Select Committee on Environmental Audit Sixth Report

A potential generating gap?

UK energy use and the fuel mix

7. Electricity generation only accounts for a part of total energy use. In view of the current Energy Review and the debate over both security of supply and carbon reduction targets, it is important to understand clearly the relationship between the two. In this section, therefore, we provide background information on total UK energy and on electricity generation.

8. Total UK energy use in 2004 amounted to the equivalent of 247 million tonnes of oil equivalent (Mtoe). The largest single component is oil (102 Mtoe), almost all of which is used for transport fuels. Natural gas (97 Mtoe) is used mainly for domestic and industrial heating, and only about 30% of it (29 Mtoe) is used for electricity generation. Coal (39 Mtoe) is used mainly for electricity generation. By contrast, nuclear and renewables provide 18 Mtoe and 3.5 Mtoe respectively 7% and less than 2% of the total.[6] The following figure graphically illustrates these statistics.

Source: EAC, based on DTI Dukes 2005 tables 1.1 and 5.4

Note: Total energy consumption as shown in the graph is slightly higher than the primary supply figure of 247 Mtoe because it excludes net imports and stock changes.

9. In terms of electricity generation, the picture changes significantly. Total electricity supplied in 2004 amounted to 378,000 GigaWatt Hours (GWh) of which natural gas power stations comprised 40%, coal generation 33% and nuclear 19%.[7] Renewables contributed only 3.6% of the total mix.[8] There have also been striking changes in the electricity generating sector since 1970 as the following figure shows. Indeed, in the decade from 1992 to 2002, over 25GW of Combined Cycle Gas Turbine (CCGT) plant was planned and built, radically changing the fuel mix by displacing existing coal fired power stations.

Source: EAC, based on DTI Dukes 2005, table 5.1.1

Note: 'Other' includes hydro, renewables, energy from waste and from certain other industrial and chemical processes

10. Total UK energy and electricity demand have continued to increase despite the fact that the energy intensity of the economy has been steadily improving at 1.8% on average.[9] Over the last five years, for example, the average rate of growth in electricity generation was 1.5% a year, and forward projections by the National Grid suggest that this will continue.[10] While there has therefore been some decoupling in relative terms of economic growth from energy use and carbon emissions, it is disappointing that the UK has not yet managed to stabilise and reduce energy, and particularly electricity, demand in absolute terms. In this respect, certain other countries such as Denmark, have achieved more.

The extent of new generating capacity required

11. An initial objective of our inquiry was to examine the extent of new generating capacity which would be required by 2015 to 2020. Various factors underpin the need for new investment:

12. In respect of nuclear, about 8GW of capacity is scheduled to close by 2014, increasing to 9GW by 2018 and 11 GW by 2023—leaving only Sizewell B (the UK's only commercial Pressurised Water Reactor) operational after that date. It is possible that British Energy may extend the operational life of some of these reactors as it has done in the case of Dungeness B. However, this is unlikely in view of the operational difficulties which have plagued AGRs and have resulted in poor load factors. Indeed, given the problems being experienced with the graphite cores of these reactors, it is by no means certain that they will reach even their planned operational closure dates.[11]

13. With regard to coal, various organisations complained that the failure of the Government to confirm its interpretation of the Large Combustion Plant Directive made it difficult to be certain about the amount of coal plant which would remain operational up to 2016, and that this was one reason for the current uncertainty affecting new investment. RWE, for example, estimated that 4 GW of older CCGT or nuclear would close by 2015, and that a further 16 GW of plant (including an unspecified amount of nuclear) would be retired from 2016 to 2020.[12] EDF stated that 19GW of coal plant would close by 2018, though the exact timing after 2008 was uncertain.[13] The fact that Defra has now issued guidance on the LCPD may help to reduce, though not entirely eliminate, this uncertainty.

