Mr Speaker, I am grateful to you and the House for your patience.
I am pleased, ahead of the Energy Bill’s introduction later today, to publish the annual energy statement. It shows that this Government are making good progress towards our vision of a thriving low-carbon economy with secure energy supplies, and sets out an energy policy that is good for growth and for consumers. Alongside the annual energy statement, I am publishing our energy security strategy, the statutory security of supply report, a consultation on electricity demand reduction, and more detail on electricity market reform. I am today laying copies of all those documents before the House.
Britain’s energy sector is embarking on a period of exceptional renewal and expansion. The scale of the investment required is huge, representing close to half the UK’s total infrastructure investment pipeline. The electricity sector alone needs investment of around £110 billion in the next decade—that is equivalent to building Crossrail seven times over—but the vast majority of it will not be taxpayers’ money, with Government subsidies targeted at levering in private sector investment in low-carbon energy, so our plans are consistent with our overriding goal of deficit reduction.
The energy sector can play a major role in stimulating economic growth, creating jobs and positioning British companies for success in export markets. One third of the UK’s economic growth in the last financial year is likely to have come from green business, and the UK’s low-carbon sector now takes a £122 billion share of a global market worth £3.3 trillion. Many projects are shovel-ready, and they are spread relatively evenly through every nation and region of the UK, so the stimulus to the economy and to supply chains, and the job creation, can come at the right time, which is now, and in the right place, which is nationwide.
Those short-term benefits of our transition to a low-carbon future are followed by still greater ones in the longer term. First, of course, our transition will help us to meet our carbon budgets on the path to our 2050 emissions target, so that Britain will continue to play a leading role in tackling climate change. Secondly, it will diversify our energy mix, improving our energy security, and insulating households and business consumers from high and volatile fossil fuel prices on global markets. Thirdly, it will keep British companies at the forefront of the fast-growing global green sector.
However, investment on the scale needed will not happen under the current framework. Industry and investors have told the Government very clearly that we must play our part, by creating a regulatory framework against which they can invest, and by giving clarity on the level of incentives available. We cannot afford to miss this opportunity. We need those shovel-ready projects to get under way now, and the energy security challenge we face is real, with fossil fuel imports set to increase, electricity demand to rise, and around a fifth of our existing power plant to close by 2020.
We therefore propose nothing less than the biggest transformation of Britain’s electricity market since privatisation. That follows agreement across the coalition,
not only on electricity market reform and the Energy Bill, but on a real-terms tripling of the budget for support for low-carbon generation.
We need to improve revenue certainty for investors in low-carbon generation, including renewables, nuclear power, and carbon capture and storage, so we will take powers in the Energy Bill to introduce feed-in tariffs with contracts for difference. That mechanism will give investors precisely the confidence they seek. We have also responded to Select Committee on Energy and Climate Change concerns and will create a single counter-party for the contracts for difference.
We will also introduce a capacity market to ensure that there is sufficient gas generation to provide the back-up and flexibility we will need. Gas remains a vital part of our energy mix, and we will support the exploitation of unconventional gas resources where it is economic and can be carried out with full protection of the environment. Our gas generation strategy will be published alongside the autumn statement of my right hon. Friend the Chancellor.
We will legislate to allow the Government in the next Parliament to set a 2030 decarbonisation target for the power sector, and in the shorter term we will introduce an emissions performance standard. That will ensure that new coal plant can be built only with carbon capture and storage technology. All those mechanisms will be supported by a robust, transparent institutional framework. The reforms will maintain Britain’s energy security while providing a huge opportunity for jobs and growth. Competition for long-term contracts will drive innovation, raise productivity and give UK industries a strong platform from which to compete internationally.
Consumer bills are one of my greatest concerns. They have been driven up remorselessly by wholesale fossil fuel prices: global gas prices were 50% higher in the five years to 2011 than in the previous five years, and they have continued to rise in the past year. High energy bills can put huge pressure on households and businesses, so let me be very clear, especially given recent misleading reports in the media: Government policy is designed specifically to reduce consumer bills. Of course, we cannot control global commodity markets. However, we can and will put consumers in control by driving a wedge between wholesale energy prices and consumer bills. That is why we propose to legislate in the Energy Bill to ensure that consumers are placed on the cheapest tariff that meets their preferences.
We can and will diversify our energy supplies: our policies stand to reduce the UK’s sensitivity to fossil fuel price spikes by approximately 30% by 2020, and by around 60% by 2050. We can and will push energy companies to make switching easier and quicker—households can already save up to £200 per year simply by switching provider. We can and will pursue savings wherever we can find them in the energy system—for example, up to £3.5 billion from offshore transmission co-ordination. We can and will continue to place energy efficiency front and centre. More than 2 million insulation measures were installed in the year to June 2012. The savings are considerable: the 500,000 households who insulated their cavity walls in 2011 are each saving approximately £135 per year. Last month, we put in place the framework for the green deal, which allows households and businesses to install energy efficiency measures without any upfront cost, and to pay for them through the savings on their energy bill.
If we look ahead to energy bills in 2020, we see that energy efficiency savings are set to outweigh—more than outweigh—the cost of supporting low-carbon electricity generation. The net effect of Government policies on energy bills is downwards, not upwards. Of course, vulnerable households need our help now, and they are getting it. More than 1 million low-income pensioners will get £130 off their fuel bills this winter, and all pensioner households will get a winter fuel payment of £200, or £300 for those over 80 years old. Energy suppliers provided approximately £250 million of support under the warm home discount scheme in 2011-12, assisting about 2 million low-income and vulnerable households. The new energy company obligation will channel £540 million-worth of green deal investment per year, reaching approximately 270,000 vulnerable and low-income households and those living in harder-to-treat properties by 2015. To help people better manage their own energy use, we will be rolling out smart meters across Great Britain: 53 million new meters will be installed by 2019, delivering an estimated £7.2 billion in net benefits to the economy.
The heated debate on energy policy can sometimes obscure what is in many ways a great success story for our country. The UK already leads the world in offshore wind, and we are on track to meet our renewables targets. Energy investment in Britain is running at a 20-year high, according to Energy UK. We have the world’s first renewable heat incentive. This year’s offshore oil and gas licensing round received the highest number of applications since licensing began in 1964. Our carbon capture and storage offer, including the £1 billion commercialisation competition, is one of the world’s most comprehensive.
We continue to make progress in international talks on climate change. I will shortly be attending the C0P 18 talks in Doha, working towards the genuinely global deal to which Durban opened the door, to be agreed by 2015 and to come into force from 2020. We are now preparing a once in a generation transformation of the energy landscape to bring on massive private-sector investment, which will boost the economy, create jobs, and power Britain towards a prosperous low-carbon future.
The Government’s energy policy is good for the British economy, good for consumers and good for the planet, and I commend the statement to the House.
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