STRUCTURE OF PRESENTATION 1. Energy Policy goals and Review remit 2. Key challenges 3. Conclusions and Impact 4. Next Steps/Issues 1.

STRUCTURE OF PRESENTATION

1. Energy Policy goals and Review remit

2. Key challenges

3. Conclusions and Impact

4. Next Steps/Issues

1

ENERGY REVIEW REMIT Review progress against 2003 Energy White Paper

goals:

To put UK on path to cut emissions by 60% by 2050, with real progress by 2020

To maintain reliable energy supplies

To promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and improve productivity

To ensure that every home is adequately and affordably heated

2

KEY CHALLENGES I

Climate Change and Greenhouse Gas Emissions

• Strengthening scientific evidence of nature of problem

70% of emissions from energy production and use

Needs international response

3

World Primary Energy Demand

0

1000

2000

3000

4000

5000

6000

Coal Oil Gas Nuclear Hydro Biomass &w aste

Otherrenew ables

Mill

ion

s o

f to

nn

es o

f o

il eq

uiv

alen

t

2003

2010

2020

2030

4

Source: IEA World Energy Outlook, 2005

Global Carbon Emissions to 2030

Total CO2 emissions

0

5000

10000

15000

20000

25000

30000

35000

40000

2002 2010 2020 2030

Mill

ion

to

nn

es

World

OECD

DevelopingcountriesTransitioneconomies

5

Source: IEA

UK Carbon Emissions

020406080

100120140160180200

1990

2000

2010

2020

2030

2040

2050

Mill

ion

ton

ne

s o

f ca

rbo

n

Totalemissions

Transport

Heat

Electricity

6

Source: DTI (UEP 26)

KEY CHALLENGES II

Security of Supply

UK as net importer of oil and gas

Replacement of electricity generating plant and networks

7

Risks From Increased Reliance on Gas As Domestic Production

DeclinesUK supply

0

20

40

60

80

100

120

2004 2020

% o

f sup

ply

Otherimports

OtherEurope

LNG

Norway

UK

Risks:

•Long supply chains

•Untimely infrastructure

•Ineffective markets

•Politicisation of supply and demand

8

KEY CHALLENGES III

Energy Prices

Oil prices doubled between 2003 EWP and July 2006

Implications for UK business of faster rise in electricity and gas prices than among competitors

Implications for fuel poverty

9

CONCLUSIONS I

Valuing carbon

HMG committed to there being a continuing carbon price signal

EU ETS the key mechanism to provide this signal

But Scheme needs strengthening

Will reinforce it if necessary to provide greater certainty 10

CONCLUSIONS II

Saving energy

Raise standards for new homes, cars, products

Incentivise emissions reductions from commercial and public sectors

Billing and metering

Change incentives on suppliers to household sector

Government procurement 11

CONCLUSIONS III

Distributed Energy

Potential to cut emissions, increase reliability of supply, lower costs, engage public on climate change

Some policies to encourage DE already in place

But need more analysis

So reviews: Long term potential (Office of Science & Innovation) Barriers and incentives (DTI – OFGEM)

12

CONCLUSIONS IV

Transport

Need transport innovation strategy

Increase use of biofuels in road transport (RTFO)

Consider mandatory cuts in new car fuel emissions to replace current EU voluntary agreement

Confirm positions on Aviation and Surface Transport in EU ETS 13

CONCLUSIONS V

Electricity generation:

Continuing carbon price/strengthen EU ETS

New nuclear would make significant contribution to meeting energy policy goals: work programme to facilitate new build

Renewables: restructuring of Obligation and increase to 20%

Planning reform

Improved market information/monitoring of investment outlook

14

CONCLUSIONS VI

Nuclear: route-map

Consultation on Policy Framework (underway)

Planning inquiries to focus on local issues

NII guidance on Pre-licensing, and EA on discharges, by start of 2007

Risk management frameworks for waste and decommissioning costs

Justification process and Strategic Site Assessment to start in 2007

15

CONCLUSIONS VII

Energy Security

International Action Promote open and competitive marketsStrengthen key supplier relationshipsDevelop EU energy policy

National Action Maximise economic recovery from UKCSEnergy savingRight conditions for energy investmentImprove gas market flexibility 16

ENERGY REVIEW: IMPACT(1)

• Annual carbon savings of 19-25 mtc in 2020 (up to 17% on baseline)

• Gas consumption down by 11-17% by 2020

(1) Includes effect of proposals announced since publication of the new Climate Change Programme in March 2006.

17

NEXT STEPS Further develop international strategy (Stern, EU, etc) Consultations (Nuclear, Renewables, Gas, EPC, etc) Coal Forum New technologies (Energy Technologies Institute) Carbon Capture and Storage (PBR) Fuel Poverty Planning reforms Role of Distributed Energy Further public engagement ENERGY WHITE PAPER

18

Coal Forum 1

• coal continues to be an essential source of electricity generation – up to 50% at times last winter. Competitive and flexible.

• and UK mined coal continue to be a key part of electricity generation – roughly 40% of all coal burnt.

BUT.........

19

Coal Forum 2

But...

• coal is a dirty fuel. We have to clean it up or phase it out.

• UK coal mining industry is not strong. Issues around quality, cost and geological issues.

• imports of coal are growing – and there is wide availability of competitive supply

• Government is committed to market solutions – not Government role to tell generators where to buy their coal from.

20

Coal Forum 3

Its role

• to facilitate improved dialogue and understanding between those with an interest in coal production and use.

• to encourage the participants to find commercial solutions which promote the best use of UK mined coal.

• to see whether there are things which Government can do to help – e.g. planning, supporting cleaner coal developments.

21

Coal Forum 4

Style

• already had preliminary meeting, chaired by Malcolm Wicks. First full meeting planned for 14 November. Then every two months.

• clear preference for limited membership – the industry has told us it wants to discuss commercial and technology issues and not be a political talking shop.

• but early days.22