By Rob Toal, Director, South East Economics
The future of the UK's energy market
It seems that energy issues are never far from the headlines, at the end of March Ofgem published its proposal to make a market investigation reference in respect of the supply and acquisition of energy in Great Britain i.e. to examine more closely the ‘big six’ energy firms and whether they are preventing effective competition in the UK energy market. Just days later Ed Davey, Energy and Climate Change Minister, went on the record as saying the government has a strategy that will ‘keep the lights on’, despite serious concerns that the UK’s electricity capacity is set to fall over the next 12 months.
This comes at a pivotal time for the energy sector, with the imminent rollout of smart meters, the proposed introduction of Electricity Market Reform and the move to an integrated European-wide market. These developments are set against a background of ambitious targets for the reduction of greenhouse gas emissions which are expected to lead to fundamental changes in the way we generate, procure, distribute and use energy.
What it means for London
The target to reduce emissions to at least 80% below 1990 levels by 2050 will have implications for all households and businesses throughout the UK. The consequences are likely to be even more significant in London where economic growth and the growth in energy use are forecast to outstrip the rest of the UK. In addition, the capital is likely to be an area of significant uptake of electric vehicles and other low carbon technologies.
This means that London needs to radically alter the way it uses energy – and quickly. With nearly 80% of carbon emissions coming from London's buildings, much of this green growth will stem from retrofitting homes and workplaces to make them energy efficient.
Doing nothing is not an option as the costs of inaction are estimated to be severe. The Stern review, which was commissioned by the government to consider these issues, suggested that the overall costs of climate change will be equivalent to losing between 5-20% of global gross domestic product (GDP) each year.
On the plus side, much work is already underway in London (and the UK as a whole) through a raft of national and local government initiatives designed to respond to the challenges and opportunities presented by the climate change targets. They include strategies to:
- retrofit buildings with energy efficient measures;
- roll out electric vehicles;
- maximise CO2 reductions from new developments by setting targets in excess of those contained in national building regulations; and
- promote clusters of low carbon businesses through initiatives such as the Green Enterprise District.
In addition, the Low Carbon London project is carrying out a number of trials and investigations examining the impact of a wide range of low carbon technologies.
The big question is: will this be enough to deliver London’s contribution to the climate change targets and ensure the lights stay on in the capital?
The research report, ‘The Future of London’s Power’, commissioned in February 2014 by the City of London Corporation and delivered by Stephen Jones Associates and South East Economics Ltd, explores these issues in greater detail. The authors were asked to develop a road map setting out the issues London’s economy will face in meeting future rising energy demands in a sustainable and reliable way. The report is available to download from the City of London’s research webpage.