Memorandum submitted by the Association
of Electricity Producers (AEP)
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% 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
| 
