expected. It started by reiterating the government's four long-term goals for energy policy:
To put the UK on a path to cut carbon dioxide emissions by some 60% by about 2050, with real progress by 2020;
To maintain reliable energy supplies;
To promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and to improve productivity; and
To ensure that every home is adequately and affordably heated.
It then identified two major long-term energy challenges:
Tackling climate change, along with other nations, as global carbon emissions from human activity continue to grow; and
Delivering secure, clean energy at affordable prices, as we become increasingly dependent on imports for our energy needs.
The Review took an internationalist response, stressing that the world's economies need to get on a path to being significantly less carbon-intensive, and noting rising global demand, especially from countries such as India and China. This means using less energy in products and services and changing the way energy is produced so that more of it comes from low-carbon sources. It also identified the need for a fairer distribution of energy around the world, and identified that many resources, especially of fossil fuels which are concentrated in just a few countries.
It placed its main concerns and proposals into three groups:
Saving Energy
The starting point for reducing carbon emissions is to save energy. The challenge is to secure the heat, light and energy we need in homes and businesses in a way that cuts the amount of oil, gas and electricity used and the carbon dioxide emitted. Actions proposed include:
Increasing the focus on energy efficient transport
Cleaner Energy
Cost-effective ways of using less energy will help move towards the carbon reduction goal. But on their own they will not provide the solution to the challenges faced: there is also a need to make the energy used cleaner. Under this head, the government considered:
more distributed energy generation including low-carbon heat
more use of community based systems, including CHP
a strong commitment to carbon pricing in the UK, through improving the operation of the EU Emissions Trading Scheme
proposals for reform of the planning regime for electricity projects
a clear statement of our position on new nuclear build
support for carbon capture and storage
developing alternative fuels for transport
The Energy Security Challenge
The challenges of reducing carbon emissions and ensuring security of supply are closely linked. Security of supply requires that we have good access to available fuel supplies, the infrastructure in place to transport them to centres of demand and effective markets so that supply meets demand in the most efficient way. Many of the measures already described for tackling carbon emissions also contribute to the healthy diversity of energy sources that is necessary for meeting the energy security challenge.
There are two main security of supply challenges for the UK:
Managing increased dependence on oil and gas imports, especially in the light of the global distribution of energy reserves and growing international demand; and
Ensuring that the market delivers substantial and timely investment in electricity generating capacity and networks so that households and businesses have the electricity they need at affordable prices.
The government's response is to continue to open up markets and to work internationally to develop strong relationships with suppliers, developing liberalised markets.
So where does nuclear power fit within this debate? Although it is mentioned a lot more in the Review compared to the White Paper (441 times, compared to 55 to be exact), the government does not propose building new stations itself. Instead, it will leave it to the market, although it will ease some of the planning constraints (which it also aims to do for renewables) and look into providing a design authorisation procedure. As with many other aspects of the Energy Review Response, the document is not likely to be the last word on the subject, as there are plans for further consultation, and the establishment of further reviews and studies in issues such as identifying suitable sites, and managing the costs of decommissioning and long term waste management.
The 2007 energy white paper: Meeting the Energy Challenge[92] was published on 23 May 2007. The 2007 white paper outlines the government's international and domestic strategy for responding to two main challenges:[92]
ensuring secure, clean and affordable energy as imports replace declining production from North Sea oil and gas
It seeks to do this in a way that is consistent with its four energy policy goals:[92]
cutting the UK's carbon dioxide emissions by some 60% by about 2050, with real progress by 2020;
maintaining the reliability of energy supplies;
promoting competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and to improve productivity; and
ensuring that every home is adequately and affordably heated.
The paper anticipates that it will be necessary to install 30–35 GW of new electricity generation capacity within 20 years to plug the energy gap resulting from increased demand and the expected closure of existing power plants. It also states that, based on existing policies, renewable energy is likely to contribute around 5% of the UK's consumption by 2020,[92] rather than the 20% target mentioned in the 2006 Energy Review.
Proposed energy strategy
In summary, the government's proposed strategy involves six components:[92]
Providing legally binding carbon targets for the whole UK economy, reducing emissions through the implementation of the Climate Change Bill.
Making further progress in achieving fully competitive and transparent international markets, including further liberalisation of the European Union energy market.
Encouraging more energy saving through better information, incentives and regulation
Providing more support for low carbon technologies, including increased international and domestic public-private sector collaboration in the areas of research, development, demonstration and deployment – for example though the launch of the Energy Technologies Institute and the Environmental Transformation Fund.
To achieve the government's aims, the white paper proposes a number of practical measures, including:[92]
A requirement that new domestic electricity meters should have real time displays from 2008, and a commitment to upgrade existing domestic meters on request.
