UK’s Energy Supply: security or independence?

Energy security has always been high on the political agenda, but its importance has risen as the UK has become increasingly dependent on imported energy, experienced high and volatile oil and gas prices, and addressed the challenge of reducing our carbon dioxide emissions.

DECC needs to define “energy security” and adopt a more strategic and systematic approach to provide a clear goal for policy interventions, taking a more holistic view in order to ensure that the energy system is resilient to both short-term shocks and longer-term stresses.

Primary Energy Supply

It is inevitable that the UK will become increasingly reliant on energy imports. This is not necessarily incompatible with increasing energy security; it can be maintained by a diverse energy portfolio that does not rely too much on either a single supplier or a single fuel. The decline of the UK Continental Shelf is not a major concern in terms of energy security, but the way in which the £2 billion levy on North Sea producers was announced in Budget 2011 may have undermined investor confidence. The Government needs to work closely with the industry to restore that confidence.

Infrastructure

The Government needs to communicate a clear strategy to incentivise more gas storage if it is to ensure timely investment. It is only by having sufficient gas storage that we can build up broader system resilience. We also recommend that the Government set up an independent stock-holding agency—funded by industry—to manage privately held strategic oil stocks.

We are not convinced that the proposals set out in the White Paper on reforms to the electricity market strike the right balance between encouraging investment in new gas-fired plant in the short-term (to fill the gap that will be created by the closure of around 19GW of nuclear, oil-fired and coal-fired plant by 2020) and the need to decarbonise the power sector over the course of the 2020s, which will ultimately entail only a very limited role for unabated gas-fired capacity. In particular, the proposed form of the Emissions Performance Standard could risk locking the UK into a high-carbon electricity system in the future.

Electrification of heat and transport will result in significantly increased loads on the local distribution network. An increase in distributed energy generation combined with greater use of demand side measures could mean that Distribution Network Operators will need to move away from the currently relatively passive operation model towards becoming Distribution System Operators with responsibility for balancing supply and demand on their network. The Government needs to do more work to ensure that Distribution Network Operators are sufficiently prepared for the changes ahead.

4 The UK’s Energy Supply: Security or Independence?

Energy Users

Even though improving energy efficiency will bring benefits for energy security, it is often difficult to deliver in practice. Failure to deliver could have serious consequences for energy security.

New “smart” technology will provide opportunities for energy users to engage in demand side response measures, which could play a vital role in ensuring the security of the electricity system. The full potential of such measures to contribute to energy security is not yet known and we urge the Government to investigate this further.

Although energy users are a key component of the energy system, they are perhaps not as well understood as the technologies that make up the supply side of the system. If we are to make a successful transition to a low carbon economy, it is essential that the Government understands both the social as well as the technical feasibility of new technologies in the energy system.