Over the last decade, energy security has become one of the government’s priorities.
What is energy security?
The concept of energy security is twofold:
- Energy security refers to the physical supply of electricity and gas, i.e., ensuring there is no interruption in energy flows (concretely: to avoid power cuts, for example).
- Energy security also refers to price security or stability, i.e. ensuring that energy sources are sufficiently diverse to protect consumers from sudden price hikes.
Why is energy security important?
The principles of energy security
Energy security implies looking at four main components of the energy market:
- production capacity, i.e., can the UK produce or import enough energy to meet demand (this implies knowing how much energy the UK will need and ensure there are enough power plants and gas reserves/imports);
- production diversity, i.e., are the UK’s energy sources broad enough to compensate potential supply cuts from one source with production from another (for example, should one of the power plants be forced to interrupt generation, can another power plant produce the electricity needed?);
- networks efficiency, i.e., ensuring the UK’s electricity and gas transmission and distribution networks are operating at optimal capacity to facilitate the constant, uninterrupted and cost-efficient flow or energy into UK homes;
- demand-side responsiveness, i.e., helping domestic and industrial energy demand be anticipated in real time and generation/production capacities be flexible enough to meet this demand so the energy market runs as efficiently as possible.
Energy security challenges
The last Energy Index (US Chamber of Commerce) put the UK in second place in terms of energy security, globally. This means there is very little risk of power or gas cuts, or of electricity and gas prices suddenly increasing.
Nevertheless, the government is increasingly interested in energy security because:
- One fifth of the UK’s power plants are closing over the next decade, either because they have come to the end of their life or because they pollute too much (and the UK is bound by EU carbon emissions directive) - this poses a capacity issue.
- The UK is increasingly reliant on natural gas imports with the depletion of UK Continental Shelf reserves: Today, half of the natural gas used in the UK is imported, and the figure is expected to rise to 70% by 2025.
Neither of these issues is very threatening but the government is using them as an opportunity to look into how to make UK energy security as solid as possible.
Similarly, the government is working to prevent certain energy security risks:
- It is setting up a framework to prevent a major disruption to domestic energy supply by analysing the energy system’s vulnerability and the market’s capacity to respond to potential disruptions.
- It is acting to prevent a major disruption to international energy supply, which could lead to significant price increases in the UK, by analysing the global energy environment and trends.
- It is also monitoring the level of investment needed in energy infrastructure to keep it efficient and maximise its output - an estimated investment of £200 billion is required before 2020.
What is being done to improve energy security?
The government’s energy security strategy focuses on six issues:
- improving resilience;
- improving efficiency;
- maximising the economic production of oil and gas reserves;
- improve network reliability and efficiency;
- decarbonising energy supplies;
- improve global energy market reliability.
What does this mean, in effect?
To begin with, the government will continue to ensure the UK electricity and gas markets are competitive but add energy security regulation. It will also continue to work on an effective single European energy market (including developing interconnection arrangements to the UK, which are essential to energy security).
- To respond to closing power plants and the subsequent capacity decrease, the Energy Bill (2013) allows for creating an Electricity Capacity Market: ensuring adequate capacity will entail capacity payments for capacity providers to facilitate necessary investments, in exchange for a commitment to deliver the required electricity (or face penalties). The first run is set to take place in December 2014; delivery will start in 2018 or 2019.
- Similarly, to respond to reduced capacity through plant closures but also to European emissions obligations, the government intends to diversify future electricity generation. On the one hand, it plans to encourage the development of nuclear energy for electricity generation. On the other hand, it is rapidly developing renewable energy generation capacity. Last, it intends to develop carbon capture and storage.
- Despite the electricity network’s overall reliability, DECC and Ofgem are working on balancing new sources of electricity generation, in particular intermittent electricity generation from renewable sources of energy. This is happening through the Electricity Balancing Significant Code Review, i.e., setting up a framework to encourage supply and demand to meet as efficiently as possible.
- Electricity security of supply also implies working on demand side responsiveness through smart grids, i.e., using information and communication technology to monitor and control electricity generation and demand in near real time, and smart meters, i.e., installing electricity meters that send consumption data to suppliers in real time.
- Anticipating the depletion of the UK Continental Shelf’s natural gas resources requires ensuring that as little energy is lost in production and transmission, i.e. maximising output efficiency, and upgrading the UK’s gas import infrastructure.
- Similarly, natural gas dependency (50% today, 70% in 2025) implies the economic production of UK gas resources and developing diverse international markets to ensure the UK relies on enough natural gas sources to reduce dependency.
- Rising global gas demand and potential external events (which might lead to a disruption in gas supply or a price hike) requires the UK to build up its bilateral trading links, on the one hand, and to improve incentives gas suppliers have to meet their delivery obligations.
- Gas security of supply also implies working on demand side responsiveness. This is mostly about ensuring that when natural gas prices rise, generators can switch to another energy source to produce electricity consumers need.