A reconfirmation that, under the Renewables Obligation, renewable energy should supply 10% of electricity generation by 2010, an 'aspiration' to achieve 20% by 2020, together with the introduction of bands within the Obligation to support different renewable technologies.
The launch in November 2007 of a competition to demonstrate commercial-scale carbon capture and storage technology
A 'preliminary view is that it is in the public interest to give the private sector the option of investing in new nuclear power stations'. A consultation on this was launched at the same time as the White Paper.
Measures to support the recovery of the remaining oil and gas reserves from the North Sea.
Removing barriers to developing new energy infrastructure and power plants through reform of planning permission processes, as detailed in the 2007 Planning White Paper: Planning for a Sustainable Future.
Response of the Scottish Government
The Scottish Government responded to the UK government paper by making clear that it was against new nuclear power stations being built in Scotland and had the power to prevent any being built.[citation needed] In a statement to the Scottish Parliament, Energy Minister Jim Mather stated "Members will be aware that Greenpeace, backed by the courts, have forced the UK Government to consult properly on the future role of nuclear power. We will respond and we will make clear that we do not want and do not need new nuclear power in Scotland. If an application were to be submitted for a new nuclear power station that will be for Scottish Ministers to determine. We would be obliged to look at it – but given our policy position, our generating capacity, our multiplicity of energy sources and our strong alternative strategies such an application would be unlikely to find favour with this administration."[93]
On 13 March 2007, a draft Climate Change Bill was published following cross-party pressure over several years, led by environmental groups.[94] The Act puts in place a framework to achieve a mandatory 80% cut in the UK's carbon emissions by 2050 (compared to 1990 levels), with an intermediate target of between 26% and 32% by 2020.[95]Decarbonisation of electricity generation was seen as a major part of this reduction, essential before other sectors of the economy can be successfully decarbonised.[89] The Bill was passed into law in November 2008.[96] With its passing the United Kingdom became the first country in the world to set such a long-range and significant carbon reduction target into law, or to create such a legally binding framework.[97]
In April 2009 the Government set a requirement for a 34% cut in emissions by 2020, in line with the recommendations of the Committee on Climate Change, and announced that details of how this would be achieved would be published in the summer.[98]
UK Low Carbon Transition Plan, 2009
Published on 15 July 2009, the UK Low Carbon Transition Plan[99] details the actions to be taken to cut carbon emissions by 34% by 2020, based on 1990 levels (of which 21% had been achieved at the time of publication). As a result, by 2020 is it envisaged that:[100]
Over 1.2 million people will be employed in green jobs.
The efficiency of 7 million homes will have been upgraded, with over 1.5 million of them generating renewable energy.
40% of electricity will be generated from low carbon sources (renewables, nuclear power and clean coal).
Gas imports will be 50% lower than would otherwise have been the case.
The average new car will emit 40% less carbon compared to 2009 levels.
2011 white paper
The Government’s proposals for electricity market reform, published in a White Paper in July 2011, included three initiatives to encourage decarbonisation of electricity generation in the UK: A Carbon Price Floor to complement the European Union Emissions Trading Scheme (EU ETS); Feed-in tariffs which will eventually replace the Renewables Obligation; and an Emissions Performance Standard to restrict future use of the most carbon-intensive forms of generation.[89] In implementing these proposals, the Government aims to attract investment in low-carbon generation, deliver security of supply through an appropriate mix of electricity sources and ensure a minimum amount of impact on consumer bills; all this at a time when security of supply is threatened by scheduled closures of existing plants and both the demand for, and subsequently the price of, electricity is increasing.[89] The Government published Planning Our Electric Future: A White Paper for Secure, Affordable and Low-Carbon Electricity in July 2011.[89] The paper contained three proposals designed to encourage decarbonisation of the UK electricity sector, the rationale behind the introduction and potential impacts of a Carbon Price Floor, Feed-in tariffs and an Emissions Performance Standard are discussed in turn below.
Feed-in tariff
A Feed-in tariff (FIT) provides a fixed level of income for a low-carbon generator over a specified period of time. There are three main types: a Premium FIT offers a static payment in addition to the revenue gained by selling electricity on the market; a Fixed FIT provides a static payment designed to replace any revenue from selling in the electricity market; and a FIT with a contract for difference (CfD), where a variable payment is made to ensure that the generator receives the agreed tariff assuming they sell their electricity at market price.[101]
A FIT with CfD is the Government’s preferred choice as it is deemed to be the most cost-effective whilst retaining an appropriate amount of exposure to market forces. The requirement to sell electricity on the market encourages operators to make efficient decisions about dispatch and maintenance given that revenues above the agreed tariff can be achieved if electricity is sold at above the average market price.[101] Contact with the market would be completely removed under a Fixed FIT, potentially leading to sub-optimal operational decisions, and too great under a Premium FIT, over-exposing operators to future electricity price uncertainty.
