Speech by Charles Hendry, Minister for Energy, Chatham House, 8 June 2010
Thank you for inviting me here today. I’m please to be speaking at this event that focuses on the heart of one of the biggest challenges facing Government – the issue of energy security and how we decarbonise society.
One of the first things David Cameron did was visit DECC.he rightly said that we will be the greenest government ever seen. I for one share that commitment.
This is a green coalition with a shared priority. Both to create a low carbon economy to meet the urgent challenge of climate change and to help achieve energy security. Our commitment to meeting energy demand and securing our fuel supply is clearly set out in the Coalition’s Programme for Government. Low carbon technologies have an important role to play, not only in meeting our climate targets, but also in building recovery from recession and creating new jobs and new industries in the coming decades.
We are facing the greatest energy challenge of our lifetimes – Over the next 10-15 years we will need £200bn of new investment.
The challenge was enormous before the global economic downturn changed expectations, priorities - whole businesses if you will. The energy industry felt that pinch. Volatile oil and share prices - with tighter credit conditions - led to a string of companies reviewing their investment programmes. We need this international investment – we need to make Britain an attractive place to invest.
The gulf spill
The Lloyds and Chatham House Report ‘Sustainable Energy Security’ highlights the challenges in the oil and gas sector, and given the terrible events recently in the Gulf of Mexico, this seems to be an appropriate place to start.
Global oil demand could rise by a quarter in the next 20 years. In fact, it is estimated that 3 million barrels per day of new oil capacity must be added each year to maintain production at current levels. That’s faster than anticipated economic growth.
And global gas demand could increase by 40 per cent by 2030.Significant investment is required to maintain the current levels. Investment to the tune of some $5 trillion is required. And this gas is often in the most hard to reach places.
That challenge has undoubtedly increased as a result of the terrible events in the Gulf of Mexico. Tragically 11 people lost their lives and the full extent of the environmental impact is not yet known. And yet as critical as these are - they are not the only ramifications to look at.
I appreciate there has never been such a deep leak before with so many complications. And in that respect I think it is important to recognise the work of the whole oil industry, in bringing together cutting-edge technology from around the world, to provide an intermediate - and ultimately a long term solution, to this terrible disaster.
We have been looking at how the UK can help. We want to help in any way so we have been working closely with colleagues in the US. Not only by offering advice, but by also by offering 600 tonnes of dispersant.
We believe that, although the UK is not responsible for the clean up, we must return to stability in the oil market as quickly as possible - because that is in all of our interests.
We have a national interest in optimising the oil and gas extraction from the North Sea. To achieve that we must carefully look at our own regulatory system in light of this disaster. One of the features of the US regulatory system is that the same agency, is responsible for regulating both operations and safety.
In the UK these operations were separated out into separate agencies – now DECC and the HSE – after the Piper Alpha disaster in 1988, so the UK regulatory regime is inherently in better shape. Nevertheless, the Secretary of State has ordered an urgent review, so we can all be re-assured that our existing UK offshore regime, is fit for purpose.
Initial steps are already under way, including plans to double the number of annual inspections to drilling rigs. And the launch of a new industry group to look at the UK’s ability to prevent and respond to oil spills.
And back to the challenge...
But perhaps one of the most important geopolitical lessons from this is that energy policy must be resilient to external shocks. We all saw how exposed our gas supplies have been over three of the last four winters – on each occasion, because of an external factor. And because UK oil and gas production is in decline. The share of imports in our overall energy mix is set to increase by around 60 per cent over the next 10 years.
The global nature of energy markets and our increasing reliance on energy imports mean that our overall energy security – ensuring we have access to the energy we need, at stable and affordable prices - is heavily dependent on international issues.
As astutely seen in your report, this energy challenge is immense. It comes at a time when we need both energy security and a low carbon future. These are not conflicting priorities, but developing low carbon sources of energy supply will enhance our energy security.
So how do we move forward?
The whole world is seeking cheaper, cleaner and capable technologies. And the expertise to build them. Our clear intention is that the UK should be leading this process.
Domestically, we need a combination of dynamic markets and a state playing a strategic role to tackle the challenge. And as long as fossil fuels remain a part of the energy mix, for a couple of decades at least, more efficient low carbon technology plays an important role in reducing carbon emissions.
The starting point must be energy efficiency. ‘Green Deal’ , which will be backed up by legislation this year, will encourage home energy efficiency improvements; and take measures to improve energy efficiency in businesses and public sector buildings to help reduce demand at home. Reducing energy bills clearly makes fundamental sense.