14. The overall range of estimates for the extent of the 'generation gap' by 2015 and 2020 was broadly consistent—though most of the evidence we received did assume continuing demand growth. RWE considered that 20GW of new generating capacity would be required by 2015, and an additional 20GW by 2020. EDF estimated that 25 to 35 GW of generating capacity was required by 2018.[14] EON stated bluntly that "By 2015 up to 8GW of nuclear (subject to life-extension decisions) and 19GW of coal and oil-fired plant will need to be replaced."[15] The overall position was summed up effectively in the memorandum from Scottish and Southern Electricity:

The UK currently consumes around 350TWh (terawatt hours) of electricity each year, from around 76GW (gigawatts) of generating capacity. If demand for electricity grows at its current rate by 1.5% per year for the next 15 years, the UK will be consuming around 400TWh of electricity each year by 2020. It is reasonable and prudent to assume that if coal-fired and nuclear power stations are phased out as expected, the UK will have electricity generating capacity comprising around 56GW in 2020, enough to produce just over 200TWh of electricitybarely half of the requirement if demand growsand this assumes that there will be growth in the capacity of renewable generation in particular.

If, through a radical set of new measures, demand for electricity falls by 1.5% per year for the next 15 years, the UK will be consuming around 280TWh of electricity each year by 2020which still leaves a shortfall of around 80TWh of electricity production. In summary, the UK is faced with a huge generation gap. The successful implementation of energy efficiency measures to reduce demand for electricity could reduce the size of that gap, but a substantial shortfall would still remain.[16]

15. By 2016, it is likely that between 15 and 20GW of electricity generating plant will be decommissioned. This amounts to nearly a quarter of total UK generating capacity. Over the next 9 years, therefore, very substantial investment in new generating capacity and energy efficiency will be required if the lights are to stay oneven in the absence of demand growth. Further substantial investment on a comparable scale may be required in the following decade.

The Energy White Paper

16. The Energy White Paper, published in February 2003, set out four strategic aims for energy policy:

17. The remit of the White Paper was very broad, covering as it did all aspects of energy use —including transport, domestic energy efficiency, and the scope for progressing more generally towards a low-carbon economy. It famously set out a long-term target for the UK of a 60% reduction in CO2 by 2050. In terms of electricity generation, it endorsed the 10% renewables target set for 2010 and included an "aspiration" to double this by 2020 but fell short of setting a firm target. Similarly, it outlined the potential scope to make radical improvements in energy efficiency, and it gave indicative figures for the potential carbon savings which might be achieved in different sectors—though Ministers were at pains to point out that these did not constitute targets.[18] It confirmed that the current economics of nuclear made it an unattractive option and that there were important issues of nuclear waste to be resolved—though it did not rule out the possibility that nuclear might be needed at some point in the future to meet carbon reduction targets.[19] It also highlighted the contribution that innovative technologies such as micro-generation and CCS (carbon capture and sequestration) could make—and indeed it emphasised the need for urgent action in some of these areas.[20] Its weakness, as EAC pointed out, was that it was strong on vision but weak in terms of specific policy instruments, mechanisms, and targets.[21]

18. The Energy White Paper, published in February 2003, addressed the need for carbon reductions across the economy but did not set specific targets for the electricity generating sector. However, it endorsed the view set out in the PIU report that new gas-fired generating plant, renewables and energy efficiency could make up for the potential generating gap left by the decommissioning of older coal and existing nuclear plant.

Carbon reduction targets

19. Underlying the preoccupation with the electricity generating sector is the extent to which it contributes to carbon emissions and global warming. In 2004, estimated emissions from this sector amounted to 47 million tonnes of carbon (MtC)—some 30% of total UK carbon emissions (158.5 MtC).[22] We must, however, beware of demonising this sector as it is easy to forget that we consume the electricity generated in domestic and work environments. One of the reasons for the renewed interest in the power sector is the extent to which UK performance against its carbon reduction targets has deteriorated over the last four years, as shown by the following graph:

Source: EAC, based on Government data

20. In terms of overall UK performance on emissions reductions, there are a range of targets:

  • Kyoto [International target]: to achieve a reduction in greenhouse gas emissions by 2008 to 2012 of 12.5% against a 1990 baseline.
  • CO2 [UK domestic target]: to achieve a reduction in CO2 emissions of 20% by 2010 and 60% by 2050 against a 1990 baseline.
  • EU Emissions Trading System and sectoral allocations: here, member states are responsible for allocating appropriate targets for overall industrial emissions, and then breaking this down into targets for individual sectors.