It is proposed that Feed-in tariffs with Contracts for Difference (FIT CfD) will replace the current support mechanism, the Renewables Obligation (RO), in 2017 after running in parallel from 2013. The Renewables Obligation encourages the generation of electricity from renewable energysources by awarding Renewable Obligation Certificates (ROCs) to generators. Renewables Obligation Certificates provide an additional source of income in that they can be sold to suppliers who are obligated to source an increasing amount of the electricity they provide from renewable energy sources.
The Renewables Obligation has been successful in encouraging the development of well established forms of renewable energy such as landfill gas and onshore wind but has been less successful in bringing through less well developed technologies to market competitiveness.[102] Modelling of future deployment scenarios indicates that a significant contribution would be required from less mature technologies which lacked sufficient incentive to develop into feasible alternatives under the original Renewables Obligation scheme.[103] The Renewables Obligation also does not apply to nuclear generation.
Further criticism of the Renewables Obligation in its original form included uncertainty over the price of a Renewables Obligation Certificate, which varies depending on demand and could reduce significantly if the amount of electricity produced from renewable energy sources approaches the obligation level. The presence of this risk acted as a perverse incentive for the market not to meet the obligation.[104]
The Renewables Obligation has also been criticised for acting as a barrier to entry for small generators, with only large companies able to overcome the high transaction costs and high investment risks associated with the mechanism.[105] Any reduction in risk would improve access to capital markets which is especially important for small companies who can’t finance projects from their balance sheet alone.[104]
Reforms of the Renewables Obligation since its introduction in 2002 have aimed to address these issues. The introduction of banding in 2009 allowed the incentives for renewable energy technologies that are further from market to be increased whilst the amount of support for well established technologies could be reduced to avoid over-subsidisation. The introduction of guaranteed headroom, also in 2009, eliminated the risk of a significant drop in ROC prices by setting the obligation level to ensure that there is always sufficient demand for ROCs.[105] Feed-in tariffs were introduced in 2010 as an alternative to the Renewables Obligation for projects of less than 5MW with the aim of simplifying the process and removing barriers to access for smaller generators. The Renewables Obligation scheme was also extended to alleviate concerns over the finite and limited duration of subsidies.
Mitigating some of the risks associated with the support mechanism is an alternative to raising the level of support.[104] Despite the reforms to the Renewables Obligation detailed above, some risks, such as uncertainty over future electricity prices, remained. The introduction of a feed-in tariff to support all low-carbon generation successfully addresses this risk, which should translate into a reduced cost of capital. The introduction of a feed-in tariff is therefore intended to reduce the cost of delivering low-carbon electricity supply. Feed-in tariffs may not be as efficient in the short term but provide long term stability, incentives and resources for efficiency savings allowing tariffs to be reduced in the future.[104]
Policy uncertainty can be created due to excessive change in the support mechanism. The Government has taken steps to mitigate this risk by publishing timetables and consulting with industry on the scale and pace of reforms, conducting an impact assessment,[106] overlapping the introduction of feed-in tariffs with the Renewables Obligation for a period of four years and pledging to continue providing support for existing schemes under the Renewables Obligation. Despite these measures, the introduction of a new incentive scheme runs the risk of triggering a hiatus in investment if investors are unsure about how the scheme will work or uncertain whether it represents a good investment.[89]
In addition to reforming the support mechanism, the Government is simultaneously taking steps to address other barriers to deployment, such as delays caused by the planning system and availability of grid connections. The Renewable Energy Roadmap, published by the Government in 2011, identifies the main barriers to deployment and potential deployment levels for each form of renewable energy and details how these barriers will be overcome.[107]
Emissions performance standard
The decarbonisation incentives provided by the Carbon Price Floor and Feed-In Tariffs are further supplemented by the proposed introduction of an Emissions Performance Standard (EPS) to limit the amount of carbon dioxide that new power stations can emit per kWh of electricity generated. An Emissions Performance Standard is deemed to be required in the event that the market incentives detailed above are not sufficient in themselves to steer the electricity sector away from the most carbon intensive forms of generation.
