Memorandum submitted by the Association of Electricity Producers (AEP) (LCT 24)

 

Executive Summary

· There is an opportunity for the UK to create a green economy and position itself in order to take advantage of the emerging industries needed to achieve the emissions targets.

· Long-term, stable policy from Government, providing an attractive investment climate, is needed for the UK to take advantage of the opportunity and to achieve the ambitious carbon emission reductions targets.

· The key driver needed from the policy framework is a long-term carbon pricing mechanism. While the carbon market matures, we recognise that additional incentives will be required to bring forward the deployment of emerging technologies.

· Strong agreement must be reached in Copenhagen in order to achieve the carbon emission reductions needed to tackle climate change. The UK has set itself challenging national targets on climate change and may therefore be at a competitive disadvantage if the international agreement is not ambitious enough.

 

 

About AEP

1. The Association of Electricity Producers (AEP) represents large, medium and small companies accounting for more than 95 per cent of the UK electricity generating capacity, together with a number of businesses that provide equipment and services to the generating industry.  Between them, our members embrace all of the generating technologies used commercially in the UK, from coal, gas and nuclear power, to a wide range of renewable energies.  These companies will also provide a substantial part of the investment in new generation capacity necessary to ensure security of electricity supply and help fulfil the UK's carbon reduction and renewable energy ambitions.

 

Opportunities

2. In order to meet the UK's climate change, energy security and renewable energy ambitions, a major programme of investment in new low carbon electricity generation capacity will be required at a cost of over £100 billion. That investment is only a stepping stone towards achieving a carbon neutral power generation sector by 2050.  Much of this investment will be in innovative and zero carbon technology.  AEP supports the appropriate deployment of all forms of low carbon electricity production and associated infrastructure, including renewable energy, new nuclear power and new, more efficient fossil-fuelled generation and Carbon Capture and Storage (CCS) technology. The Association considers that all forms of electricity generation technologies should be considered equally in order to achieve carbon neutral electricity generation.

 

3. In light of this, the UK is therefore presented with the opportunity to invest in a low-carbon electricity portfolio and the economic benefits of this investment could be substantial. There is an economic opportunity for the UK to use existing transferable skilled labour from other sectors, and invest in new skilled labour, in order to capitalise on the global and domestic need to move away from carbon intensive technologies to low-carbon options. As mentioned above, significant investment is needed to move towards the target of an 80% reduction in carbon emissions in the UK by 2050 and strategic application of UK and EU energy policy instruments is the key to achieving a successful trajectory towards the current target. There is an opportunity for the UK to lead other countries and present itself as an attractive option for global investors looking to select sites for investment in low-carbon technologies. This investment environment should be cross-sectoral in order to maximise the potential of a green economy and also facilitate faster technological development through information sharing between different sectors. The UK government targets are also more likely to be achieved by sharing emissions reductions across all sectors including manufacturing, commerce, transport and households.

 

4. With growing support in the international community for ambitious targets for reducing greenhouse gas emissions there is a strong possibility of a new international agreement being reached at Copenhagen in December 2009. In this scenario there will be large demand for skilled labour, technology and innovation to pursue the agreed goals. Stable long-term policy is needed to ensure the UK is in a position to compete with other nations by being an attractive place to invest. In a secure policy regime, the UK can become a leading developer and an exporter of low-carbon technologies, and therefore be well placed to meet the demand in skills and products necessary for achieving targets set in Copenhagen. A satisfactory international agreement under which all countries accept emissions reduction targets would also help to resolve issues of industrial competitiveness that currently arise between the EU 27 and the rest of the world.

 

5. If the UK becomes a leading developer of innovative low-carbon technologies, it could rely less on factors out of its control which may affect it adversely, such as a reliance on imported equipment and skilled labour. These commodities were in high demand worldwide prior to the current economic downturn, which drove price increases and raised the overall costs of projects. There might be an economic reward for the UK for being a leading developer and exporter of low-carbon technologies in preparation for the recovery in investment in these technologies.

 

Policy Framework Required

6. The Association considers the Committee for Climate Change's projections ambitious. The UK carbon emissions targets should be set to reflect an acceptable balance between the overall goal and its cost burden on society. The Association considers that a wide range of electricity generation technologies will be required in order to achieve carbon neutral electricity generation, and reach the associated carbon emissions reduction targets.

 

7. We consider that, faced with the uncertainty in determining the most cost effective solution and the need for certainty for investors, Government should design a policy framework that is flexible enough to adapt to accommodate emerging technologies over time. Long-term, stable policy around a market-based framework would be a prerequisite for the UK to achieve world leader and developer status.

 

8. Currently, companies with a strong cash balance are suitably positioned to secure funding and invest in the UK. However, there needs to be long-term policy stability and the right scope for innovation to ensure that fledgling markets are not killed off.

 

9. The potential role for public policies can be a very positive one; Government has the opportunity to provide leadership and guidance, but the solutions should be drawn from the market. It is also important for UK and international policies to be consistent to prevent a loss in competitiveness for the UK. Extra demands placed upon UK industries, not shared by key competitors, could translate into a competitive disadvantage.

 

Drivers for a Low-Carbon Economy

10. The Association considers that the primary driver for investment, leading to development and deployment of low-carbon technologies in the UK, is a carbon price. At the moment there is no long-term carbon price formation mechanism. Post-2020 and investment may be delayed because of that. Current trading patterns show the EU ETS price is dictated by the short-term switching opportunities between abatement options. UK and EU energy policy should aim to facilitate a steady climate for long-term investment in low-carbon technologies and the Government must avoid 'picking winners'.

 

11. While the carbon market matures, we recognise that additional incentives will be required to bring forward the deployment of renewable energy and other emerging technologies. We consider that the Renewables Obligation has been successful to date in bringing forward the renewable technologies that are closest to market, although growth has been constrained by the planning process and a lack of grid connections. However, we recognise that additional measures will be required if the UK is to meet the target of 30-35% of electricity from renewables by 2020, as suggested in the Renewable Energy Strategy published by BERR in June 2008.

 

International Context

12. A successful outcome of the international talks in Copenhagen is important to the future success of the UK's energy policy. The UK has led by example on climate change and reducing greenhouse gas emissions through the Climate Change Act and Carbon Budgets. These efforts will be in vain unless a strong agreement is reached on an international level. The UK Government has put into place extensive legislation to steer the UK toward a green economy, and without a strong agreement being reached in Copenhagen there is a risk that the emissions reductions targets could have a negative impact on the competitiveness of the UK. UK action on climate change needs to be accompanied by international action in order to ensure global reductions in greenhouse gas levels and, on a national scale, competitiveness. The problems presented by climate change are of global importance; to address them effectively, the response must be international.

 

May 2009