CAMERON HEPBURN
UK Energy System and Policy Overview*
UK Energy Policy Day
31 May 2013
Grantham Research Institute
New College
*With thanks to Ben Merle and Gavin Kader for Research Assistance
Agenda
1.
UK energy policy objectives
2.
UK energy system: results so far
3.
Challenges ahead
2
What is the point of an energy system?
What objectives should energy policy achieve?
1.
Security
•
•
•
2.
Costs
•
•
3.
Electricity: Do the lights stay on?
Gas: Can we survive extended cold winters?
Petroleum: Are there queues at the petrol pumps?
Does the energy sector support industrial competiveness?
Are energy prices affordable, especially for poorer people?
Clean Environment
•
•
Does the energy system minimise local pollution and health impacts?
Does it minimise climate impacts?
3
The objectives of UK energy policy have shifted
notably over time (see Helm and others)
4
Since the 1980s we have moved from central control to
liberalised markets, and is now shifting back somewhat
1970-80
1990
Dep.
Energy
DTI
2000
DECC
BERR
Dep. Trade
DTI
Dep.
Industry
Energy Act (1983)
Liberalisation
Gas Act (1986)
Privatisation
DTI
Dep. Trade
& Industry
BIS
The rise of the environment
Electricity Act (1989)
Privatisation
Electricity Pool ———— NETA — BETTA
5
Agenda
1.
UK energy policy objectives
2.
UK energy system: results so far
3.
Challenges ahead
6
Agenda
1.
UK energy policy objectives
2.
UK energy system: results so far
1.
2.
3.
4.
5.
3.
Shifting needs and system properties
Security
Costs
Environment
The Future (Investment and R&D)
Challenges ahead
7
The end use of energy has shifted over time,
mainly from industry to transport
UK final energy consumption by sector
Thousand tonnes of oil equ.
70,000
Transport
60,000
50,000
Domestic
40,000
Industry
30,000
20,000
Other
10,000
Industry
Transport
Domestic
Other final users
-
1970
Source: DECC ECUK, 2012
1975
1980
1985
1990
1995
2000
2005
2010
8
UK energy is largely “carried” by petroleum, gas
and electricity (with electricity on the rise)
UK final energy consumption by fuel carrier
60%
50%
Petroleum
40%
Coal
Solid Fuels
Gas
30%
Gas
Electricity
Electricity
20%
Petroleum
Other
10%
0%
1970
1975
Source: DECC ECUK, 2012
1980
1985
1990
1995
2000
2005
2010
9
UK energy fuels (in 2007) were dominated by gas,
petroleum and coal; note how much is wasted
Unit: PJ
Source: Smith, Belles and Simon (2011, Lawrence Livermore National Lab.) “Estimated international energy flows”
10
The global energy system (in 2007) was not vastly
different to the UK — less gas, more coal / biomass
Unit: PJ
Source: Smith, Belles and Simon (2011, Lawrence Livermore National Lab.) “Estimated international energy flows”
11
The UK fuel of choice for electricity generation
went from coal to gas in the 1990s
UK Fuel input for electricity
60.00
Million tonnes of oil equ.
50.00
Coal
Oil
40.00
Natural gas
30.00
Nuclear
Hydro
20.00
Wind
10.00
Other (incl.
renewables)
0.00
1970
1975
1980
1985
1989
1994
1999
2004
Source: DECC Energy Statistics, 2012, Ministry of Power Statistical Digest 1959-1965
2009
12
Agenda
1.
UK energy policy objectives
2.
UK energy system: results so far
1.
2.
3.
4.
5.
3.
Shifting needs and system properties
Security
Costs
Environment
The Future (Investment and R&D)
Challenges ahead
13
UK energy import dependency has risen
dramatically since 2000, arguably reducing security
2011 Imports
Coal: 63%
Gas: 44%
Oil: 26%
Source: DECC (2012), UK Energy in Brief, from ONS data
14
Over 50% of UK gas needs imported in 2012…
Source: Daily Mail (2013, 24 May); DECC (2013) state 2012p numbers are (from left to right) 18%,2%, 9% and 34%.
15
Gas and electricity margins have looked
reasonable so far…
Source: DECC (2012), UK Energy in Brief, from ONS data
16
…but Ofgem is forecasting electricity capacity
margins to fall from 15% to below 5% by 2015
Source: Ofgem (2013)
17
Agenda
1.
UK energy policy objectives
2.
UK energy system: results so far
1.
2.
3.
4.
5.
3.
Shifting needs and system properties
Security
Costs
Environment
The Future (Investment and R&D)
Challenges ahead
18
Prices fell over the 1990s, following liberalisation
in the 1980s
Source: Social Indicators, Research Paper 08/76, House of Commons Library, October 2008.
19
Domestic electricity prices in the UK are still
below most OECD countries
Average EU and G7 Domestic Electricity Prices in 2011
30
Tax Component
25
Price (excl tax)
pence per kWh
20
15
10
5
Source: IEA Energy Prices and Taxes, 2011
Denmark
Germany
Spain
Italy
Austria
Belgium
Japan
Ireland
Sweden
Portugal
Netherlands
Luxembourg
Finland
UK
France
Greece
US
0
20
Yet so-called “fuel poverty” is on the rise
Number of households spending more than 10% of their income on energy
Source: Pearson and Watson (2012), UK Energy Policy 1980-2010
21
And the UK is towards the middle in industrial
electricity prices
Average EU and G7 Industrial Electricity Prices in 2011
18
16
Tax Component
14
Price (excl tax)
pence per kWh
12
10
8
6
4
2
Source: IEA Energy Prices and Taxes, 2011
Italy
Japan
Germany
Ireland
Spain
Portugal
Belgium
UK
Greece
France
Netherlands
Luxembourg
Denmark
Finland
Sweden
USA
0
22
Agenda
1.
