Energy Update:Written statement - HLWS1752

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Department for Business, Energy and Industrial Strategy
Made on: 23 July 2019
Made by: Lord Henley (Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy)
Lords

Energy Update

My Rt hon friend the Secretary of State for Business, Energy and Industrial Strategy (Greg Clark) has today made the following statement:

On 27 June, the UK became the first major economy in the world to legislate to reach net zero emissions by 2050.

Achieving this target will require significant changes in the way we produce, deliver and use energy. We will need to harness the power of innovation and new technology to ensure the energy system remains flexible and resilient. We will need to provide confidence to businesses across the country to invest in a greener future by maintaining clear and stable policy frameworks. We will also have to ensure that as we move to cut greenhouse gas emissions across the economy, the security of our energy supplies is never in doubt and energy costs are kept low for all households and businesses.

As we set out on the path to reach net zero emissions, the government is today outlining a series of important reforms across the energy system. These include new approaches to how low-carbon infrastructure is financed, potential changes to the retail energy market so it works better for all consumers, a new strategy for tackling fuel poverty and significant changes to the way we set the detailed rules that govern the energy system.

The action we are taking today is only a first step. Continuous action over the next three decades by successive governments will be required if we are to end the UK’s contribution to global warming and inspire the necessary action at a global level.

The government has today published the following public consultations and reviews:

Regulated Asset Base financing model for new nuclear projects

The government committed in January 2019 to publish an assessment of the Regulated Asset Base model as a means of financing new nuclear projects. We are today publishing that assessment as part of a public consultation on the Regulated Asset Base model. The purpose of this consultation is to set out the basis for our assessment and to seek views from a range of interested parties on how it could be implemented within the current energy system in such a way that allows new nuclear to be built at low cost to consumers. The consultation includes a set of core principles that have resulted from our feasibility assessment and considers important issues such as the approach to risk-sharing under such a model. This consultation will be open for responses until 14 October 2019.

Business models for Carbon Capture Usage and Storage (CCUS) projects

As we committed to in the CCUS Action Plan, we are today publishing a consultation on how we can bring CCUS projects to market in the years ahead. This is an important step in order to meet our Action Plan commitment of delivering the UK’s first CCUS project from the mid-2020s. The consultation seeks views on possible CCUS business models for industry, power, and carbon dioxide transport and storage, as well as a framework to support hydrogen production with CCUS. The consultation sets out the risks that are inherent in first of a kind CCUS projects, and the possible delivery and coordination challenges of deploying CCUS at scale. This consultation will be open for responses until 16 September 2019.

The re-use of oil and gas assets for Carbon Capture Usage and Storage (CCUS) projects

This consultation fulfils the government commitment in the CCUS Action Plan to identify existing oil and gas infrastructure that has the potential for re-use and to develop a policy to support the development of CCUS in the UK. It seeks views on whether government should introduce a discretionary power for the Secretary of State to remove the decommissioning liability from previous oil and gas asset owners if assets are transferred to CCUS projects; and on changing guidance from the Oil and Gas Authority and government to encourage owners and operators of oil and gas assets to propose a period of suspension prior to decommissioning in circumstances in which there is a reasonable prospect of the asset being acquired by a CCUS project. This consultation will be open for responses until 16 September 2019.

Flexible and responsive energy retail markets

The consultation is issued in partnership with Ofgem and sets out a vision for the future energy retail market, the key challenges which the government and Ofgem wish to address, and the outcomes the retail energy market needs to deliver for all consumers. This includes how the regulatory framework may need to change to facilitate the introduction of innovative products and services that may face barriers today and could support our transition to a greener future. The consultation assesses the case for making reforms which could remove market distortions so as to improve the functioning of the energy retail market as a dynamic and competitive sector. The consultation also outlines how the energy retail market can benefit all consumers, ensuring they are able to secure a fair deal and receive a good level of customer service. This consultation will be open for responses until 16 September 2019.

