In a report on the Electricity Market Reform published today, the Committee on Climate Change presents new analysis showing that there are significant economic benefits from investing in a portfolio of low-carbon technologies through the 2020s rather than investing in gas-fired generation.
The report finds that investment in a portfolio of low-carbon technologies could save consumers £25-45 billion, rising to £100 billion with higher gas and carbon prices.
Only if the world abandons attempts to limit risks of dangerous climate change would a strategy of investment in gas-fired generation through the 2020s offer significant savings.
This conclusion is robust when possible impacts of shale gas on the gas price are accounted for. Shale gas could play a role in the gas mix that helps to balance intermittent power generation, and meet demand for heat, provided appropriate environmental safeguarding regulations are put in place.
The report highlights the current high degree of uncertainty and the unfavourable conditions for investment in the power sector and its supply chains.
The Committee urges the Government to make commitments which would support investment in a portfolio of low-carbon technologies, and estimates that this would add only around £20 to the typical annual household bill in 2030 compared to 2020.
Specifically, the Committee recommends the following package of measures that would provide more confidence to investors:
- In this Parliament, set a target under the Energy Bill to reduce the carbon intensity of power generation from current levels of 500 gCO2/kWh to around 50 gCO2/kWh in 2030
- Extend to 2030 funding allocated to support development of less mature technologies (“the Levy Control Framework”)
- Set strategies for the further development of less mature technologies such as offshore wind and the commercialisation of carbon capture and storage (CCS)
- Present options to support mobilisation of new sources of finance, including roles for the Green Investment Bank and Infrastructure UK.
- Publish in the Electricity Market Reform delivery plan the amount of capacity that the Government intends to contract over the period 2014-18, and the prices that it intends to pay for onshore and offshore wind generation.
A failure to commit to this would be to bet on a low gas price world, which could lock out the much higher benefits from portfolio investment in low-carbon technologies in more likely scenarios. It would be a wager on an outcome that is the opposite of most expectations. Even if the proposition were true, and a low gas price world were to ensue, cost savings due to investment in gas-fired generation through the 2020s would be very limited.
Lord Deben, Chairman of the CCC said:
“This Report shows that there are significant benefits and very limited risks from investing in low-carbon technologies. It factors in the potential benefits of shale gas, which could play a useful role in meeting heat demand. It shows that the cost-effective route to the 2050 target involves investment in a portfolio of low-carbon technologies in the 2020s. However, in order to secure maximum economic benefit for the UK, it is crucial that the Government gives certainty to investors by legislating to chart a clear course well beyond 2020. Only then will we be able to insure against the risk of much higher future energy prices; enhance Britain’s energy sovereignty; and protect ourselves against dangerous climate change.”