UK energy policy objectives
2.
UK energy system: results so far
1.
2.
3.
4.
5.
3.
Shifting needs and system properties
Security
Costs
Environment
The Future (Investment and R&D)
Challenges ahead
23
Emissions had gradually declined due to the coal
to gas switch and to deindustrialisation
Million tonnes of carbon equivalent
UK CO2 emission since 1970
Source: UK Government, 2013, available at: www.parliament.uk/briefing-papers/SN03950.pdf
24
Low-carbon (nuclear, bioenergy) energy has
increased recently, with modest increases in wind
Source: DECC (2012), UK Energy in Brief, from ONS data
25
Agenda
1.
UK energy policy objectives
2.
UK energy system: results so far
1.
2.
3.
4.
5.
3.
Shifting needs and system properties
Security
Costs
Environment
The Future (Investment and R&D)
Challenges ahead
26
Investment in the UK energy sector has historically
been relatively low, but has recently increased
Investment in the Energy Sector
Source: Ernst and Young: Powering the UK, 2012
27
UK has recently increased public spending on
energy R&D to around 0.02% of GDP
Governmental energy R&D spending in % of GDP
0.20
0.18
0.16
Japan
% of GDP
0.14
Netherlands
0.12
Italy
0.10
USA
0.08
Germany
0.06
UK
France
0.04
Spain
0.02
Source: IEA Energy R&D Statistics, 2013; OECD, 2013
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
0.00
28
Nuclear R&D received most support until the
early 1990s, but collapsed with liberalisation…
UK public energy R&D spending nuclear vs total budget
Million US$ (2005 prices & exchange rates)
1400
1200
1000
800
Total Budget
Nuclear
600
400
200
0
1974
1978
1982
1986
Source: IEA Energy R&D Statistics, 2013
1990
1994
1998
2002
2006
2010
29
…and has only been partially replaced recently by
R&D into energy efficiency and renewables
UK public energy R&D spending (excluding nuclear)
Million US$ (2005 prices & exchange rates)
800
700
600
500
Energy Efficiency
Fossil Fuels
400
Renewables
Other
300
Power and Sotrage
200
100
0
1974
1978
1982
1986
Source: IEA Energy R&D Statistics, 2013
1990
1994
1998
2002
2006
2010
30
UK renewable R&D spend in 2011 was $100m
(2005 prices) largely on wind, biofuels and solar
UK public renewable R&D spending
Million US$ (2005 prices and exchange reates)
250
200
Wind
150
Biofuels
Solar
Ocean
Geothermal
100
Hydro
Unallocated
50
0
1974
1978
1982
Source: IEA Energy R&D Statistics, 2013
1986
1990
1994
1998
2002
2006
2010
31
Agenda
1.
UK energy policy objectives
2.
UK energy system: results so far
3.
Challenges ahead
32
There are major challenges coming on all three
objectives of energy system policy
1.
Security
•
•
•
2.
Costs
•
•
3.
Electricity: fears that generation margins may fall to below 5%
Gas: Headlines that we were “6 hours from freezing” last winter
Petrol: Main security problems appear to be protests etc.
EU energy costs have risen relative to the US, due to several factors
Costs must rise due to decades of underinvestment
Environmental
•
•
EU requirements of local pollution (LPCD) may close plants in 2015
Carbon markets have collapsed, rescue attempts have so far failed
33
And there are UK and/or EU policy actions that affect
(positively or negative) each of these challenges
1.
Security
•
•
2.
Costs
•
3.
UK capacity mechanism; EMR; strategic reserves;…
EU Integrated Energy Market
UK EMR, retail tariff
Environmental
•
•
EU LCPD, EU RD, EU EED, EU ETS etc…
UK CPF, CCA, RO, EMR etc…
34
The three objectives do not always align, and policies
aimed at the same objective counteract each other
Here are just a few examples from the environmental arena:
1. EU ETS and EU Renewables and Energy Efficiency Directives
2. UK Carbon price floor and EU ETS
3. LPCD and security / EU ETS
4. UK EMR and EU IEM
35
EU ETS aimed at cutting CO2, but “complementary
policies” have forced > 50% of the intended abatement
Abatement from RD and EED in EU ETS scope
Source: CDC Climate Research, 2008; CITL, 2011; MS National Renewable Action Plan, 2011
36
…the result (not helped by the economic crisis)
has unsurprisingly been an EUA price crash
35
EUR/t
30
Daily price
25
Moving Average (30 day)
20
15
10
5
Phase 1
0
04-08-05
04-08-06
Phase II
04-08-07
04-08-08
Source: Datastream, Aurora Energy Research
04-08-09
04-08-10
04-08-11
04-08-12
37
Concluding remarks
1. Security: not terrible now, but risks are mounting; security
remains likely to be assured but at high cost / inefficiency;
2. Costs: low due to liberalisation and underinvestment, but will
likely rise as capacity is replaced and 1. and 3. are achieved
3. Environmental objectives cannot be met in the medium
term while the system remains overwhelmingly fossil-fuel
driven; the real challenges of the low-carbon transition are
just beginning and political strain is already evident
38