21. With the exception of the sectoral allocations within the EU ETS, however, no overall targets in terms of carbon reduction have been set for the electricity generating sector. Indeed, it is worth noting that much of the carbon reductions which the UK has achieved since 1990 have been due to the "dash for gas", and to a large extent the confidence of the government in terms of achieving further CO2 reductions relies on tighter targets for this sector. By contrast, emissions from the domestic sector and particularly transport are continuing to rise. It is precisely because of our ongoing concerns about the lack of progress in these areas that we have just completed an inquiry on housing and are now beginning one on reducing emissions from transport.[23]

22. Following the Climate Change Programme review and the current Energy Review, the Government should set targets for specific sectors of the economyincluding transport, the domestic sector, and the electricity generating sectorfor the level of carbon reductions to be achieved by 2020. It should also ensure that such targets, together with any targets set for absolute reductions in energy demand, are incorporated within departmental business plans and Public Service Agreements in order to ensure that policy development takes full account of the need to reduce carbon emissions.


23. DTI produced its last 'official' forecasts of energy consumption and carbon emissions in 2000, in the important paper EP68 which accompanied the launch of the Climate Change Strategy. This forecast that the electricity generating sector was where most carbon reductions would occur. However, it became apparent to the EAC even by 2002 that emissions were deviating significantly from these forecasts. In July 2002, we pointed out that:

Electricity from coal­fired generators rose by 15 per cent in 2000 and a further 8 per cent in 2001 (against a rise of 2 per cent in 2000 and a fall of 1 per cent in 2001 for gas­fired generation). This largely results from the increases in gas prices over the last 2 years. As a result, total carbon emissions from the electricity generating sector have increased by 3 million tonnes, from 41 MTc to 44 MtC. The DTI's important energy policy forecast, EP68, released in 2000, stated that the electricity generating sector was where most carbon reductions would occur. However, the trend is going in precisely the opposite direction to the EP68 projection.[24]

Since then, carbon emissions from the generating sector have risen still further to 47MTc.[25]

24. DTI intended to publish updated energy projections in autumn 2003 in preparation for the development of the UK National Allocations Plan (NAP) which would set the UK emissions cap for participation in the EU Emissions Trading Scheme. However, the work was seriously delayed: indicative figures only were published in July 2003, although the DTI committed itself in this working paper to publishing refined projections in November 2003 and a complete set of projections in March 2004.[26] These never materialised, however, and another working paper was issued in May 2004.[27] The latter was replaced by a third working paper (and a further addendum) published in November 2004 which the DTI included in the memorandum it submitted to us in October 2005.[28] Yet the latter failed to take adequate account of the rise in carbon emissions in recent years, and—astonishingly—remained based on the assumption that oil prices will be at or below $20 a barrel in real terms over the next 15 years. It was not in fact until February 2006—some two years late—that the DTI published its detailed revision of the energy projections.[29]

25. These difficulties impacted on the ability of the Government during 2004 to set an emissions cap within its National Allocation Plan for Phase 1. The UK successively increased the cap from 714 million tonnes of carbon dioxide in its first consultation version (January 2004), to 736 million tonnes in the formal submission to the Commission (April 2004), and finally to 756 million tonnes in the revised November 2004 NAP.[30] The Government acknowledged that these changes were necessitated by the fact that its previous provisional forecasts of emissions over the period had been understated—though international competitiveness issues may also have played a part.[31]

26. Still more seriously, the inability of the DTI to monitor and forecast in a timely fashion the impact of current and planned policy instruments has also seriously impeded rapid progress on renewables and energy efficiency. The then Energy Minister, Brian Wilson, told us in 2003 that the next 18 months to two years would be critical: "I think that the credibility of much that is in the White Paper will not be determined in 2010, 2020 or 2050, it will be determined within the next eighteen months to two years whether we do the things across Government which are necessary in order to allow the 2010 target to be met."[32] Had the Government, and in particular the DTI, perceived more quickly that their energy and Climate Change strategies were seriously off course, more decisive action could have been taken earlier. We also note that the Government appear to have been taken by surprise by the rapidity of the decline in North Sea oil reserves and the fact that the UK has therefore become a net importer of energy sooner than expected. This too appears to reflect weaknesses in forecasting on the part of the DTI. [33]

27. We noted that Jonathon Porritt shared our concerns. In arguing for an independent sustainable energy agency, he questioned the degree to which the DTI was or was not genuinely capable of producing a modelling process which gave complete confidence both to the political and to the business communities; and he went on to say "There are huge concerns about whether the DTI modelling process is currently fit for purpose in a much more complex world."[34] Indeed, a number of submissions made the case for a genuinely independent sustainable energy agency. It does seem to us, in this context, that one of the key roles such a body could usefully play would be to model future energy and emissions projections, and highlight clearly the extent to which they may be deviating from forecasts.