Then we must build new low-carbon sources of generation. Nuclear power - as long as it can demonstrate that it can be viable without public subsidy - has a role to play in our energy mix. In parallel with a massive expansion in other low carbon technologies, including renewables and CCS.
But let me be clear. It will be for private sector energy companies to construct, operate and decommission new nuclear plants. And conversations I’ve had with companies suggest they are willing to invest without public subsidy. Though we will have a role in removing any obstacles, such as a carbon floor price for example to bring on all forms of low carbon technology. And it will be for the Government to ensure appropriate levels of safety, security and environmental regulation.
It also means moving forward on emerging technologies such as CCS, and give new opportunities for fossil fuels in the energy mix. Britain should be leading the world on CCS. Moving ahead as quickly as possible with our programme of four demonstrations is vital to maintaining that lead.
CCS is essential in mitigating climate change whilst maintaining energy security. The UK is working with China on the Near Zero Emissions Coal project, which aims to develop and demonstrate CCS in China. Closer to home we have funded jointly with Norway the ‘One North Sea’ study looking at the crucial role of the North sea in the deployment of CCS in Europe. And we have said there will be four CCS demonstration projects to consolidate the UK’s lead in this area.
In the shorter term, we realise we will be increasingly reliant on gas. Although imports are not themselves a problem, our growing dependence on them, means our storage capacity must increase significantly.
Potential renewable energy is in abundance, but so far the UK has not realised its potential. We are the 2nd worst performer in the EU, but we have the resources – over 40% of the EU’s wind resource is in the UK, and we have the largest tidal resources in Europe. We need more on and offshore wind, a massive increase in energy from waste, and faster development in marine energy, such as wave and tidal, if they are to develop in 10-15 years time. Again, the UK should be leading the world in these new technologies.
We are lucky to have such a uniquely rich wave and tidal resource. I want to see much more development of this industry over the coming decade. The world’s first full-scale wave and tidal stream devices are British innovations. They show we have the skills and ‘know how’ to be a world-leader in Marine energy and we want to make sure these factors make the UK the most attractive place in the world to invest. But to be in that position we must progress engineering skills and our maritime history and expertise. To harness this opportunity, secures valuable energy. It means greater energy security, new jobs and economic regeneration.
If the wave and tidal sector is to move through to commercial demonstration and deployment over the next few years, we will need to work closely with the sector to maximise the great potential we already have in the UK. We are currently considering in detail how creating a network of marine energy parks can work to push the sector forward.
Each marine energy park will be unique and different; building on the strengths of the region in which it is based. They will bring together a whole range of complementary factors, like opportunities for real deployment of marine renewable technologies. But also grid availability, testing facilities.
We have inherited ambitious targets, which are a good thing. But, we need roadmaps to show us how we will get there, how we will deliver. We want to be sure we are on track and we need Government drive to identify pressure points, and to work with the industry to make sure we address them. So we welcome important role the Office of Renewable Energy Development in DECC will play.
And we know offshore wind will be very significant in the energy mix. The UK has installed more capacity of offshore wind than any other country. We also have the highest RCA, with exports in 2008-09 of £1.4 billion . Domestically five wind farm developments - off the coasts of Suffolk, Kent, Cumbria and in Liverpool Bay were recently given the go-ahead to extend their area, creating an extra 1.7 gigawatts (GW) of power.
The low carbon era
Embracing a low carbon economy will be as momentous as the previous industrial revolutions. As the shift from coal to oil did. And the shift from gas light to electric light. It has the potential to give us the competitive edge in the new global economy. The scale of the challenge is extraordinary. We will need to reinvent in the way we live our lives, the way our world works.
As your report states, the low carbon market is worth £112 billion per year. An increase of £5 billion per year since 2008. And that is set to rise by £48 billion per year by 2015. We export more goods in this sector than we import. And our biggest export markets in this sector are China Spain, South Korea Malaysia, and India – countries where energy demand is set to increase dramatically.
The Government is determined to secure those low carbon jobs for Britain. Just under a million people work in the low carbon sector [910,000]. Encouraging low carbon skills to help green jobs grow will be crucial. To remain competitive globally, British businesses will need skilled employees to match the pace.
Time is not on our side, and we recognise the scale of the challenge. We see low carbon technologies as the way forward to meet our climate change commitments, but also to enhance our energy security. Our goal is to make Britain the most attractive place to invest in energy, to provide secure, low carbon energy we need to keep bills affordable.