The level at which the EPS is set recognises that fossil fuel generation currently still has an important role to play in ensuring security of supply, providing stable base-load and flexibility, whilst at the same time retaining consistency with decarbonisation objectives by preventing the construction of new coal-fired power stations without carbon capture and storage technology and maintaining affordable electricity prices.[89]
The proposed EPS only applies to electricity generation, and is set at a level to balance the delivery of decarbonisation targets against the cost of electricity. Using the argument that decarbonising electricity is key to decarbonising UK energy supplies, many commentators have criticised H.M.Government for not introducing a far more onerous 2030 electricity EPS. This argument is based on the incorrect assumption that gas cannot be decarbonised economically at large scale.
Typically methane synthesis produces around 55% CO2 and 45% CH4. Separating these gases into two streams in order to inject Synthetic Natural Gas (SNG) into the gas grid leaves high purity, high pressure CO2 as a waste by-product readily available for use for CCS at near zero marginal cost of capture and compression. If 45% biogenic:55%fossil mixed fuel is used to produce SNG with CCS, zero net CO2 emissions are produced. This concept is called Low Carbon Gas (LCG). In USA, it is called Carbon Neutral SNG. The typical marginal abatement cost of carbon for LCG making is around 40 to 50p/tonne supercritical CO2.
Gas is a storable primary energy resource, whereas electricity is an instantaneous secondary energy vector. Energy flows from the gas grid, but vice versa. 250 times more energy is stored as gas in UK than as electricity. The capital cost of gas transmission is 1/15th the cost per MWkm of electricity transmission. 5 times more energy flows through the gas grid than the electricity grid at the Winter demand peak.
Gas is typically 1/3rd the cost per unit energy of electricity. Carbon negative gas can be produced from mixed wastes, biomass and coal at large scale at a cost of around 45 to 50 p/therm, 1/6th DECC and OFGEM's projected 2030 cost per unit energy of decarbonised electricity of £100/MWh.
The technology to produce large quantities of low cost Synthetic Natural Gas (SNG) was developed jointly between HM Ministry of Fuel and Power and British Gas Corporation between 1955 and 1992, with a view to supplying the whole of UK gas demand post-2010 when it was foreseen that North Sea gas would run out. Key elements of British Gas SNG technology are currently in use at the World's largest and longest-running SNG plant with Carbon Capture and Sequestration (CCS) at Great Plains in Dakota, and are being developed at industrial scale in China under the current 2010 to 2015 Five Year Plan.
A simple modification to the British Gas SNG technology will enable carbon negative SNG to be produces at 60 bar pressure, and high purity supercritical CO2 to be produced at 150 bar pressure, at near zero net loss of energy efficiency, or additional cost. Carbon negative SNG can be used to generate carbon negative electricity at lower cost than incumbent fossil gas or electricity. Given that electricity and gas can both be decarbonised with equal facility, and at nearly equal low costs, there is no need to introduce an onerous EPS with a view to largely 'squeezing' gas fired electricity generation off the grid by 2030. Instead it is proposed that technology neutral equal renewables and decarbonisation targets are introduced for both low carbon gas and electricity, with Contracts for Differences for both low carbon gas and low carbon electricity, the relative 'strike prices' to be set by reference to the historic gas to electricity price ratio. This will spread cost-effective decarbonisation equally over both the gas and electricity grids, and their associated infrastructure.
The final enacted version of The Energy Act 2013 included a late amendment: Schedule 4 to Section 57 of the Act. Schedule 4 enables any gasification plant, CCS plant, and any two or more associated power plants, or any part thereof, to be considered as a single system for the determination of net anthropogenic CO2 emissions, and low carbon electricity generation. The Schedule is silent about what fuel may be used for gasification; how the gasification and CCS plants operate or are inter-connected, and what type of gaseous energy vector flows from the gasification and CCS plants to the two or more power plants, or any part thereof. Typically, gaseous energy vectors used for power generation are: synthesis gas (aka Syngas or town gas - a mixture of CO, CO2, H2 and CH4); Hydrogen (H2), or methane (aka natural gas, synthetic natural gas or biomethane - CH4).
Any of the above gas vectors could comply with the terms of Schedule 4. In reality, the only gas transmission network in the UK connecting two or more power plants is the existing UK gas grid. Provided, therefore, that methane injected into the grid has had its anthropogenic carbon emissions offset at source by the use of either biogenic fuels, CCS or a combination of both, such methane will comply with the terms of The Energy Act, and generators burning such gas to produce low carbon electricity will be eligible for support by Contracts for Differences. DECC has confirmed that such a scheme is eligible for support by CfD.
As carbon offset methane injected into the high pressure gas transmission grid will be distributed equally to all gas end users: transport, heat, industry and power generators, enhanced revenue earned by CfD supported gas fired power stations can be used to underwrite the decarbonising of the gas grid.
