STRUCTURE OF PRESENTATION

1. STRUCTURE OF PRESENTATION • Energy Policy goals and Review remit • Key challenges • Conclusions and Impact • Next Steps/Issues 1

2. ENERGY REVIEW REMIT • Review progress against 2003 Energy White Paper goals: • To put UK on path to cut emissions by 60% by 2050, with real progress by 2020 • To maintain reliable energy supplies • To promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and improve productivity • To ensure that every home is adequately and affordably heated 2

3. KEY CHALLENGES I Climate Change and Greenhouse Gas Emissions • Strengthening scientific evidence of nature of problem • 70% of emissions from energy production and use • Needs international response 3

4. World Primary Energy Demand Source: IEA World Energy Outlook, 2005 4

5. Global Carbon Emissions to 2030 Source: IEA 5

6. UK Carbon Emissions Source: DTI (UEP 26) 6

7. KEY CHALLENGES II Security of Supply • UK as net importer of oil and gas • Replacement of electricity generating plant and networks 7

8. Risks From Increased Reliance on Gas As Domestic Production Declines • Risks: • Long supply chains • Untimely infrastructure • Ineffective markets • Politicisation of supply and demand 8

9. KEY CHALLENGES III • Energy Prices • Oil prices doubled between 2003 EWP and July 2006 • Implications for UK business of faster rise in electricity and gas prices than among competitors • Implications for fuel poverty 9

10. CONCLUSIONS I • Valuing carbon • HMG committed to there being a continuing carbon price signal • EU ETS the key mechanism to provide this signal • But Scheme needs strengthening • Will reinforce it if necessary to provide greater certainty 10

11. CONCLUSIONS II • Saving energy • Raise standards for new homes, cars, products • Incentivise emissions reductions from commercial and public sectors • Billing and metering • Change incentives on suppliers to household sector • Government procurement 11

12. CONCLUSIONS III • Distributed Energy • Potential to cut emissions, increase reliability of supply, lower costs, engage public on climate change • Some policies to encourage DE already in place • But need more analysis • So reviews: • Long term potential (Office of Science & Innovation) • Barriers and incentives (DTI – OFGEM) 12

13. CONCLUSIONS IV • Transport • Need transport innovation strategy • Increase use of biofuels in road transport (RTFO) • Consider mandatory cuts in new car fuel emissions to replace current EU voluntary agreement • Confirm positions on Aviation and Surface Transport in EU ETS 13

14. CONCLUSIONS V • Electricity generation: • Continuing carbon price/strengthen EU ETS • New nuclear would make significant contribution to meeting energy policy goals: work programme to facilitate new build • Renewables: restructuring of Obligation and increase to 20% • Planning reform • Improved market information/monitoring of investment outlook 14

15. CONCLUSIONS VI • Nuclear: route-map • Consultation on Policy Framework (underway) • Planning inquiries to focus on local issues • NII guidance on Pre-licensing, and EA on discharges, by start of 2007 • Risk management frameworks for waste and decommissioning costs • Justification process and Strategic Site Assessment to start in 2007 15

16. CONCLUSIONS VII • Energy Security • International Action • Promote open and competitive markets • Strengthen key supplier relationships • Develop EU energy policy • National Action • Maximise economic recovery from UKCS • Energy saving • Right conditions for energy investment • Improve gas market flexibility 16

17. ENERGY REVIEW: IMPACT(1) • Annual carbon savings of 19-25 mtc in 2020 (up to 17% on baseline) • Gas consumption down by 11-17% by 2020 (1) Includes effect of proposals announced since publication of the new Climate Change Programme in March 2006. 17

18. NEXT STEPS • Further develop international strategy (Stern, EU, etc) • Consultations (Nuclear, Renewables, Gas, EPC, etc) • Coal Forum • New technologies (Energy Technologies Institute) • Carbon Capture and Storage (PBR) • Fuel Poverty • Planning reforms • Role of Distributed Energy • Further public engagement • ENERGY WHITE PAPER 18

19. Coal Forum 1 • coal continues to be an essential source of electricity generation – up to 50% at times last winter. Competitive and flexible. • and UK mined coal continue to be a key part of electricity generation – roughly 40% of all coal burnt. BUT......... 19

20. Coal Forum 2 But... • coal is a dirty fuel. We have to clean it up or phase it out. • UK coal mining industry is not strong. Issues around quality, cost and geological issues. • imports of coal are growing – and there is wide availability of competitive supply • Government is committed to market solutions – not Government role to tell generators where to buy their coal from. 20

21. Coal Forum 3 Its role • to facilitate improved dialogue and understanding between those with an interest in coal production and use. • to encourage the participants to find commercial solutions which promote the best use of UK mined coal. • to see whether there are things which Government can do to help – e.g. planning, supporting cleaner coal developments. 21

22. Coal Forum 4 Style • already had preliminary meeting, chaired by Malcolm Wicks. First full meeting planned for 14 November. Then every two months. • clear preference for limited membership – the industry has told us it wants to discuss commercial and technology issues and not be a political talking shop. • but early days. 22