In terms of looking at how we keep the lights on, I think that phrase has become slightly hackneyed. I think most of us recognise that this is not really about keeping the lights on – certainly in the medium term, the issue is more likely to be that for a few hours of a few days, there would be energy shortages and electricity shortages. But that is going to be bad enough and it is something which government has to take profoundly seriously, because I think the first role of government in energy policy is to deliver energy security.
There are a number of different aspects of security that I think we need to take into account in looking at that.
First of all it, does mean enough generating capacity to ensure that there is supply when it is needed and that is one of the mountains we need to climb at the moment. We face the biggest ever need for investment at a time when there is the biggest ever uncertainty about how it is going to be delivered. So government has to put in place a framework which will help to secure that, and it means a mix, I think, of different generation types.
There needs to be base-load; we need to be a harnessing of our own resources; there needs also to be enough flexible generation in order that we ensure we have back-up for the variability that come with most forms of renewables.
However, we also have to be clear that we have not seen enough built over a long period.
The challenge we face at the moment is because of a failure over years to replace power plant that was coming towards the end of its life and so we have to question I think, how the role of the market works in terms of delivering the plant which we need. In many ways, if you look at the periods where we have enjoyed great stability and security, it was brought about in part by the CEGB, and also it was a time when we had our own abundant sources of gas – people were keen to invest as they knew that was going to be the ‘fuel of choice’ for some years to come.
It is much more challenging when you are net importers, in terms of where you are going to get your fuel from, and you need a much more structured government approach to give indicators to where that investment needs to go. One of the challenges we face is whether that new plant can be delivered in time? When I took on the shadow ministerial role nearly 8 years ago, people were saying there was no crunch coming. Then people started saying, well, maybe there is, but it would be in the early 2020’s. Now, it is in the latter part of this decade and the debate is whether it is the DECC view that it will happen around 2018 or the OFGEM view of 2016.
One of the things we need to be aware of is that with strong positive economic signals, the fall in unemployment today and signs of return to growth, then that may actually bring forward further the time when we face the crunch, as demand picks up. So, we know it is coming and there are not many forms of generation which can be built in time to meet a gap which is emerging perhaps in the next 5 years. It is why I started to rewrite the policy towards gas, recognising the critical role which gas needs to play in our energy infrastructure going forwards.
The second aspect of security is resource security and I think we make a strong case that indigenous sources of supply have a greater degree of security over those where you are import dependent – even from very benign and good trading partners such as Norway and Qatar. We saw that just a couple of winters ago in a particularly cold period, where there was a freezing up of the Langeled pipeline which is our most important import source by pipeline. Even though it was not to do with any political interference – it was something technological which caused the challenge – it highlights the importance of harnessing our domestic sources of generation, be that nuclear, renewables or gas. And it brings us to the whole debate about shale.
Most of us have views about shale, but we cannot know what shale can contribute, until we have done much more work to find out. We can make assessments now through the RGS and others of how much gas may be ‘in place’ but what we do not yet know is how much of that will be extractable. What we have seen in countries like Poland are some of the big players deciding that that was not a good enough resource, or sufficiently extractable, for them to focus on and they have now moved to other markets. My own sense is that shale will be a global game changer, but it is too early to know whether it is a domestic game changer in its own right as well.
It also brings up the importance of the North Sea. We should be pursuing policies which will encourage us to get every drop which is possible out of the North Sea. One of the frustrations I have, when you see regular changes in Ministers, is that they probably only go to Aberdeen once. And for something which is so fundamental and so important to our energy interests as a nation, then it should be a location they are going to on a bi-monthly basis at least, in order to encourage and understand that industry.
Over recent years, since the tax changes, we have seen a real enthusiasm amongst Treasury Ministers and others to engage and recognise the long-term importance of the North Sea to this country. It is all too easy to assume that this is the tail-end of an industry where there is not much of a resource left. I think those of us who have been closer to it recognise that it is in decline but that is a very long decline which could be 30-40 years of massive wealth creation for this country.
Sir Ian Wood, who is heading a review for the government at the moment, said the difference between the policies as normal and policies designed to maximise extraction would be between 11-25 billion barrels of oil. Well those 14 billion barrels of oil are worth a trillion pounds to the British economy and so this is something of massive national importance and I am delighted to see the combined support for the North Sea which we see from Treasury and DECC and from all other government departments.
The third aspect of security, I think, is environmental security. That means that we do need to be decarbonising our economy; and we need to be bringing forward the generating sources which we will do so in a low carbon way. We have legally binding targets both for 2050 and for 2020 and there needs to be a fundamental shift towards lower carbon sources of generation.
The fourth aspect of security is affordability. This has been put on the front pages of our newspapers recently in a way that has not been the case before. I used to say as Energy Minister I had a frustration that in an area which was so exciting, so dynamic and so positive, energy was often relegated to the back pages, to the business pages, and I wanted to see it on the front pages. Now I have seen it on the front pages, I rather wish it would go back to the business pages!
It is something where we are now going to have an ongoing debate but we have to change the terms of that debate, because it is profoundly damaging to our future prospects of attracting investment.
People are categorised as either being ‘pro-consumer and anti- business’ or ‘anti-consumer and pro-business’, but at the end of the day, the only way we can look after the interests of consumers is if we secure the new investment which is necessary. And that means we have to be resolutely pro-business – not just the big six, but we certainly cannot do it without the big six being involved in that process too.
We then need to look at how we can deliver this vast amount of investment which is necessary. There is uncertainty. People always say there is too much uncertainty, but where you have choices you inevitably have uncertainty.
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