DECC - Department of Energy and Climate Change : Speech by the Secretary of State at the Low Carbon Investment Conference 2012
10/12/2012| 02:45am US/Eastern
When I think of the many visits I've made to Scotland in the
course of my career, I think first of people I've worked
closely with. Michael Moore, Malcolm Bruce, Charles Kennedy,
Ming Campbell, Danny Alexander, Alistair Carmichael.
But as Secretary of State for Energy and Climate Change, I
have even more compelling reasons to be here.
With its superb natural - and human - resources, Scotland is
central to our plans for a thriving low-carbon economy.
This country is home to a significant proportion of Britain's
wind, wave and tidal energy, and almost all the hydro power.
Scotland has innovative companies and entrepreneurs; it has
universities that specialise in energy research; and now
Edinburgh hosts the UK's Green Investment Bank, due to be
launched very soon.
Much of the work we do to attract investors to Britain's
energy markets directly benefits Scottish businesses and
So it's particularly appropriate that I should be here to
talk about opportunities for low-carbon investment.
Over the next decade, the UK energy sector is going to change
radically: as more and more renewables and low-carbon energy
come online, and significant infrastructure investments are
The UK's investment need is strong. As ageing infrastructure
is shut down, as demand rises, and as we meet our emissions
and renewables targets, we need to double the current rate of
investment in energy between now and 2020.
There are huge opportunities for new investors. Existing
players' balance sheets alone will not deliver investment at
that scale. And when it comes to energy industries, the UK is
a highly rated and attractive location for investment.
The opportunities for British businesses, if we play this
right, are just as significant. From offshore wind to marine
and tidal, we can turn promising beginnings into genuinely
world-leading industries, with supply chains to match.
My priority is to provide certainty. To reassure investors
and entrepreneurs alike that the UK is - and will remain - a
fantastic place to do low-carbon business. And if you look at
what we've done so far - and the work that's still underway -
I think you can see that priority clearly.
We are opening up markets, giving investors confidence for
the long term, and removing barriers to entry.
Take the reforms of the electricity market in the Energy
Bill, which are designed to unlock some £110 billion of
investment in electricity infrastructure.
We want to encourage competition on cost between low-carbon
electricity sources. So our strategy is to set up a framework
that will offer reliable contracts delivered in ways that are
trusted by investors.
We have chosen the Feed-in Tariff with contracts for
difference, providing a guaranteed price to deliver clear and
predictable revenue streams, bringing down the cost of
I've spoken to global fund managers who say that the
uncertainty of the current arrangement has put them off
investing, but that contracts for difference give them the
predictable revenue streams they need to invest in big
Here's how they work. We set a fair price for low-carbon
electricity. The generator sells its electricity in the
market, and is paid a variable premium to top up if
necessary. And if the market price is higher than the strike
price, the generator pays back the difference.
The key thing here is certainty. Contracts for difference can
help smooth out market volatility, not only minimising costs
to the consumer, but also making investment and financing
decisions easier. And because energy still needs to be sold
in the market, there are still powerful incentives to
encourage energy efficiency.
The reforms in the Energy Bill are specifically designed to
move us away from such intervention - and to blaze a trail
towards competition. That is the ultimate aim of our reform
of the electricity market.
Let me be clear: I'd love to see low-carbon power sources
competing on cost alone. But we can't just flick a switch and
make it happen instantly. So our reforms are phased.
First, we'll introduce contracts for difference, with prices
set administratively to begin levelling the playing field.
Then, as different technologies mature and start becoming
more cost competitive, we'll see the first technology
specific auctions, perhaps as early as 2017.
When all technologies have matured, we'll move to technology
neutral auctions. Demand-side response, and additional
storage and interconnection, will play an increasingly
important role in managing supply.
Finally, when all technologies are mature enough and the
carbon price is high enough and sustainable enough, all
generators will compete without any intervention.
The move from price setting to price discovery will be
complete, with low-carbon electricity sources competing on
cost to provide clean, affordable, secure energy for UK
So the reforms in the Energy Bill are about building a
framework for a new, competitive electricity market -
unlocking a huge amount of investment, and changing the way
we generate electricity.