Energy Bill, 2012–2013
The Energy Bill 2012–2013 aims to close a number of coal power stations over the next two decades, to reduce dependence on fossil fuels and has financial incentives to reduce energy demand. The construction of a new generation of nuclear power stations will be facilitated, helped by the establishment of a new Office for Nuclear Regulation. Government climate change targets are to produce 30% of electricity from renewable sources by 2020, to cut greenhouse gas emissions by 50% on 1990 levels by 2025 and by 80% on 1990 levels by 2050.[108][109]
Select Committee report, 2016
The Energy and Climate Change Select Committee reported on 15October 2016 on upcoming challenges for energy and climate policy. The committee recommended investment in energy storage on the supply side and in efficiency technologies that smooth out demand peaks, by switching devices off and on and running them at lower power during times of stress, for example.[110][111]
Salix Finance Ltd.
Salix Finance Ltd. provides government funding to the public sector to improve energy efficiency, reduce carbon emissions and lower energy bills. Salix is a non-departmental public body, owned wholly by the government, and funded by the Department for Business, Energy and Industrial Strategy, the Department for Education, the Welsh Government and the Scottish Government.[112]
Energy white paper, 2020
The 2020 energy white paper[113] sets a target to achieve net zero within the UK by 2050, in efforts to halt the progress of climate change. The UK government aim to do this by:
Investing heavily in renewable energy sources with a goal of 40GW (about 60% of the UK's energy consumption) of offshore wind by 2030
Getting one large-scale nuclear project to its investment decision by the end of the parliamentary session
Growing the rate at which electric heatpumps are installed
Debating whether to end connections to the gas grid for new homes
The government also issued the "Ten Point Plan for a Green Industrial Revolution", in which Prime Minister Boris Johnson stated it would "mobilise £12 billion of government investment, and potentially three times as much from the private sector, to create and support up to 250,000 green jobs" and "turn the UK into the world's number one centre for green technology and finance".[114] It committed government support of £2.8 billion for electric cars, £1 billion for energy efficiency, £525 million for nuclear power, £500 million for hydrogen power, and increasing carbon capture support to £1 billion.[115]
Implementing policy: government oversight
Government supervision of the coal, gas and electricity industries was established in the 19th century. Since then, specific departments of state and regulatory bodies have had responsibility for policy implementation, regulation and control.
History
The supply of energy in the nineteenth century – in the form of coal, gas and electricity – was largely by private companies and municipal gas and electricity undertakings. Public control of these supplies was generally in the hands of local authorities.[116] Such control was exercised through limiting prices and dividends and by encouraging competition. State intervention was through legislation such as the Mines and Collieries Act 1842, and the Gasworks Clauses Act 1847 which restricted company dividends to ten per cent.[116] The Electric Lighting Act 1882 established control over electricity supply industry from its earliest days. It required undertakings to obtain a license or order from the Board of Trade to generate and supply electricity. The Board of Trade and the Home Office therefore provided early oversight and control of the energy industries.
New government bodies
Between 1919 and 1941 the newly created Ministry of Transport assumed control of the electricity industry. Under wartime conditions the Ministry of Fuel and Power was established in 1942 to coordinate energy supplies. UK Government policy was enacted through a succession of ministries and departments. These are summarised in the following table.[117][118]
Government ministry / department with responsibility for energy matters
Regulatory body
Established
Abolished / status
Political party
Tenure from
Tenure to
Notes
Board of Trade
–
Continued
Various
c. 1847
1942
Gas and electricity industries
Home Office
–
Continued
Various
1842
1920
Coal industry
Ministry of Transport
1919
Continued
Various
1919
1941
Electricity supply only
Board of Trade (Secretary for Mines)
1920
1942 transferred to Ministry of Fuel and Power, Board of Trade continued
Various
1920
1942
Board of Trade (Secretary for Petroleum)
1940
1942 transferred to Ministry of Fuel and Power, Board of Trade continued
In addition to the above ministries and departments a number of regulatory bodies have been established to regulate and supervise specific aspects of energy policy and operation. These include:[117][118]
Offshore Regulator for Environment and Decommissioning (OPRED),
Oil and Gas Authority (2015–date), to regulate, influence and promote the UK oil and gas industry to maximise the economic recovery of resources.
Fossil energy public support
David Cameron announced subsidies for the North Sea oil and gas industry in March 2014 resulting in the production of 3-4bn more barrels of oil "than would otherwise have been produced".[119]
Renewable energy targets
The first targets for renewable energy, 5% of by the end of 2003 and 10% by 2010 'subject to the cost to consumers being acceptable' were set by Helen Liddell in 2000.[120]
The UK Government's goal for renewable energy production is to produce 20% of electricity in the UK by 2020. The 2002 Energy Review[121] set a target of 10% to be in place by 2010/2011. The target was increased to 15% by 2015 and most recently the 2006 Energy Review further set a target of 20% by 2020.