Reforming energy industry codes

This consultation seeks to address the fact that the way the detailed rules governing the energy system are managed may be frustrating the shift towards a greener future. The consultation suggests creating a new function to translate the government’s vision for the energy system into a strategic direction for codes, as well as giving code administrators more power to change codes, ensuring that vision can be delivered. We propose creating a new process that allows for greater agility in how codes and code changes are governed. We also set out an approach that will ensure we can deliver rules that are clear, accessible and simpler. This consultation will be open for responses until 16 September 2019.

Fuel Poverty Strategy

We are consulting on proposed reforms to the 2015 Fuel Poverty Strategy to ensure that the actions we are taking to support people out of fuel poverty are as effective as possible. This includes a potential change to the way that fuel poverty is measured to ensure that we are able to include all those living in fuel poverty. We also propose making changes to ensure that those most at risk from living in a cold home get the support they need by aligning our fuel poverty policies with medical evidence. We are also proposing a new principle which would ensure that policies contributing to the fuel poverty target are complementary to other government priorities such as the Clean Growth Strategy. This consultation will be open for responses until 16 September 2019.

Capacity Market five-year review and consultation on proposals for Capacity Market emissions limits

We are today publishing a five-year review of the Capacity Market mechanism. This review has found that the scheme is working effectively and performance against the original objectives has been achieved. In considering the future of the scheme, we propose focusing on specific areas of the scheme that will need to change as we maintain security of electricity supply while also moving towards net zero emissions. One of the first steps we propose to take is to implement a restriction on the most polluting types of energy generation, such as coal, within the Capacity Market by introducing new carbon emissions limits. To implement these changes, we are today issuing a public consultation on carbon emission limits within the scheme. This consultation will be open for responses until 2 September 2019.

Facilitating energy efficiency in the electricity system

Increasing our ambition on improving energy efficiency across the UK energy system will be vital if we are to reach net zero emissions. The Electricity Demand Reduction pilot evaluation we are publishing today has concluded that energy efficiency projects are not yet ready to enter the GB Capacity Market. We are therefore publishing a Call for Evidence on market barriers to energy efficiency, and how we can create new markets for energy efficiency and secure its role in the wider energy market. This includes considering how energy efficiency could help reduce the requirement for network reinforcement and help compliment the growth in distributed generation. This Call for Evidence will be open for responses until 25 September 2019.

Funding for advanced nuclear technologies

In addition to the above consultations, we are today announcing that we are developing proposals to invest government money in the creation of innovative small modular reactors (SMRs) which are less expensive to build than traditional nuclear power plants. As stated to this house on 17 January, we have received a proposal from a consortium of businesses, led by Rolls-Royce, who have proposed a significant joint investment of more than £500m focused on designing a first-of-a-kind SMR. The consortium expects to more than match any Government funding both by direct investment and by raising funds from third party organisations that wish to invest.

The government can today confirm that the Consortium’s proposal has been accepted into Wave 3 of the Industrial Strategy Challenge Fund. The Challenge is to design a working model that could be operational by the early 2030s. We are looking to make an initial award of up to £18m to the Rolls-Royce-led consortium in early Autumn 2019. This is subject to final decisions to invest, including business case and other approvals, and this consortium representing the best option for pursuing this technology. The Rolls-Royce led consortium believes this new technology could create 40,000 jobs at its peak and each power station could produce enough clean energy to power 750,000 homes.

This money is alongside up to £45 million to be invested in the second phase of the Advanced Modular Reactor programme, with project bids currently under consideration.

The Office for Nuclear Regulation and the Environment Agency plan shortly to publish their modernised guidance for developers of SMRs on their Generic Design Assessment, the process through which reactor designs are scrutinised by the regulators prior to further necessary regulatory steps, including site specific assessment and issuing of site licence and environmental permits, to enable subsequent deployment.

This statement has also been made in the House of Commons: HCWS1789

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