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DECC Annual Energy Statement and Statutory Security of Supply Report 2013

The Department of Energy & Climate Change (DECC) published two policy papers on 31 October 2013: (1) its Annual Energy Statement 2013, and (2) the Statutory Security of Supply Report 2013.

Annual Energy Statement 2013
The Annual Energy Statement fulfils the commitment in the Coalition Programme for the Government to present an annual statement of energy policy to Parliament.

This Statement sets out the Government’s priorities in delivering the UK’s energy policies in the near term, and how the Government is delivering against the priorities. The Government’s three priorities in the sector are:

  1. Helping households and businesses take control of their energy bills and keep their costs down
  2. Unlocking investment in the uk’s energy infrastructure that will support economic growth
  3. Playing a leading role in efforts to secure international action to reduce greenhouse gas emissions and tackle climate change.

Helping consumers take control of their energy bills

Consumer affordability is central to UK energy policy. The Government’s view is that the best way to achieve this is through an effective competitive market in energy, with the aim of helping people to get better value from energy companies and to waste less energy. Furthermore, the Government is determined to make it easier for people to find new innovative ways to get a better deal on their energy. Effective competition in the wholesale energy market is a key driver of lower prices and competition in the retail market. Through its regulation of gas and electricity networks, Ofgem is seeking to encourage investment in energy networks in a cost-effective way and to drive down costs for consumers too.

In January 2013 the Government introduced the domestic Green Deal and Energy Company Obligation (ECO) schemes, both of which establish new ways to pay for and install energy saving measures. These schemes will help households insulate their homes and upgrade their heating systems with low carbon alternatives, which will assist them in cutting waste and the cost of their bills, whilst reducing their energy demand and carbon emissions. The Government is helping businesses to cut the cost of their bills and reduce their energy consumption and carbon emissions through improved energy efficiency. Support schemes include: the non-domestic Green Deal and Renewable Heat Incentive; the CRC Energy Efficiency Scheme, and mandatory carbon reporting. Each policy provides a different solution depending on business need. In July 2013 the Government launched a consultation on the Energy Savings Opportunity Scheme (ESOS) to help large enterprises to identify cost-effective energy efficiency measures. The Government is in the process of exploring opportunities to maximise synergies between ESOS and other existing schemes.

Unlocking investment in the UK’s energy infrastructure
The Government’s energy policies are being delivered in a way that aims to maximise the opportunity for economic development, thus providing a significant opportunity to promote investment and support employment. During 2013 the Government brought forward key announcements on the Electricity Market Reform (EMR) programme, which will put in place the institutional and market arrangements to secure the private sector investment needed. To help enable investment decisions ahead of EMR implementation, the Government has committed to a programme of Final Investment Decision Enabling to offer investment certainty and support through ‘Investment Contracts’ (early CfDs). This is focused primarily on renewable technologies, but also reflects the approach being taken to build a new nuclear power station at Hinkley Point in Somerset. On 21 October 2013 it was announced that the Government and EDF Group have reached commercial agreement on the key terms of a proposed investment contract for Hinkley Point C. This will be the first new nuclear power station in the UK in a generation and will provide a stable source of clean power from 2023.

International action to tackle climate change
The Government is encouraging EU leadership to ensure that, as a community, the EU is “walking the walk” on the international stage. This includes continuing to press for a move to a 30 per cent. EU emissions reduction target for 2020 and the adoption of an ambitious emissions reduction target for 2030 delivered in a flexible, technology neutral way, and supported by a global agreement in 2015.

Statutory Security of Supply Report
The Government sees energy security as being about making sure consumers can access the energy they need at prices that are not excessively volatile. This report discharges the Government’s and Ofgem’s obligation under the Energy Act 2004 to report annually to Parliament on the availability of electricity and gas for meeting the reasonable demands of consumers in Great Britain. It also discharges the Government’s obligation under certain EU Directives to monitor gas and electricity security of supply issues and publish reports.

To date Great Britain’s electricity system has provided secure supplies. However, the system faces some significant challenges over coming years. In light of the uncertain outlook for supplies during the middle of the decade DECC, National Grid and Ofgem have been working together to explore options for additional safeguards for consumers in the form of new balancing services, aimed at helping National Grid maintain system balance. According to the report, our electricity transmission and distribution networks remain extremely reliable, but continued investment is needed to maintain high quality networks and to ensure they facilitate the move to a decarbonised system.

Great Britain has the most liquid, and one of the largest, gas markets in Europe with extensive import infrastructure and a diverse range of gas supply sources. In 2012, around half of the UK gas demand was supplied through UK production, and the import infrastructure has increased five-fold over the past decade. All the sources can and are providing significant gas to meet the country’s requirements and mean that the Great Britain gas market is resilient to all but the most extreme supply disruption scenarios. To further strengthen security of supply for gas, the Government is facilitating exploration activity for shale gas, as domestic production of shale could add further diversity of supply sources. In addition, Ofgem is in the process of reforming the cash-out regime in an attempt to sharpen the incentives on gas market participants in order that they invest in measures to enhance security of supply.

Oil currently meets around a third of the energy demand and is the main energy source for transport meeting virtually all of the UK’s needs. Oil markets are international by nature and GB also exports and imports crude oil and refined products. The UK has enjoyed extremely good security of supply in recent years with supplies coming both from the UK Continental Shelf and from a diverse range of international sources. The majority of our imports come from secure and stable markets such as Norway. The international nature of oil markets mean that if there are issues with a particular supply source this is likely to impact on prices paid, as opposed to physical supplies, as other supplies step in to take advantage of higher prices on offer. However our dependence on imports is expected to increase as oil demand globally continues to rise, and as global production becomes more complex.

Further information
Full copy of the statement and the report can be found on the DECC website.

For more information on how Walker Morris can help you in relation to renewable energy or energy supplies, please contact Ben Sheppard