UK must respond to US shale gas revolution to solve energy trilemma, warns Davey

DECC logoNew nuclear power, renewables and shale oil gas will resolve the UK energy ‘trilemma’ – achieving long-term security of supply, combatting climate-change and putting downward pressure on prices by improving competition.

In a keynote speech at the inaugural Annual International Energy Lecture at UCL, UK Energy Minister Ed Davey also emphasised that high-carbon fuels – such as coal – would be phased out over the next 10 years.

The Minister added: “Official statistics from my Department (DECC) reveal that, in the 10 years to up to 2010, investment across the whole of the electricity sector totalled just under £28 billion – but that figure has been overhauled in just three years under the coalition Government.

Ed Davey, MP, Energy Minister

Ed Davey, MP, Energy Minister

“Latest DECC estimates suggest that at least £35 billion has been invested in new electricity infrastructure since 2010, and much more is in the pipeline.

“Last year, we agreed key terms to build the first British nuclear power station in a generation at Hinkley Point and are pressing on with plans to replace the current fleet.

“And last month, I announced updated contract terms and strike prices alongside wider reforms to the electricity market that could unlock additional investments of around £40 billion in renewable electricity generation projects up to 2020.

“So investment is now flowing in the UK which will boost energy security, reduce reliance on imported fossil fuels, and support up to 200,000 jobs by 2020.

“But we must deliver emissions reductions in a flexible, technology neutral way without cutting off the carbon-saving and cost-reduction benefits that can accrue from nuclear power for instance – and, indeed, lower carbon fossil fuels such as gas – including shale.

 

“You could abolish all green levies and all climate change policies covering the vast bulk of the UK and EU economies – and it would still not make significant inroads into the energy price differentials with the United States.

 

“Why? – Because there has been a strategic change in the terms of trade between the US and the rest of the world due to shale gas.

“As the latest IEA investigation into energy and international competitiveness sets out, lower prices in the US are primarily driven by the exploitation of their shale gas reserves and relative lack of export capacity.

“This has driven down both gas and electricity prices in the US relative to Europe and Asia – so the problem is not climate change action. So it’s the American shale gas revolution we have to respond to.”

A recent report from the Centre for European Reform concluded that European shale is unlikely to replicate the step change in energy costs that we have seen in the US. The geology, economics and politics are vastly different. But exploiting shale gas Europe-wide has the potential to contribute significantly to energy security whilst reducing dependence on imports from outside the EU, most notably from Russia.

Davey added; “So while European shale isn’t likely to be a silver bullet solution for energy costs in the EU anytime soon, one could imagine, in the next few years large scale shale gas production in Europe boosting supply sufficiently well that markets might really be impressed.

“Frankly, after wholesale gas price rises of 50% in the last 5 years – the key and overriding reason behind today’s high energy bills in Britain – any downward pressure that can be exerted on prices will be welcomed by consumers and industry alike.

“And it will also help directly with efforts to reduce greenhouse gas emissions from Europe. Gas is much better for the environment than coal when generating electricity, with half the carbon footprint.

“With the climate change imperative to take coal out of the mix, and with commercially viable carbon capture and storage still some way off, gas provides a bridge to the future – not at the expense of renewables and other low carbon energy generation, but complementary to them.

“We do not believe there is a need to legislate further – decades of ambitious EU Environmental Directives have left the EU uniquely suited to handling the challenges of shale gas development, from twater use through to methane emissions.

“The UK Government believes that there should be no obstacles to safe and commercially viable shale gas production across Europe. If shale gas can contribute to weaning the world off more damaging coal; then we should not fear it; from an environmental point of view we should welcome it.

“The UK is pioneering shale gas exploration in Europe, and can show a lead on how shale can be done safely and in an environmentally friendly way”.

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