In a memorandum to the Public Accounts Committee, the
National Audit Office has set out the long-term challenges
and uncertainties involved in supplying secure, low carbon
and affordable electricity. The memorandum describes how
the Department of Energy and Climate Change is seeking to
address these challenges, through existing measures and
reforms to the electricity market.
Existing generating capacity is some 90 gigawatts. The
Department has estimated that, to maintain secure
electricity supplies and avoid the risk of power cuts,
around 30 gigawatts of new generating capacity will have to
be built in Great Britain by 2020. This is needed to meet
future increases in demand (up to 60 per cent by 2050 in
some scenarios); provide back-up capacity; and because of
the scheduled closure of some 19 gigawatts (21 per cent) of
existing capacity over the next decade. Eight of Britain's
nine nuclear power stations are scheduled to close over
that period; and 12 gigawatts of fossil fuel-fired power
stations will also have to close by the end of 2015 as
their operators have decided not to upgrade them to meet
the requirements of an EU Directive that establishes limits
on emissions of sulphur dioxide, nitrogen oxides and dust.
In addition to scheduled closures, the Department's plans
take account of likely further closures, arising from
suppliers' commercial decisions.
The Department estimates that, by 2020, a total of 92
gigawatts of generating capacity will be required in
As well as the need to ensure the security of electricity
supplies, the Department must meet the statutory target to
reduce UK greenhouse gas emissions by 2050 by at least 80
per cent from 1990 levels. The Department has estimated
that, to do this, electricity generation needs to be
largely 'decarbonised' during the 2030s. This will require
a switch towards low carbon energy sources such as
renewable energy, nuclear energy or the capture and storage
of carbon from fossil fuel powered electricity generation.
The latest figures, from 2011, show that renewable energy
had increased its contribution to electricity generation to
9.5 per cent and the Department expects this to increase
significantly over the next decade. The Department
considers new nuclear power stations could replace those
that are closing but does not expect the first new nuclear
power station to be available until 2019 at the earliest.
It is supporting the further development of carbon capture
and storage technology.
The Department estimates that £110 billion of investment is
needed by 2020 to build low carbon generation and network
infrastructure and expects that its proposed reforms to the
electricity market will help to secure that investment.
However, there are many uncertainties, including the impact
of energy efficiency measures on future demand for
electricity. Future technology development and deployment
are also uncertain: the viability of commercial-scale
carbon capture and storage for power generation has not yet
been proven; nuclear power stations have high capital costs
and long build times; and further development of renewable
energy and electricity storage technologies may be needed.
The cost of the huge investment needed to secure
electricity supplies and reduce greenhouse gas emissions
will ultimately be passed on to consumers and business.
According to the Department's estimates, by 2020 the
average household's annual electricity bill could be
reduced by £100 a year as a result of government
interventions, but those of the average medium-sized
businesses could rise by £302,000. As the various policies
will have different impacts on different types of household
and businesses, some can be expected to benefit from policy
changes, while others may pay more than average.
The new market mechanisms proposed in the draft Energy Bill
are designed to help address the challenges and will
involve the Department in determining the electricity
prices needed to support generators' investment in, and
operation of, the plant needed to meet future demand.
Notes for Editors
Press notices and reports are available from the date of
publication on the NAO website, which is at
www.nao.org.uk. Hard copies can be obtained from The
Stationery Office on 0845 702 3474.
The National Audit Office scrutinizes public spending for
Parliament and is independent of government. The
Comptroller and Auditor General (C&AG), Amyas Morse, is
an Officer of the House of Commons and leads the NAO,
which employs some 860 staff. The C&AG certifies the
accounts of all government departments and many other
public sector bodies. He has statutory authority to
examine and report to Parliament on whether departments
and the bodies they fund have used their resources
efficiently, effectively, and with economy. Our studies
evaluate the value for money of public spending,
nationally and locally. Our recommendations and reports
on good practice help government improve public services,
and our work led to audited savings of more than £1
billion in 2011.
Press Notice 36/12
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