Speech delivered by Peter Ainsworth on 28th January 2010

Energy: The need for change.

Thank you so much for inviting me to your conference and asking me to share some thoughts about the Conservative Party’s approach to climate change.

At a philosophical level, I think that there is no real division between the Conservative approach to climate change and that of the present Government.
I am sure that we share a sense of deep disappointment at the inconclusive result of the Copenhagen Summit; and are equally dismayed by the recent disclosures about the failure of the IPCC to get minor details in its 2007 Report right.

Politicians, and the public, depend upon scientists’ accuracy and integrity. The nature of scientific enquiry is of course disputatious, but we have a right to expect openness and clarity in the way that scientific evidence is processed and presented.

The recent revelations involving email exchanges at East Anglia University and claims about melting ice in the Himalayas have clearly been damaging to the credibility of the IPCC.  More importantly, they have damaged public confidence in the whole question of how politicians should respond to climate change.  That is potentially very dangerous. 

But even if the overwhelming consensus about the threats posed by man-made climate change proves to be untrue (and none of the recent news reports undermine it) the Green agenda remains powerfully intact. 

Of course, on one level, I hope that the scientific consensus on climate change is wrong.  Life would be much nicer if it was all nonsense and a left-wing plot.  Let’s assume, for a moment, that that is the case. 

Shouldn’t we in any case be encouraging investment in new, clean technologies? Isn’t that the best way to protect and enhance our national competitiveness? Shouldn’t we anyway be making the large scale investment we need in our ageing energy infrastructure? Don’t we need to operate on the basis that the earth’s resources are finite and that resource efficiency should therefore be central to the way we plan our economy? Isn’t energy efficiency a good thing in its own right, and isn’t waste always bad? Do we really want to become more and more exposed to the political and economic risks associated with reliance on imports of fossil fuels? Shouldn’t we be making a far greater effort to decentralize our energy supply, strengthening communities and building in resilience at the same time?

We will not be put off the task of modernizing our energy sector and enhancing our economy and security by siren voices which say that the scientific consensus on climate change is invented.
It is ironic that those siren voices have got louder at exactly the time when investor interest in clean technology is becoming more intense. The market is beginning to “get it” in this country, albeit belatedly.

For the first time in a generation we are having a proper public debate about the pros and cons of new energy technologies. What is emerging is a strong demand for a detailed vision of how we are to re-shape our energy mix and I want to touch on some of the plans my Party has been developing in this area.

But first, I hope that you will permit me a rant about the status quo.

After more than 20 years of liberalised energy markets we are learning the hard way that being first in line for cheap energy, also means being most hard hit by the continuing escalation in hydrocarbon prices of the last five years.

This means UK consumers bearing the brunt of:

• volatility in gas prices and question marks over security of supply,

• oil, now regularly creeping past $75 and on course for triple figures. 

• and whilst the price of thermal coal has fallen since its peak in July last year speculation over supply has already seen a rallying to $76/ tonne from a low earlier in the year of $65.

The result has been that even Ofgem have predicted an increase in domestic energy bills of up to 60% by 2016 .

And on top of this, inadequate gas storage coupled with a looming capacity crunch in 2016 adds a very real concern that voters will be left literally in the dark.

Why?

Because for ten years investment in new capacity has stymied by a policy vacuum. The result is that utilities have sweated their assets and re-organised the corporate landscape – no doubt to the delight of their shareholders, including many foreign governments; but to the detriment of the British public.

The failure to deliver a clear policy framework on energy is probably the biggest single failure in public policy of the last ten years, and I know that there have been rather a lot of them.

We have had a government with no clear direction or ambition for the energy sector coupled with a regulator that has allowed a healthy energy marketplace of more than 20 players to dwindle to the oligopoly of the big six.

And all the talk of a shift to a low carbon economy was just hot air, despite repeated manifesto promises and international grandstanding.

So, we are left trailing European leaders on renewable energy, green jobs and energy efficiency. And we are left facing a potentially disastrous gap between supply and demand which, even if the lights don’t go out, will be massively expensive to put right in the short time available.

And all this despite the fact that the UK has some of the best universities and research houses for low carbon technology in the world; despite having access the best natural assets for wave and tidal and offshore wind in Europe; and despite being home to the global capital of innovative financing.

It really is a shocking state of affairs. And why has it come about? Because instead of a clear vision, long term policy frameworks and joined up thinking, we have been given a piecemeal oversupply of poorly tuned and timid policy interventions.

Many of these have been well intended in and of themselves, but the resulting thicket of overlapping and interrelating measures on offer is nearly impenetrable to even the more dedicated new energy investor.
Let’s imagine you are trying to market a small innovative mixed fuel community CHP system.

 As well as navigate the planning system, and secure grid connection (no mean feat!), you have to develop your business model to include the RO, the renewable heat incentive, the new feed in tariff regime, and the CCL (and the LECs you might qualify for through it) and to do this you will have to keep track of DECC, OFGEM, the office of climate change, the renewables advisory board, the energy team in BERR, now BIS, your local RDA and its renewables spin out and probably the waste wood and biomass team in DEFRA as well.... not to mention the carbon trust......and even for consumers, there are a similar number of different competing schemes of one sort or another that could deliver reductions in your energy bill, but probably won't!

CERT, CESP, The Environmental Transformation Fund, the Winter Fuel Allowance, the Low Carbon Buildings Programme... I could go on!

So in the past few years where US ESCO income has grown from 3% in 2001 to 22% today;

And where Germany has spent $5.2bn retrofitting houses, leveraging $19bn of private investment, recouping $4bn in tax and creating 140,000 new jobs.