Subsequently, the Low Carbon Transition Plan of 2009 made clear that by 2020 the UK would need to produce 30% of its electricity, 12% of its heat and 10% of its fuels from renewable sources.[122][123]
For Scotland, the Scottish Government has a target of generating 100% of electricity from renewables by 2020.[124] Renewables located in Scotland count towards both the Scottish target and to the overall target for the UK.
Although renewable energy sources have not played a major role in the UK historically, there is potential for significant use of tidal power and wind energy (both on-shore and off-shore) as recognised by formal UK policies, including the Energy White Paper and directives to councils[125] in the form of PPS 22. The Renewables Obligation acts as the central mechanism for support of renewable sources of electricity in the UK, and should provide subsidies approaching one billion pounds sterling per annum by 2010. A number of other grants and smaller support mechanisms aim to support less established renewables. In addition, renewables have been exempted from the Climate Change Levy that affects all other energy sources.
The amount of renewable generation added in 2004 was 250 megawatts and 500 megawatts in 2005. There is also a program established for micro-generation (less than 50 KWe (kilowatt electrical) or 45 KWt (kilowatt thermal) from a low carbon source)[126] as well as a solar voltaic program. By comparison both Germany and Japan have photovoltaic (solar cell) programmes much larger than the installed base in the UK. Hydroelectric energy is not a viable option for most of the UK due to terrain and lack of force of rivers.
Biofuels
The government has established a goal of five percent of the total transportfuel that must be from renewable sources (e.g. ethanol, biofuel) by 2010 under the Renewable Transport Fuel Obligation. This goal may be ambitious, without the necessary infrastructure and paucity of research on appropriate UK crops, but import from France might be a realistic option.
In 2005 British Sugar announced that it will build the UK's first ethanolbiofuel production facility, using British grown sugar beet as the feed stock. The plant in Norfolk will produce 55,000 metric tonnes of ethanol annually when it is completed in the first quarter of 2007.[127] It has been argued that even using all the UK's set-aside land to grow biofuel crops would provide less than seven per cent of the UK's present transport fuel usage.[128]
Reducing occurrence of fuel poverty (defined as households paying over ten percent of income for heating costs) is one of the four basic goals of UK energy policy. In the prior decade substantial progress has been made on this goal,[citation needed] but primarily due to government subsidies to low-income families rather than through fundamental change of home design or improved energy pricing. The following national programs have been specifically instrumental in such progress: Winter Fuel Payment, Child Tax Credit and Pension Credit. Some benefits have resulted from the Warm Front Scheme in England, the Central Heating Programme in Scotland and the Home Energy Efficiency Scheme in Wales. These latter programs provide economic incentives for physical improvement in insulation, etc.
Public opinion
The UK is largely supportive of renewable energy and this is primarily driven by concerns about climate change and dependence on fossil fuels.[129]
In July 2013, the UK Energy Research Centre published a national survey of public attitudes towards energy in the UK.[130]
74% of participants were very or fairly concerned about climate change.
82% were worried about the UK becoming too dependent upon energy from other countries.
79% wanted to see a reduction in the use of fossil fuels over the next few decades.
81% expressed a desire to reduce their energy use.
42% had never heard of carbon capture and storage (CCS) and when given further information many expressed concern, viewing it as a "non transition" – a continuation of unsustainable practices associated with fossil fuels.
The public was undecided on the role of nuclear power in the future energy mix. Over half (54%) said they would oppose the building of a new nuclear power station in their area.
A majority (53%) were willing to use electric vehicles, rising to 75% if they performed as well as conventional models.
This can be compared with a similar study from the 1st Annual World Environment Review, published in June 2007, which revealed that:[131]
81% are concerned about climate change.
79% think their government should do more to tackle global warming.
73% think that the UK is too dependent on fossil fuels.
77% think that the UK is too reliant on foreign oil.
87% think that a minimum 25% of electricity should be generated from renewable energy sources.
24% think that the Government should do more to expand nuclear power.
56% are concerned about nuclear power.
76% are concerned about carbon dioxide emissions from developing countries.
61% think it appropriate for developed countries to demand restrictions on carbon dioxide emissions from developing countries.
