Relevant factors

5. The UK has 80 Gigawatts (GW) of electricity generating capacity and some 372 TerraWatt hours (TWh) of electricity is generated each year.[4] Most electricity is now generated from gas, followed by nuclear and coal—though these proportions have changed dramatically over the last 30 years as the following figure shows. It is also worth noting that, of the total energy the UK uses each year, over 20 per cent—an amount equivalent to 50 million tonnes of oil—is lost in generating electricity mainly from fossil fuels through the inherent inefficiencies involved in conversion.[5]

 Source: DTI Digest 2001, table 5.10.

6. Only about 10 TWh of electricity (2.6 per cent) is derived from renewable sources, and much of that comes from large scale hydroelectric plants which are some 50 years old.[6] Waste combustion is also a large contributor—though there is considerable argument about the extent to which this form of energy should be counted as renewable. 'New renewables'—the term now generally used for wind, photovoltaics (PV), tidal, and biomass—generate only about 1.5 per cent of total electricity supplied.[7]

7. Various factors are driving the need to promote renewable forms of generation or are acting as constraints:

• Climate change: Electricity generation is the largest single contributor to greenhouse gas emissions. In 2001, this sector was responsible for emitting 44 million tonnes of carbon dioxide into the atmosphere—nearly 30 per cent of total UK CO₂ emissions (152 MtC), and greater than industry (24 per cent), transport (22 per cent), and the domestic sector (15 per cent).[9] Tackling climate change and reducing emissions therefore necessarily involves a move away from the use of coal and gas towards an energy supply based on renewable and non­polluting sources.

• The fall­off in nuclear power: Over 20 per cent of the UK's supply of electricity is currently provided by nuclear (85 TWh).[10] Existing nuclear capacity will decline sharply over the next 20 years as power stations reach the end of their lives; and there are no plans to build more. There is therefore a need to replace a considerable portion of present generating capacity by 2020, and to ensure that this is done in a way which does not conflict with the Government's climate change objectives.

• The likely decline of coal: Increasingly stringent environmental regulations are likely to force the closure of most existing coal plants in the next 15 years as they will no longer be economically competitive.[11] The incorporation of technologies, yet to be developed, for capturing and storing the carbon dioxide would add further costs. In the short term, however, coal is relatively cheap, and the last two years have seen an increase in the amount of electricity generated from this source.[12] Carbon emissions have therefore increased.

• The UK as an energy importer: The UK is still just a net energy exporter, though in the last two winters it has had to import gas from Europe. This situation is due to change radically over the next twenty years as supplies of oil and gas from the North Sea run out. The DTI projections indicate that by 2020 the UK might become 70 per cent dependent on natural gas for electricity generation, up to 90 per cent of which might be imported.[13] This raises issues not only about security of supply and adequacy of infrastructure, but also about the likely long­term costs of imported energy. Renewable sources of energy could help reduce import dependence and cost volatility.

• Fuel poverty: In our 1999 report on Energy Efficiency, we called the issue of fuel poverty a national scandal.[14] Fuel poverty affects nearly 4 million households in the UK and is responsible for the disproportionately large number of "extra winter deaths" compared to other European states.[15] The issue of fuel poverty acts as a significant constraint on Government policy because of the desire to avoid energy price rises for domestic consumers.

8. With the decommissioning of nuclear power stations and of older coal and gas plant, it has been estimated that some 60 per cent of current generation capacity will need to be replaced in the next 25 years.[16] The regulatory and policy framework which the Government sets will influence substantially electricity markets and investment in generating capacity. Current energy policy is therefore at a historical turning point. Decisions made now will influence developments over the next half century.

The Royal Commission on Environmental Protection (RCEP) report (June 2000) and Parliamentary reports

9. Climate change and the need to reduce greenhouse gas emissions is already the dominant driver of change, and is likely to become still more important. In June 2000, the Royal Commission on Environmental Pollution (RCEP) published a major report entitled "Energy ­ the Changing Climate" which set out our present understanding of the issue and discussed the policy response required.[17] It called for a 60 per cent cut in UK carbon dioxide emissions by 2050, on the basis of "contraction and convergence"—a framework which would set global limits to emissions and specific targets for each nation. It also set out four alternative scenarios for achieving emission reductions of 60 per cent in the UK. Under the Kyoto protocol, the UK's target is a 12 per cent reduction in greenhouse gases by 2008­12. There is little doubt that the UK, along with other developed nations, is likely to face far greater emission reduction targets for greenhouse gases after the current commitment period under the Kyoto agreement expires in 2012. The Government is obliged to respond to the recommendations of the RCEP, and will do so in the White Paper by the end of 2002. The recent Energy Review conducted by the Performance and Innovation Unit (PIU) was intended to contribute to that response.[18]

10. Parliamentary Select Committees have also produced a number of reports contributing to the debate:

• A Lords Committee report on renewable energy (1999);[19]

• the Science & Technology Committee report on wave and tidal energy (2001);[20]

• the Trade and Industry Committee report on security of supply (2002);[21] and

• a Lords Committee report on security of supply (2002).[22]

11. We began our inquiry into renewable energy in December 2000, and published memoranda received in May 2001.[23] Following the election, we decided to continue work in this area and take account of the conclusions of the PIU Energy Review. In the course of our work, we took evidence from a range of organisations, including the DTI and Ofgem. We also visited Germany and Scotland to help understand the approaches adopted there.[24]

5   Digest 2001, para 1.8. Back

6   DTI, Energy Trends, June 2002, p25. Back

7   Ibid. Back

8   Includes the use of farm waste digestion, waste tyre combustion and poultry litter combustion. Back

9   DTI, Energy Trends (March 2002), p 39, table 1. Back

10   Digest 2001, table 5.1. Net supply, excluding electricity used by the nuclear industry itself, is 78TWh (table 5.7). Back

11   Second Report from the Trade and Industry Committee, Security of Energy Supply, Session 2001-02, HC 364, paras 137-138. Back

12   DTI, Energy Trends (March 2002), p.33, 39. Back

13   DTI, Initial Contribution to the PIU review, pp11-12, p25. Back

14   Eighth Report from the Environmental Audit Committee, Session 1998-99, Energy Efficiency, HC 159 para 46. Back

15   PIU Energy Review, Para 29 and Annex 4. Back

16   Cf PIU Energy Review, Annex 7, Para 11. Back

17   Twenty-second Report from the Royal Commission on Environmental Pollution, Energy - The Changing Climate, Cm 4749, June 2000. Back

18   Cabinet Office Performance and Innovation Unit (PIU), The Energy Review, February 2002. Another aspect of the response was the creation of the Inter-departmental Analysts Group (IAG) to consider the impact of long-term reductions in greenhouse gas emissions in the UK. The IAG report was published in February 2002. Back

19   Twelfth Report from the Select Committee on the European Communities, Session 1998-99, Electricity from Renewables, HL 78. Back

20   Seventh Report from the Science and Technology Committee, Session 2000-01, Wave and Tidal Energy, HC 291. Back

21   Second Report of the Trade and Industry Committee, Session 2001-02, Security of Energy Supply, HC 364. Back

22   Fourteenth Report from the Select Committee on European Union, Session 2001-02, Energy supply: How secure are we?, HL 82. Back

23   Environmental Audit Committee, Memoranda, Renewable Energy, Session 2000-01, HC 334. Back

24   Annexes A and B. Back