The UK is left with barely a fifth of the green jobs of Germany, an expensive and unpopular subsidy regime and, crucially, is failing in its responsibility not just to cut carbon, but to seize the opportunities of the new, low carbon sector.
This is a sector that according to HSBC last year overtook defence and aerospace in global turnover.

Further adding to our current challenges are the ongoing ramifications of the credit crunch.  With global finance availability thin on the ground, this regulation driven sector will thrive only in a clearly defined, long term policy regime.

Our approach

In explaining our approach I should first clarify our complete support for the Climate Change Act and the 2020 renewables targets. I also want to stress that we see this as one of the key areas where the EU can play a strongly positive role, for example by driving up product standards, by targeted regulation, and by refining and strengthening the Emissions Trading Scheme.

The existing 2020 target for renewable energy is often described as “stretching”; and it is. But if we are serious about decarbonising into the 2030s and beyond, it is vital that we are fully focused on this first key milestone.

We pushed hard for the Climate Change Act and improved and strengthened it as it passed through parliament.

We have made it clear that we believe that what the UK needs is nothing less than a low carbon industrial revolution.

My colleagues in our DECC, BIS, Transport and Treasury teams are all currently working on a new energy paper, scheduled for launch in a few weeks, that will spell out the detail.

It will build on our Low Carbon Economy blueprint (released last year) as well as on our Power to the People document on decentralized energy (published in 2008) and it will refine many of our existing policies.

Above all, it will reflect the fact that a hands off approach to our energy mix is no longer effective or desirable.

We believe that a clear energy strategy needs to come out one office on Whitehall, that of the DECC Secretary of State.

We have already announced a commitment to ambitious carbon capture projects for example; because it is clear that a transparent long term strategy for the development and deployment of any new clean UK coal is going to be essential if private sector investment is to be secured.

 Likewise, to attract manufacturers and technology developers to the UK as well as drive deployment we need to put in place clear long term policy signals that investors can rely upon to predict their returns.

This will mean sweeping away much of the confused and ineffective regulatory log jam of the status quo.

We see energy security and energy efficiency as cornerstones of the UK in the 21st Century.

Clean coal, and support for a wide spread of renewables must go hand in hand with new approaches to driving investments in efficiency.

This may be through incentives, like our £6,500 household efficiency allowance, tougher regulatory approaches and new ways of stimulating innovation in the ESCO sector.

 We want to see the UK as a world leader in electric vehicles, the smart grid and offshore wind and will be laying out a clear long term pathway to achieving all three.

The potential benefits to the UK are immense but we are reaching a crunch point and just as we missed the boat on PV industries and onshore wind manufacturing, so we are in danger of losing out to international competition again.

 Microgeneration has huge potential and, we have ambitions to drive forward UK deployment and manufacturing in this sector.

Infrastructure is vital and we have supported new offshore transmission projects, marine energy parks, high speed rail and nationwide electric car charging.

Grid access and planning still represent major hurdles for new investments and these will be clearly addressed in the energy paper and its sister planning paper, to be released around the same time.

The clear message we have understood from our process of consultation with the low carbon and energy sectors is this:

 Government should put in place long term frameworks and then leave the entrepreneurs and investors to deliver.

 It is clear we need fewer points of intervention, but where we do intervene, government policy must be clear, decisive and long term.

Cleantech and investment

Much of our success or failure in meeting the challenges we face will hinge on people like you.  Disruptive technologies continue to define the unfolding energy and climate change landscape.

Beyond headline progress in generation, be it innovative new nano, or thin film PVs, or super sized offshore wind turbines, it is the increasing depth of the innovative tools and services around that fills me with the most confidence.

For example, software that manages energy systems, lowers lifecycle costs of building materials, and smart battery and smart grid technologies.

Many of the problems we face can be reduced to marginal cost issues around dataflows, energy infrastructure and closing the loop on waste - be it energy waste, financial waste or the physical resource we continue to squander in landfill and inefficient incineration.

Making new technologies safe and reliable and economically viable will demand countless further innovations, which in turn will require innovators and entrepreneurs. 

We are lucky in the UK to have a rich tradition of inventors and entrepreneurs; however, much as within energy policy as a whole, the government has created an increasingly confused and unfocussed support network to nourish the sector.

Where to look for funding as a tech start up?   Well there are publicly funded grants from the Technology Strategy Board, the Carbon Trust has a couple of different ones and an incubator programme, and there are separate awards available from a number of other agencies as well.

There is little strategy to these handouts and they are by and large off the shelf, hard to qualify for and over subscribed.

There is no standard start up, be it in the energy sector or anywhere else in the economy and support needs to be made to measure and delivered in the context of a broader grasp of the challenges we face.

It is a sad fact that the world’s first commercial wave project despite being born of UK innovation has ended up in Portugal.

We understand the difficulties of raising finance, both for growing small businesses but also for larger installations and energy investments and to that end we have proposed a Green Investment Bank to partner private finance and direct investment into the low carbon and cleantech sector.

George Osborne recently launched a low carbon index in partnership with the London Stock exchange to provide a real focal point for innovative new companies looking to list and we have commissioned work exploring the future of direct support for technology incubators and university spin outs.
The aim is to make the UK the global centre not just for innovation in this sector, but for financing and deployment as well.

Conclusion
 
Everyone in this room understands that for our energy security and our quality of life, as well as to tackle climate change, we need a dynamic industrial shift.

Radical change is necessary, right, and in the interests not only of the environment, but of our economic wellbeing. In other words, it’s in the national interest and it cannot come soon enough.

END