Notes per theme of the discussion

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					                 An ippr event on Short Term Energy Security
                                 Tuesday 20 May 2008


                                   Discussion Notes


This was the first of two sessions being held by the Commission Secretariat to
address energy security issues and to hear from a wider range of stakeholders.
Participants included senior figures from government, industry, academia, the NGO
community and regulatory bodies.

The discussion in this first session focused on short term concerns and covered a
number of issues. The key points that emerged are summarised below:

Short Term Supply Issues:

      Modern economies have grown accustomed to and complacent about cheap
       and reliable supplies of energy in recent decades. However, this picture has
       been changing in the last few years and there are now a range of serious
       risks to security of supply that include: terrorist attacks, industrial/public
       protests, severe weather events, and industrial accidents/failures.
      The UK is also facing problems in terms of baseload fuel mix
       availability/robustness (i.e. unless something changes the UK will move from
       a portfolio with an overweight position in gas to one with an overweight
       position in gas and wind, which will be less robust)
      Prices have also increased dramatically in recent years, and UK energy
       prices will likely increase in the future above EU levels.
      Ensuring energy security will often be at odds with other key UK objectives,
       particularly those around minimising and reversing the impacts of climate
       change (e.g. increasing reliance on coal might be good for energy security,
       but will likely have harmful impacts on the climate). It is therefore critical to
       find areas where there is alignment of objectives.
      For some participants in the discussion, a 35 GW power gap by 2020 is the
       major issue facing the UK. There is also a major issue of increased reliance
       on imports. It has been projected that by 2020, for example, the UK may be
       importing up to 80% of its gas supply. This is partly the product of a failure to
       develop an adequate depletion policy in the North Sea, which resulted in a
       rapid draining of reserves and has seriously limited our capacity to be self-
       sufficient over a longer period of time.
      Nuclear power is not seen as a realistic solution to any of our challenges
       before 2020, and targets for the generation of energy from renewable sources
       may not be met by this date (for example, there are still high costs and
       technology issues associated with the storage/availability of wind power)
      In response to this situation, it was argued that:




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           o   Energy efficiency measures should play a key role – and that a big
               effort should be made to reduce overall energy demand in the UK
               (and to limit the speed of growth in demand internationally).
           o   New technologies needed to be brought on stream e.g. Carbon
               Capture and Storage, which would perhaps allow renewed reliance on
               coal usage without the negative climate effects.
           o   Increased gas storage is needed, regardless of cost and planning
               consent issues, to ensure a greater capacity to sit out interruptions to
               supply, on the basis of increased strategic reserves. BERR is
               therefore focusing on constructing and expanding the current gas
               storage infrastructure. Although the cost of storage is high, it is still
               reasonable when compared to the costs associated with catastrophic
               events.

Physical Infrastructure:

      Given the increased threats and hazards that could impact on supply, the
       future will most likely bring more frequent and longer shock events like power
       cuts. In the event of unexpected events (such as terrorist attacks or extreme
       weather) citizens may have to survive for up to a fortnight with limited or no
       access to water and electricity supplies.
      Given this reality, overall government emergency planning needs to take
       better account of this.
      There is a need for significant additional investment in energy infrastructure.
       Despite probable upward pressure on energy prices associated with this
       increased investment, it is critical to ensure that the system is ready to absorb
       shocks and unexpected events. At present, there is a lack of redundancy in
       upstream systems, which increases the risk of cascading effects of failure. In
       the downstream, extreme weather events alone now mean there is an urgent
       requirement to increase the redundancy in distribution networks.
      Although the cost of shocks in energy systems (e.g. cut offs of supply) are
       greater than the costs of ensuring excess capacity, investors have
       traditionally been unwilling to spend on this. There is therefore a clear need
       for a regulator to create mechanisms that force players to pay for the
       excess/buffer capacity required.
      There is also a need to build in the true cost of resilience and environmental
       impacts to infrastructure cost estimates and investment decisions and also to
       take a risk management approach to investment decisions. We need clearer
       thinking on the probability of certain events, our vulnerability to them, and
       their likely impact as a backdrop to decisions on risk management in this area.
      The lack of current focus on downstream infrastructure, such as distribution
       networks for power, and the greater focus on the upstream aspects of energy
       security is an imbalance that needs to be addressed and corrected.

Organisational Role and the Management of Emergencies:

      Several participants felt that the private sector is aligned with driving cost
       down and improving efficiency in the overall system but will not naturally
       create any buffer needed for energy security reasons, reinforcing the need for
       a central coordinator to define the required buffer and the structure needed to
       meet it.
      Government could help by making the real context clearer here and it may be
       about to do so. In an effort to be more transparent about the security
       problems we face, the Government is set to publish a National Risk Register


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        later in the summer. This will detail the range of threats facing Britain, and
        will encourage local communities to get involved in discussing
        response/mitigation strategies to these.
       This approach chimed with calls from several participants for a ‘whole
        systems’ approach where government, the private sector and consumers are
        brought into the mix to work together on managing and limiting the risks.
       However, some also noted that the government focus on citizen engagement
        must be more proactive than simply publishing a consultation document and
        waiting for feedback
       Others also noted that contingency planning needs to acknowledge the fact
        that no system is fail proof – it is not possible for any of the players
        (government, big companies) to protect all of their assets at all times, and so
        we need to improve our overall ability to deal with failures/shocks when they
        do occur, not just focus on prevention.
       Several participants also commented on the role of the media. This can be
        very significant in emergency situations. The media can often be helpful in
        these situations, but often compound the negative effects by creating panic,
        which then can lead to surges in demand for fuel etc. For instance, the
        effects of the recent strike action at the Grangemouth refinery in April 2008
        were greatly exacerbated by alarmist manner in which they were covered by
        the media (which prompted consumers to panic buy). However, recent
        industrial action at Chevron’s Pembroke refinery caused far less of a shock
        due to more low key coverage.

Future priorities:

       Several participants commented on the urgent need for greater European
        cooperation and coordination in energy policy and systems. This centred on
        the need for better integration of continental grid systems and the need to
        reform markets to make them more competitive and efficient. It was felt that
        these measures would reduce the influence or potential influence of Gazprom
        on other European countries.
       Political dialogue about energy security issues needs to improve, and greater
        effort should be made to address the public perception that increasing UK
        dependence on imports will necessarily mean threats to national security.
        Some felt a diversity of sources of supply could enhance both energy and
        therefore national security.




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Description: Notes per theme of the discussion