But we also want to change the way we save energy. So we're
creating a new market, to bring substantial energy savings
within reach for millions.
The Green Deal is our flagship energy efficiency programme.
It will enable homes and businesses to pay for energy
efficiency improvements through savings on their fuel bills.
A successful, effective Green Deal will save money, save
carbon - and make a real contribution to economic growth:
supporting new jobs and businesses, and unlocking
unprecedented choice for consumers. It's a programme that
will to run not for years but for decades.
People will get warmer homes for less. And businesses will
get the chance to be part of new installation and supply
chains stretching right across the country.
We want to establish a vibrant new market in energy
efficiency, one that could attract over £10bn of new energy
efficiency investment in the residential and business sectors
over the next decade.
Then take our work to bring on renewables. It's not just
about hitting our legally binding targets; it's also about
reducing our energy imports, and insulating our country from
spikes in global energy markets.
A greater role for sustainable energy sources within our
diverse energy mix can protect Britain from fossil fuel price
It can also bring significant growth to our economy. Last
week I was at the launch of norstec, a new industry-led
network focused on realising the potential for offshore
renewables in the northern seas. Some of you may have been
there too; certainly I hope to see many more of you at future
events as the network continues to grow.
Norstec set out a vivid and compelling vision of the
opportunities this sector can bring, the jobs and investment
it can generate. And I made clear, as the Prime Minister also
has, that this is a vision that we support fully.
We are focused not just on growth, but on a more balanced
form of growth, with decisions taken for the long term.
Our commitment to a low-carbon future is driven by a
hard-headed assessment that it is good for our economy and
essential for our long-term energy security
That is why we want more renewables in our energy mix - and
why, over the past two years, we've added more renewable
capacity than at any time in the last decade.
That's a good start, but we still have a long way to go. If
we're to get 15% of our total energy from renewables, we're
going to need closer to 30% of our electricity to be
renewable. That is a significant challenge in itself, but we
also need these crucial new technologies to deliver in a
The cost of support for renewables isn't huge - at the
moment, it's around 3 pence out of every £1 on the average
household electricity bill - but it is there. We have a
responsibility to our citizens to create a low-carbon energy
mix that's affordable - for the taxpayer, the bill payer, and
the wider economy.
We expect the cost of generating electricity offshore to
fall, and we are working closely with industry to deliver
There's a historical precedent here: our oil and gas supply
chain benefited from direct and indirect government support,
building a world-class industry.
As Lord Browne argued in a report for the Royal Academy of
Engineering, we can and should do the same for offshore wind.
And as the Cost Reduction Taskforce showed, if we work
together, cost-competitive offshore wind could be less than a
decade away. Right across the supply chain, from research and
design to operations and maintenance, I want all of our
renewable industries to be ready and able to hold their own
on the world stage.
Scottish Island Renewable Generation announcement
Scotland is already at the forefront of the UK's renewables
industry, and I am keen in particular to harness the
tremendous wind and wave resources in the Scottish
I have been impressed with the wind and marine developments
I've seen on Shetland and Orkney this week.
I welcome the role that the Islands want to play in meeting
our renewables targets; but I also recognise the concerns
they express about the speed of progress with their
So I am pleased to announce, in conjunction with the Scottish
Government, an independent study on Scottish Island Renewable
Generation, driven by a new Steering Group.
This study will assess the commercial viability of renewable
projects on the Scottish Islands, and consider any barriers
to their development.
I want all interested parties to have a chance to engage with
this study, and I want progress to be quick.
Carbon Capture and Storage is another technology we want to
see in our low-carbon energy mix - and another sector where
Scotland has significant expertise.
So I am pleased to announce a £20m investment, through the
Energy Technologies Institute, to develop next generation CCS
technology for gas power stations - investment which is part
of the Government's 4-year, £125m R&D programme to develop
cheaper, better CCS technologies.
This project will see a new five-megawatt CCS demonstration
plant constructed, the core of which will use
Scottish-manufactured components, and which will be capable
of capturing up to 95% of CO2 emissions.