Oil and gas
Oil and gas production peaked in 1999, but in 2023 licensed more oil and gas exploration was licensed.[132]
Analysis and criticism
A 2016 paper argues that current UK energy policy is a contradictory mix of free market policies and government interventions, with an undue emphasis on electricity. It concludes that the government needs to develop a clearer strategy if it is to address the three goals of economic effectiveness, environmental protection, and energy security.[133]
In its 2022 Net zero Review the government was criticised again, with the main issue identified being a lack of consistent policy commitments and a start-stop approach to various schemes.[134][135]
1 2 3 4 Pearson, Peter; Watson, Jim (2012). UK Energy Policy 1980–2020(PDF) (Report). Institute for Engineering and Technology (ICT) and Parliamentary Group for Energy Studies. Retrieved 21 October 2020.
1 2 3 4 5 6 7 8 9 10 11 DECC (2011a). Planning Our Electric Future: A White Paper for Secure, Affordable and Low-Carbon Electricity.
1 2 Stern, N., Peters, S., Bakhshi, V., Bowen, A., Cameron, C., Catovsky, S., Crane, D., Cruickshank, S., Dietz, S. and Edmonson, N. (2006) Stern Review: The Economics of Climate Change, London: HM Treasury.
↑ Foxon, T.J. and Pearson, P.J.G. (2007). ‘Towards improved policy processes for promoting innovation in renewable electricity technologies in the UK’, Energy Policy, 35(3), 1539-1550.
↑ Wood, G. and Dow, S. (2010). ‘The likely impact of reforming the Renewables Obligation on renewables targets’, International Journal of Energy Sector Management, 4(2), 273-301.
1 2 3 4 Mitchell, C., Bauknecht, D. and Connor, P.M. (2006). ‘Effectiveness through risk reduction: a comparison of the renewable obligation in England and Wales and the feed-in system in Germany’, Energy Policy, 34, 297-305.
1 2 Woodman, B. and Mitchell, C. (2011). ‘Learning from experience? The development of the Renewables Obligation in England and Wales 2002-2010’, Energy Policy, 39(7), 3914-3921.
The United Kingdom's Climate Change Programme was launched in November 2000 by the British government in response to its commitment agreed at the 1992 United Nations Conference on Environment and Development (UNCED). The 2000 programme was updated in March 2006 following a review launched in September 2004.
The Renewables Obligation (RO) is a market support mechanism designed to encourage generation of electricity from eligible renewable sources in the United Kingdom. There are three related schemes for the three legal jurisdictions of the UK. In April 2022 the Renewables Obligation was introduced in England and Wales, and in Scotland as the Renewables Obligation (Scotland). The RO was later introduced in Northern Ireland in April 2005. In all cases, the RO replaced the Non-Fossil Fuel Obligation which operated from 1990.
Energy policies are the government's strategies and decisions regarding the production, distribution, and consumption of energy within a specific jurisdiction. Energy is essential for the functioning of modern economies because they require energy for many sectors, such as industry, transport, agriculture, housing. The main components of energy policy include legislation, international treaties, energy subsidies and other public policy techniques.
The Office of Gas and Electricity Markets (Ofgem), supporting the Gas and Electricity Markets Authority, is the government regulator for the electricity and downstream natural gas markets in Great Britain. It was formed by the merger of the Office of Electricity Regulation (OFFER) and Office of Gas Supply (Ofgas).
Energy in the United Kingdom came mostly from fossil fuels in 2021. Total energy consumption in the United Kingdom was 142.0milliontonnes of oil equivalent in 2019. In 2014, the UK had an energy consumption per capita of 2.78tonnes of oil equivalent compared to a world average of 1.92tonnes of oil equivalent. Demand for electricity in 2023 was 29.6GW on average, supplied through 235TWh of UK-based generation and 24TWh of energy imports.
E.ON UK is a British energy company and one of the largest suppliers of energy in the UK, following its acquisition of Npower. It is a subsidiary of E.ON of Germany and one of the Big Six energy suppliers. It was founded in 1989 as Powergen, and was listed on the London Stock Exchange and was once a constituent of the FTSE 100 Index. It has been a subsidiary of E.ON since 1 July 2002.
The Non-Fossil Fuel Obligation (NFFO) refers to a collection of orders requiring the electricity distribution network operators in England and Wales to purchase electricity from the nuclear power and renewable energy sectors. Similar mechanisms operated in Scotland and Northern Ireland.
The energy policy of the European Union focuses on energy security, sustainability, and integrating the energy markets of member states. An increasingly important part of it is climate policy. A key energy policy adopted in 2009 is the 20/20/20 objectives, binding for all EU Member States. The target involved increasing the share of renewable energy in its final energy use to 20%, reduce greenhouse gases by 20% and increase energy efficiency by 20%. After this target was met, new targets for 2030 were set at a 55% reduction of greenhouse gas emissions by 2030 as part of the European Green Deal. After the Russian invasion of Ukraine, the EU's energy policy turned more towards energy security in their REPowerEU policy package, which boosts both renewable deployment and fossil fuel infrastructure for alternative suppliers.
