The Government must start thinking strategically about energy security to protect the UK's energy supply against short-term shocks and rising global energy prices, according to a report by MPs on the Energy and Climate Change Committee.
Gas storage capacity needs to be increased in the UK to minimise the potential damage from supply interruptions or price spikes, the report argues. It reveals that the UK's current storage capacity amounts to only 14 days worth of gas supply—a dangerously low level compared with France which has 87 days worth of gas storage, Germany 69 and Italy 59.
Tim Yeo MP, Chair of the committee, said:
"In an uncertain world the UK needs to think hard about its energy security.
The UK will become more dependent on energy imports as North Sea oil and gas declines, but prudent planning can ensure this doesn’t reduce our energy security too drastically.
To keep the lights on and our transport moving we need a diverse energy portfolio that does not rely too heavily on fossil fuels from unstable parts of the world or any one single technology at home.
Fortunately the UK is already reasonably energy secure, but encouraging investment in gas storage and insulating more homes will improve our position and help to reduce the impact of rising global energy price rises."
19 gigawatts (GW) of ageing electricity plant will close by 2018 and the UK will become increasingly reliant on energy imports as North Sea oil and gas reserves decline. The report concludes that new electricity generation currently being built or planned will fill this "gap". But it urges the Government to ensure security of supply by delivering on its energy efficiency targets, rolling out smart meters - that can balance demand - and maintaining a diverse energy mix.
Tim Yeo MP said:
"The Government could be doing a lot more to reduce unnecessary energy wastage. It needs to look at how it can use building regulations and energy efficiency standards for electrical appliances to cut waste and save cash on people's energy bills."
The committee says it is not convinced that the Government's Electricity Market Reform White Paper strikes the right balance between encouraging investment in new gas-fired power stations in the short term and the need to decarbonise the power sector by 2030. The proposed Emissions Performance Standard (EPS) could have been used to set out that pathway, but in its weak current form the MPs warn that it could lock the UK into a high-carbon, gas-dependent electricity system.
Tim Yeo MP added:
"Electricity market reform is urgently needed to set the right long-term framework for energy companies to reduce the UK’s dependence on increasingly expensive fossil fuels.
Worryingly the Government's current proposals fall short of what is needed."
Energy security indicators
The MPs call on the Government to publish a set of energy security indicators as promised in the Strategic Defence and Security Review. These should cover primary fuel supplies, energy infrastructure, and energy users and include specific indicators on the overall level of energy demand, diversity of fuel supplies, energy prices, fuel stocks, spare capacity and capacity for demand side response.
Unexpected levies on North Sea oil and gas producers in the Budget have undermined confidence in the sector, according to the report. The Government needs to work closely with the sector to restore investor certainty. The Committee also recommends that the Government sets up an independent stock-holding agency – which would be operated by the oil industry – to manage privately held strategic oil stocks.