Britain powers ahead

The government's Performance and Innovation Unit (PIU) report on the UK energy sector details proposals for future energy policy. The strategy focuses on measures that address security of supply and ensure the energy system is environmentally sustainable, and approaches that take full account of the potential costs of achieving the objectives of policy.

The report indicates that the UK will likely make large carbon emission reductions over the next century. This will require policies to establish new sources of energy that are low cost and low carbon. Achieving the expected cuts in carbon would require action beyond the electricity sector, but include increasing the target for renewables to 20% of installed generation capacity by 2020, together with a 20% improvement in energy efficiency by 2010 and a further 20% in the following decade.

According to the report, most estimates suggest that the overall costs to the economy of meeting such carbon reductions are likely to be small. Credible scenarios for 2050 can deliver a 60% cut in CO2 emissions, although large changes would be needed both in the energy system and in society. The review estimates that meeting the 20% renewables target could increase domestic electricity prices in 2020 by around 5-6%.

Institutional barriers to the widespread adoption of renewable technologies identify: the excessive discount on energy prices from small and intermittent generators following the introduction of the New Electricity Trading Arrangements; the way in which local distribution networks are organised and financed; and the working of the planning system, which at present fails to place local concerns within a wider framework of national and regional need. To this end the PIU recommends that institutional barriers to renewable and cogeneration investments should be addressed urgently, and a new Sustainable Energy Policy Unit to draw together all dimensions of energy policy in the UK should be created.

Market-based instruments to put a price on carbon emissions and determine the most cost-effective opportunities are also seen as a key method of reaching such targets and policy should enable UK firms to participate in international carbon trading. The report does goes on to say, though, that it would make no sense to incur carbon abatement costs in the UK and thereby harm international competitiveness if others were not contributing.

The role of nuclear

One key option available is nuclear power which offers zero carbon electricity on a scale which, for each plant, is larger than any other option. If existing approaches both to low carbon generation and energy security prove difficult to pursue cheaply, then the case for using nuclear would be strengthened.

Nuclear power seems likely to remain more expensive than fossil-fuelled generation, though current development work could produce a new generation of reactors in 15-20 years that are more competitive than those available today.

However, unlike renewables, because nuclear is a mature technology within a well established global industry, there is no current case for further government support and the decision whether to bring forward proposals for new nuclear build is a matter for the private sector. Nowhere in the world have new nuclear stations been financed within a liberalised electricity market, but the report concedes that policy frameworks within which commercial choices are made could make it more likely.

In the absence of government support, the nuclear option will still be open in later years, but the need to develop new, low waste, modular reactor designs is highlighted by the PIU.

The nuclear skill base needs to be kept up-to-date, the report continues, and in particular the government should ensure that regulators are adequately staffed to assess any new investment proposals.

Action is also required to allow a shorter lead-time to commissioning and the government should ensure that as methods to value carbon in the market are developed the nuclear industry is able to benefit from them.

The main focus of public concern about nuclear power is on the unsolved problem of long-term nuclear waste disposal, coupled with perceptions about the vulnerability of nuclear power plants to accidents and attack. However, the report adds that any move by government to advance nuclear power would need to carry widespread public acceptance, which would be more likely if progress could be made in dealing with the problem of nuclear waste. At the moment there is no agreed solution to its long-term management, though the Department of the Environment, Food & Rural Affairs has initiated a review of waste management with the aim of reaching a public consensus. It is envisaged that this process will take five years.

Market change

A key conclusion of the review is that the liberalisation of EU gas and electricity markets is important for energy security. Liberalisation would add flexibility and depth to European energy markets, increasing substantially the resilience of the energy system.

Other measures include increased gas storage, greater use of liquefied natural gas and greater ability to use coal. The other main area of risk to energy security is insufficient investment in the transmission network and in generation. The report further warns that the UK will become increasingly dependent on imported oil and gas, and that nuclear power faces a progressive run-down as existing plants reach the end of their operating lifetimes.

• the Major Energy Users' Council, the UK's largest independent utility user group, responds to the energy review.