I INTRODUCTION

1. Over the past decade, against the background of the introduction of competitive electricity and gas markets and the ensuing benefits to consumers in terms of price reductions, the security of the UK energy supply has attracted relatively little attention. However, developments such as the energy crisis in California, recent price volatility in international oil and gas markets and the prospect of the UK becoming a net gas importer in the medium term have raised the profile of this issue. While the Government has commissioned a wide-ranging review of UK Energy Policy from the Cabinet Office Performance and Innovation Unit (PIU), we felt that the specific issue of energy security was worthy of detailed examination and we announced the terms of reference of our inquiry on 20 September 2001. We expect that our findings will inform the Government's consideration of the PIU's recommendations.

2. We were particularly interested in the balance that must be struck between the long term maintenance of security of supply, the achievement of the environmental targets which the Government has set in order to meet its Kyoto Agreement objectives and the fiscal and other economic polices which can have a significant influence on the development of particular energy technologies. Such a balance is very difficult to strike.

3. Current arrangements for energy supply are still influenced heavily by the structure of the old nationalised energy industries. Here, power generation plants were deliberately designed as large scale operations sited near to their primary fuel sources. The transmission network was designed to move bulk quantities of electricity from the stations to suitable distribution points in the electricity network. From these points, electricity was supplied to customers via the distribution network. It is important to point out that the distribution network developed in a different way to that of transmission and its layout did not involve such rigorous engineering criteria.

4. The comparatively recent development of commercial renewable energy generation and combined heat and power technologies, which make significant contributions to the Government's green energy targets, has posed challenges to the existing system. The vast majority of such generating plant produces energy on a much smaller, localised scale than traditional power stations. The difficulty in assimilating these sources of energy into the national network raises questions of power quality, of how the present network should transmit from such installations and the security of the UK supply as a whole. Such questions must be addressed if the new technologies are to play the full part in the UK's energy supply mix that the Government is keen to encourage.

5. Aside from the specific targets which the Government has set for this aspect, another question which must be addressed is that of whether it is the role of Government to attempt to control the primary fuel mix at all, given its reliance on market solutions to the nation's energy needs. We were also keen to explore the contribution of energy efficiency and conservation programmes in assuring supply security, and the impact of the Government's electricity and gas competition polices on industry and domestic consumers.

6. During this inquiry, we have not attempted to address the issue of security of supply for the European Union as a whole. Sub-Committee B of the European Union Committee in the House of Lords has been conducting a long and wide-ranging inquiry into this matter, taking as a basis the EU Green Paper on Security of Supply published last year.[1]

7. We were keen to take the views of a wide range of interests to assist us in our inquiry. We heard oral evidence on 13 November 2001 from the British Nuclear Industry Forum, the Gas Forum, the Confederation of UK Coal Producers. the UK Offshore Operators' Association and the Combined Heat and Power Association. On 20 November we took evidence from Brian Wilson, MP, Minister of State for Industry and Energy, the Association of Electricity Producers, the Renewable Power Association, the Chemical Industries Association and the Electricity Association. On 4 December we heard from Ofgem, Greenpeace, the Energy Saving Trust, Energywatch, the Lattice Group and the National Grid Company. We are grateful to all the witnesses for their time and advice, and to all individuals and organisations which submitted written representations. We would also like to record our thanks to our specialist advisers, Professor Peter Odell, Professor Emeritus of International Energy Studies, Erasmus University, Rotterdam and Professor Bert Whittington, Professor in Electrical Power Engineering, Edinburgh University.