28. We have serious concerns about the ability of the Government to model reliably and in a timely fashion future energy and emissions forecasts. This is reflected in the fact that the updated energy projections are two years late, the unwillingness to accept earlier that the Climate Change Strategy was seriously off course, and the difficulties which the Government experienced in setting an emissions cap for Phase 1 of the EU Emissions Trading System. As a first step, the Government should ensure that it puts in place a transparent and credible system for updating these forecasts regularly every two years. Ultimately, it would be more appropriate for some form of sustainable energy agencyclearly independent of governmentto perform this role.

6   DTI Dukes 2005, table 1.1. Back

7   DTI Dukes 2005, p118 and table 5.6.The figures quoted here are on a gross output basis, and are higher than on a final consumption basis.. Back

8   Figures for the percentage of renewable energy produced vary depending on the basis on which they are calculated. The figure quoted here is on an internationally agreed basis. On the UK Renewables Obligation basis, the figure is 3.1%, while on the EU Renewables Directive basis, it is 4.4%.The differences between these figures relate mainly to the treatment of hydro-electric power, energy from waste, and imports of renewable energy. See DTI Dukes 2005, pp167ff. Back

9   DTI, Energy White Paper, February 2003, paragraph 3.3.  Back

10   DTI Dukes 2005 paragraph 5.31. See also Ev198. Back

11   Steve Thomas, The Economics of Nuclear Power: An analysis of recent studies, July 2005.The paper is available on the PSIRU website .It is also interesting to note how nuclear output has varied in recent years due to unplanned outages. On this, see both Thomas and DTI Dukes, 2004. Back

12   Ev657ff. Back

13   Ev101. Back

14   Ev101. Back

15   Ev410. Back

16   Ev116-117. Back

17   DTI, Energy White Paper, February 2003. Back

18   A somewhat embarrassing misprint in the White Paper suggested that these figures were indeed targets. Even the Minister for Energy was unclear and had to be corrected by officials. See EAC, Eighth Report of 2002-03, The Energy White Paper - Empowering Change?, HC 618, paragraph 38. Back

19   DTI, Energy White Paper, February 2003, paragraphs 1.24 and 4.3. Back

20   On CCS, see DTI's Energy White Paper, pages 89-91 and especially paragraph 6.63.See also paragraphs 50ff below.. Back

21   See EAC, Eighth Report of 2002-03,The Energy White Paper - Empowering Change?, HC 628, July 2003 Back

22   DTI, Energy Trends, March 2005. Back

23   For housing, see EAC, Fifth Report of 2005-06, Sustainable Housing: a follow-up report, HC 779.For transport, see EAC press release, Reducing emissions from transport, 19 January 2006. Back

24   EAC, Eighth Report of 2002-03,The Energy White Paper-Empowering Change?, HC 628. Back

25   DTI, Energy Trends, March 2005. Back

26   DTI, Stage 1 Results - DTI exercise to update energy and emissions projections :Illustrative projection results from initial July 2003 run, July 2003. The earlier working papers cited below are not grouped together on the DTI or SEPN site, and the web-references cited here are correct as of March 2006.The July 2003 initial projections can be found at: Back

27   DTI, Updated Energy Projections: Working Paper May 2004, May 2004. The May 2004 working paper can be found at:  Back

28   Ev274ff. Back

29   DTI, UK Energy and Emissions Projections - updated projections to 2020, February 2006. Back

30   EAC, Fourth Report of 2004-05, The International Challenge of Climate Change, HC 105, paragraph 38. Back

31   IbidBack

32   EAC, Eighth Report of 2002-03, The Energy White Paper - Empowering Change?, HC 618,Q4. Back

33   Trade and Industry Select Committee, Minutes of Evidence, 6 February 2006, Q 42. Back

34   Q 597. Back

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