A low-carbon economy (LCE) is an economy which absorbs as much greenhouse gas as it emits. Greenhouse gas (GHG) emissions due to human activity are the dominant cause of observed climate change since the mid-20th century. There are many proven approaches for moving to a low-carbon economy, such as encouraging renewable energy transition, energy conservation, and electrification of transportation. An example are zero-carbon cities.
According to the International Energy Agency, France has historically generated a very low level of carbon dioxide emissions compared to other G7 economies due to its reliance on nuclear energy. Energy in France was generated from five primary sources: nuclear power, natural gas, liquid fuels, renewables and coal. In 2020, nuclear power made up the largest portion of electricity generation, at around 78%. Coal energy is declining and due to cease. Renewables accounted for 19.1% of energy consumption in 2020. France has the largest share of nuclear electricity in the world. The country is also among the world's biggest net exporters of electricity. The country is increasingly investing in renewable energy and has set a target of 32% by 2030.
The energy policy of Australia is subject to the regulatory and fiscal influence of all three levels of government in Australia, although only the State and Federal levels determine policy for primary industries such as coal. Federal policies for energy in Australia continue to support the coal mining and natural gas industries through subsidies for fossil fuel use and production. Australia is the 10th most coal-dependent country in the world. Coal and natural gas, along with oil-based products, are currently the primary sources of Australian energy usage and the coal industry produces over 30% of Australia's total greenhouse gas emissions. In 2018 Australia was the 8th highest emitter of greenhouse gases per capita in the world.
Energy Saving Trust is a British organization devoted to promoting energy efficiency, energy conservation, and the sustainable use of energy, thereby reducing carbon dioxide emissions and helping to prevent man-made climate change. It was founded in the United Kingdom as a government-sponsored initiative in 1992, following the global Earth Summit.
The availability and uptake of green electricity in the United Kingdom has increased in the 21st century. There are a number of suppliers offering green electricity in the United Kingdom. In theory these types of tariffs help to lower carbon dioxide emissions by increasing consumer demand for green electricity and encouraging more renewable energy plant to be built. Since Ofgem's 2014 regulations there are now set criteria defining what can be classified as a green source product. As well as holding sufficient guarantee of origin certificates to cover the electricity sold to consumers, suppliers are also required to show additionality by contributing to wider environmental and low carbon funds.
Renewable energy in the United Kingdom contributes to production for electricity, heat, and transport.
Different methods of electricity generation can incur a variety of different costs, which can be divided into three general categories: 1) wholesale costs, or all costs paid by utilities associated with acquiring and distributing electricity to consumers, 2) retail costs paid by consumers, and 3) external costs, or externalities, imposed on society.
The National Grid covers most of mainland Great Britain and several of the surrounding islands, and there are interconnectors to Northern Ireland and to other European countries. Power is supplied to consumers at 230 volts AC with a frequency of 50 Hz. In 2023 about a third of electricity used in Britain was generated from fossil gas and two-thirds was low-carbon power. Wind generates the most low-carbon power, followed by nuclear some of which is imported from France. The government is aiming for greenhouse gas emissions from electricity in Britain to be net zero by 2035.
A feed-in tariff (FIT) is paid by energy suppliers in the United Kingdom if a property or organisation generates their own electricity using technology such as solar panels or wind turbines and feeds any surplus back to the grid. The FIT scheme was imposed on suppliers by the UK government, and applied to installations completed between July 2009 and March 2019.
The Electricity Act 1989 provided for the privatisation of the electricity supply industry in Great Britain, by replacing the Central Electricity Generating Board in England and Wales and by restructuring the South of Scotland Electricity Board and the North of Scotland Hydro-Electric Board. The Act also established a licensing regime and a regulator for the industry called the Office of Electricity Regulation (OFFER), which has since become the Office of Gas and Electricity Markets (OFGEM).
The Energiewende is the ongoing energy transition by Germany. The new system intends to rely heavily on renewable energy, energy efficiency, and energy demand management.
A renewable portfolio standard (RPS) is a regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal. Other common names for the same concept include Renewable Electricity Standard (RES) at the United States federal level and Renewables Obligation in the UK.
References
E McGaughey, Principles of Enterprise Law: the Economic Constitution and Human Rights (Cambridge UP 2022) chapters 11 and 12
Companies with headquarters and/or registered office in the UK but no applicable energy operations within the country shown in italics1Ultimate parent company is not UK-based 2Integrated in the United States, no generation or supply activities in the UK
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