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Energy demand and energy policy

Jim Watson, Research DirectorUK Energy Research Centre

EUED Centres Gala, Lancaster, 2-3 July 2014

Overview

1.Why the energy system exists: trends in demand

2.Energy demand and the energy policy trilemma

3.Ambitious strategies and mixed realities

Why the energy system exists

Source: DECC

Why the energy system exists

Source: DECC

Reducing GHG emissions:Good progress? Will it continue?

Source: Department of Energy and Climate Change

CO2 emissions are down 19% since 1990

But emissions rose 20% (1990-2009) on a consumption basis

Reducing GHG emissions

Source: Committee on Climate Change

There was good progress in 2012 on adding new wind

generation capacity to the system, insulating lofts and cavity

walls in residential buildings, and improving the efficiency of

new cars. However, there is a risk that progress will not be

sustained, particularly as regards wind generation capacity

and insulation. Progress was very limited in other areas,

notably low-carbon heat, and energy efficiency improvement

in commercial and industrial sectors.

Committee on Climate Change, 2013 progress report

Reducing GHG emissions

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

100

200

300

400

Gas Electricity

Inde

x (2

000

= 10

0)

Gas prices have trebled since 2000

Electricity prices have doubled since 2000

Affordability:Domestic gas & electricity prices

Price rises and affordability

Click to add titlePrice rises and fuel poverty

Source: Department of Energy and Climate Change

AffordabilityImpacts of policies to 2020 (DECC)Price rises and affordability

Energy security is high on the agenda for many reasons: High energy prices since mid 2000s UK’s shift back to net energy

importer Geopolitics and conflicts Impacts of extreme weather Ageing and/or inadequate

infrastructure

Debates often focus on geopolitics, but many risks closer to home

Security of demand matters too – especially to energy suppliers

Maintaining energy security

Maintaining energy security?from gas exporter to importer

Maintaining energy security?

Fracking has become a national

debate in Britain – and it’s one that

I’m determined to win. If we don’t

back this technology, we will miss

a massive opportunity to help

families with their bills and make

our country more competitive.

Without it, we could lose ground in

the tough global race

David Cameron, August 2013

Maintaining energy security?

DECC Energy Security Strategy,Nov 2012

Tensions between policy goals

Tensions between policy goals

Security of supply, affordability, and

playing our part in combating

climate change. And that for me is

the order

Michael Fallon, Energy Minister2nd Dec 2013

Energy policies and demand:some radical visions

[w]e are looking at how to create a shared incentive between

consumers and energy suppliers to reduce energy use. We

must look at how [energy suppliers] can change from just

selling units of electricity to providing energy services—

heating and lighting homes—making it their business to

increase energy efficiency and cut demand

Alistair Darling, Trade & Industry Secretary, June 2006

Energy policies and demand:some radical visions

We cannot afford to be just a provider of units and that a way

to differentiate ourselves will be to embark our customers on

this journey

Vincent de Rivaz, CEO, EDF Energy, January 2007

Energy policies and demand:some radical visions

‘I want Britain to get as close as possible to using only the energy we really need. We could be saving 196TWh in 2020, equivalent to 22 power stations through, socially cost-effective investment in energy efficiency’. Ed Davey, Nov 2012

A mixed reality: supply side bias?

We have become so used to ministers doing things like

opening new power stations or new gas pipelines or

whatever, even new wind farms, always with a nice white hat

on their head and stuff like that, but we have never yet seen

a minister open a well-insulated loft

Andrew WarrenAssociation for the Conservation of Energy

January 2007

A mixed reality: supply side bias?

Electricity market reform has been priority for energy policy since 2010: A missed opportunity to

integrate supply and demand? Most of the focus on large-scale

low carbon generation Energy efficiency feed-in tariffs

suggested but not taken up Capacity mechanism has more

space for demand-side measures

Contrast between pilots for demand and full auction for gas-fired capacity

A mixed reality: supply side bias?

A mixed reality: models of change

Source: DECC

Energy efficiency is not just low-hanging fruit; it is fruit that is lying on the ground

Stephen Chu, US Energy Secretary

A mixed reality: models of change

High expectations of flagship energy efficiency policies: Green Deal and Energy Company Obligation

Green Deal makes sense in theory: solving the up-front cost problem via loans linked to energy bills

Projections that 130,000 loans would be taken up by the end of 2013; uptake of measures would be much higher

By April 2014, 834,000 measures installed via Green Deal and ECO. Much lower annual rate than previous policy

Green Deal update disappointing: 235,000 assessments and 2,800 loans in place by May 2014

Additional up-front finance offered by government to accelerate uptake

Click to add titleA mixed reality: politics

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Thanks

http://www.ukerc.ac.uk

@UKERCHQ @watsonjim2