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Energy Markets Outlook

Volume 465: debated on Tuesday 23 October 2007

I am pleased to inform the House of the publication today of the first Energy Markets Outlook. This represents the first stage in delivering the Government’s commitment in the 2007 Energy White Paper to introduce a new information service. The Energy Markets Outlook will provide forward-looking energy market information relating to security of supply.

The Energy White Paper set out the Government’s continuing commitment to the combination of competitive markets and independent regulation as the most effective way of delivering affordable, sustainable and reliable energy supplies. Under this framework, energy companies are encouraged to invest in projects that will help maintain secure and reliable supplies. They do this in response to the price signals emerging from energy markets and the demands of their customers.

In this context, timely and credible information about the outlook for energy supply and demand is vital to help energy suppliers and customers plan for future investment and arrangements for purchasing energy.

The Energy Markets Outlook, which has been developed with the help of Ofgem and National Grid, looks at security of supply and its drivers over a time horizon of up to 15 years. It covers electricity, gas and other fuels including coal, oil, nuclear fuel and renewables. It also looks at supply chain issues such as the availability of skilled staff, materials and labour for the construction and operation of new infrastructure, and the potential impact of the emerging carbon market on the security of electricity supply.

We are also launching an online resource, which contains additional detail on security of supply, including background analysis and links to other sources of information. This can be found at:

http://www.dti.gov.uk/energy/energymarketsoutlook/page41839.html and will be regularly updated.

This initial report suggests significant medium-term opportunities for the construction of new electricity generation capacity in response to expected demand and forthcoming plant closures. This is consistent with the conclusion set out in the Energy White Paper that around 20 to 25 GW of new generation will be required by 2020. Companies have already announced plans for over 14 GW of new generation.

For the gas market, the Energy Markets Outlook shows that delivery of new capacity and planned new infrastructure should more than compensate for reduction in indigenous production in the medium term. However, further investment will be needed to avoid market tightness around the middle of the next decade and in subsequent years. Alongside pipeline supplies, the global Liquefied Natural Gas market provides an opportunity to access additional sources of gas on a more flexible basis.

The initial report suggests that the future use of other fuels—coal, oil and nuclear fuels—is unlikely to be limited by resource availability in the near term, but acknowledges that these are finite resources in the longer term. It shows that maintaining security of supply while expanding the use of renewable energy sources is achievable, given the UK’s extensive primary renewable resources, although this will involve some additional costs.

The Energy Markets Outlook is the first stage in a dialogue between the Government, companies, market participants and other interested parties. The intention is to help develop a shared understanding of the longer-term outlook for energy supply and demand and of emerging risks that could affect security of supply.

We hope that this report will help the UK’s strong energy market respond to the challenges and opportunities for future energy supply.