Immediately after this conference, I am heading down the road
to Renfrew, to see for myself the work being done by the two
Scottish-based companies involved in the project.
One is Howden - a 150-year-old company which worked on
London's iconic Battersea Power Station back in the 1930s. It
has now shown decades of Scottish innovation, has already
exported $10m worth of CCS components, and is still creating
jobs and actively hiring engineers.
The other is Doosan Power Systems - a global company which
has chosen Scotland as the base for its CCS Centre of
CCS provides an excellent opportunity for British
manufacturing, and I am delighted to see Scottish companies
in the vanguard, creating jobs for skilled workers and growth
for the economy.
I am determined that the UK will retain its reputation as one
of the best places in the world to invest in energy.
So we're also working to break through some of the
non-financial barriers holding up investment - for example
through planning reform. The National Policy Statements on
energy will make our planning system faster, more
predictable, and more accountable.
To overcome non-financial barriers to deployment of
renewables, we've got the Renewable Energy Roadmap, which
focuses on the eight key technologies which have greatest
And we're determined to see a more liquid and competitive
power market, so we are working with industry and Ofgem to
ensure all investors can manage risks and have fair routes to
Consumer bills: collective purchasing & switching
As we drive forward low-carbon investment, I'm keen that we
don't lose sight of the critical interaction that most people
outside the industry have with the energy industry: their
household electricity and gas bill.
Here in Scotland, I know that consumers have faced rising
bills, and I am more convinced than ever that collective
purchasing and switching can play a big role in helping
Scottish households get a better deal for their gas and
That is why I am issuing a challenge to local authorities and
third-sector organisations to come up with new collective
purchasing initiatives, and why the Government is putting up
£5m in funding, across Great Britain, to help these get off
I am particularly keen to see schemes focused on using
collective purchasing to help the most vulnerable households.
It would not be possible to speak here in Edinburgh about the
energy industry without at least noting the independence
debate that is unfolding.
It won't surprise you to hear that I believe Scotland is
stronger as part of the UK and that the UK is stronger from
having Scotland within it. Renewables are a case in point.
Scotland's superb natural resources and growing expertise
hold massive potential, helping the UK to deliver our target
of 15% of energy by 2020.
And the economics of renewables means that Scotland benefits
from complete integration with the UK consumer base,
providing certainty and security to underpin the full
commercial potential of renewables here.
In an increasingly interdependent world, I believe it's an
inescapable fact that we are best able to make the progress
we want on energy security and climate change by remaining
not only in a single energy market but within a single
I believe that a stable constitutional settlement and
consistent economic framework contribute significantly to
Facing so many collective challenges, we must share our
strengths and pool risk where we can.
And I believe that it is by working together, as proud
nations within the United Kingdom, and without creating a new
international boundary between us, that we can most
effectively realise our shared objectives.
I mentioned the UK Green Investment Bank earlier. Alongside
our reforms to the electricity market and a step-change on
energy efficiency through the Green Deal, the UK Green
Investment Bank heralds the beginnings of a new industrial
policy, as it opens for business and starts making its first
As with the Government's other energy and climate policies,
the UK Green Investment Bank is about looking to a different
horizon - not just thinking short-term, but building a more
The Bank is genuinely a world first, and I know that capitals
around the world will be looking to this great capital city,
monitoring the Bank's progress.
Without wishing to labour the point, it is also a perfect
example of the strengths of the UK - why Scotland and its
partners in the UK are better off together.
People in England, Wales and Northern Ireland will benefit
from the significant expertise that Scotland's financial and
green energy communities - working closely with colleagues in
London - can bring to the UK Green Investment Bank.
And the decision to base the Bank in Edinburgh - a bank
capitalised with £3bn of UK Government money, thanks to the
strength and depth of the UK fiscal base - means there is
real potential for the development of green energy and
finance clusters in Edinburgh and the rest of Scotland, to
the benefit of us all.
But the next speaker is more qualified than I am to talk
about the Bank, so let me hand over to him. Thank you.