UK outlines ‘low carbon’ economy roadmap
New Energy Bill says transformation will cost £110bn over 10 years
By Gaurav Sharma | CFO UK | Published 15:54, 29 November 12
UK energy minister Ed Davey has presented the government's Energy Bill touting it as the roadmap for the country’s switch to a 'low-carbon economy'.
In the bill presented to Parliament on Thursday, Davey said British energy firms could more than double their green levy from a figure of £3 billion to £7.6 billion per annum by 2020.
"The transformation would cost the UK £110 billion over the next ten years. The scale of the investment required is huge, representing close to half the UK's total infrastructure investment pipeline. Energy sector is embarking on a period of exceptional renewal and expansion," he added.
While the move has the potential to increase UK household bills by £100 on average by 2020, major energy-intensive companies such as steel and cement manufacturers could be exempt from extra costs of the switch to renewable energy.
"Decarbonisation should not mean deindustrialisation. The transition to the low carbon economy will depend on products made by energy intensive industries – a wind turbine for example needing steel, cement and high-tech textiles. This exemption will ensure the UK retains the industrial capacity to support a low carbon economy," Davey said.
He added that it was the UK government’s intention to encourage investment in low-carbon power production coupled with possible financial incentives to reduce overall energy consumption. On the latter point, Davey said a 10 percent reduction in electricity demand could save £4 billion by 2030.
To this effect, government proposals to reduce electricity demand include financial incentives for consumers and businesses alike. For example, companies could be rewarded for each kilowatt-hour they save as a result of taking energy-reduction measures.
Householders and businesses could be given discounts and incentives to replace old equipment with more energy-efficient versions. The minister said further details would be provided next year.
Overall, the Energy Bill aspires to move the UK from a dependence on fossil fuels to a more diverse mix of energy sources, such as wind, nuclear and biomass. Market response to the bill has been mixed.
Dr Tim Fox, head of energy and environment at the Institution of Mechanical Engineers, described the new bill as a positive development for engineers, investors and the general public.
"It means we are a significant step closer to getting on with the job of building the major infrastructure projects needed to keep our homes warm, the lights on and industry working. With a looming energy gap for 2015, creating a stable regulatory framework for the energy sector is absolutely crucial for investor confidence," he told CFOWorld.
"The fact that energy intensive industries will be exempt from the additional costs to encourage investment in low carbon power is also positive, as it means UK industry will not be placed at an unfair disadvantage when competing in international markets selling products such as steel," he added.
Audrey Gallacher, director of energy at Consumer Focus, also welcomed the move but warned about the costs to consumers’ pockets. "The government's commitment to reduce energy demand through incentives for consumers and businesses is welcome. But it will come at a cost - which again will be passed onto customers," he said.
Robert Clarke, CEO of sustainability data platform Ecodesk, said smart companies are already realising savings by measuring and reporting energy so the government is on the right track with its incentives proposal.
"According to our data, about £3 billion could be saved almost immediately by FTSE100 companies if they measure, report and react to their own energy use and the energy use of their supply chains. Supply chains are crucial to this. For instance ISS, Eurostar and GlaxoSmithKline have already realised this and are seeing big savings. These are great examples for the rest of the UK to follow. If they do, we won’t have to wait until 2030 to hit the Energy Minister’s savings target," Clarke concluded.
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