Energy Policy

Energy is important to all of us.

And the Government's objectives for energy - its energy policy - is therefore very important, and tends to be very high on the political agenda.

The current UK energy policy has three main cornerstones:

• Ensuring the best deal for customers, tackling fuel poverty and ensuring UK competitiveness
• Radically cutting carbon emissions
• Ensuring security of supply
• Ensuring the best deal for customers, tackling fuel poverty and ensuring UK competitiveness

Competition is generally believed to be the most efficient and effective tool to ensure the best deal for customers and taxpayers; it drives down waste and breeds innovation. Although certain aspects of the energy industry are natural monopolies (for example because it's not efficient to build more than one set of pipes or wires to transport electricity or gas solely to give customers a choice of supplier), it has been the policy of the UK Government to liberalise the energy supply industry since the mid-1980s. It is now also EU policy that energy should be liberalised across Europe.

The UK reaped the benefits of the creation of an energy market across the 1990s as energy costs decreased significantly. However, when energy prices are no longer controlled by Government, they are subject to market forces. Wholesale energy prices vary constantly. Customers are protected from this by consistent tariffs and products, but when costs rise for a prolonged period, so will prices.

The energy market works on the economic laws of supply and demand just like any other. So price increases are market signals: when demand starts to outstrip supply, the market will 'tighten' and prices will rise. This gives a signal to the industry to invest in new supply.

To some extent, this is what is happening right now; the market is signalling that new investment is required, and we and the other market participants are planning new power stations.

In the UK, fuel poverty is defined as occurring when 10% or more of a household's income needs to be spent on energy. When energy prices rise, more families may be forced into fuel poverty. Fuel poverty can be eased by improving the energy efficiency of homes, thus reducing the amount of money wasted through lost energy. However, fuel poverty, like all forms of poverty, can be partly caused by social conditions which are outside a household's own ability to manage, or the resources of other parties, and is therefore best tackled as a whole by Government.

Radically cutting carbon emissions

The threat of climate change must be tackled globally. We welcome the leadership shown by the UK Government and the EU in setting long-term targets.

Creating an energy supply industry that emits significantly less carbon requires a huge amount of investment and, if we are to ensure that the interests of our customers and the UK's economy are protected, we must ensure that we reduce carbon emissions in the most effective and efficient way.

Many lower carbon technologies, such as renewable technologies, are not yet fully developed and they are currently more expensive than traditional methods of electricity generation from fossil fuels. The emerging technologies are also still many and varied, with technical designs in some areas still to be perfected.

Prescriptive energy policies that constrain investment into certain technologies are simple to understand and implement, but are virtually impossible to design to be flexible enough to accelerate winners, or avoid continuing support for outdated favourites. We therefore support the use of economic instruments that use the market's ability to breed innovation and reduce costs to deliver a specific objective.

We strongly support the EU-wide Emissions Trading System as the best delivery mechanism for tackling climate change. Emissions trading is a 'Cap and Trade' system, and it is the 'cap' part that is most important and most often forgotten.

The EU agrees on how much carbon - the cap - it will allow to be emitted by those covered by the trading system. Polluters that are best able to reduce their emissions (i.e. those that can reduce their emissions most cheaply) will do so until the agreed upon cap is reached. This kind of system also has the significant advantage that it can easily be combined with other similar systems globally, allowing the global threat of climate change to be efficiently tackled at a global level in an effective way.

Not all emitters of carbon can be captured by an emissions trading scheme, because the costs of administration will be too high for many smaller emitters. It is therefore important for the UK to have a suite of policies to effectively tackle carbon emissions.

Ensure security of supply

In the UK, users of electricity and gas do not expect interruptions, though sometimes these are unavoidable due, for example, to faults or storms. We expect power to be there when we need it.

Security of supply means not only having the technical expertise to provide power whenever and wherever it is needed in the short-term, but also to guarantee that the UK is able to supply its need for power in the long-term.

In our liberalised energy market, security of supply is maintained by participants in the market investing in new infrastructure, and this tends to occur in cycles over many years.

The UK is currently entering a significant investment cycle and this is coinciding with the need to radically reduce the carbon emissions from our energy supply systems. The amount of new infrastructure needed by the energy supply industry to achieve both of these objectives will mean a paradigm shift in the amount of new energy infrastructure that must be built across the UK year-on-year to 2020 and beyond.

In order for this infrastructure to be built, huge investments must be made. It is therefore vital that there is confidence in the long-term stability of the market. Energy policy that only looks to short-term political pressures tends to undermine long-term stability, and investor confidence. E.ON strongly supports policy stability as far as is possible to ensure that there is sufficient confidence in the market to produce the required levels of investment.

It is therefore also vital that there is public support for energy policy goals, and a better understanding of what is necessary to achieve those goals. Investment in new infrastructure is expensive, as is investing in infrastructure to lower carbon emissions and tackle climate change. Ultimately, the money with which energy producers can achieve the objectives comes from either the customer or the taxpayer.

That is a hard truth which is easily forgotten, but it is a truth that must be acknowledged and understood by everyone if we are to achieve our energy policy goals.

It is for this reason that we seek to better engage with our stakeholders and the Government. A full and open dialogue must be achieved, and support must be given to achieving credible goals. As we move into the future as an investor in a new energy infrastructure, it is vital that our customers and our stakeholders all understand why we make the decisions we do.

We do not have any policies specific to the conduct of public affairs or for input into public policy making. Our views on major policy issues are expressed in documents (such as responses to formal Government consultations or Select Committee inquiries) on our website or are on the public record elsewhere (eg Government departmental websites). Our views on policy issues are also communicated in writing to managers and other staff internally.

We monitor legislative trends and changes in the UK, and review any new developments that might affect us as a business. The issues that are particularly relevant to us, and where we have an active involvement, include:

• the policy framework for low-carbon investment, including emissions trading
• security of energy supply
• renewable energy
• nuclear power
• carbon capture and storage
• energy efficiency
• fuel poverty
• the regulation of the gas and electricity markets and networks in the UK.

Our work in these areas includes the following:

• responding to consultation papers issued by Government departments or regulatory bodies
• submitting oral and written evidence to parliamentary select committees
• discussion with Government departments and the Office for Gas and Electricity Markets (Ofgem)
• dialogue with non-governmental stakeholders such as environmental NGOs
• individual meetings and briefings for key MPs and peers on energy policy
• briefing MPs and peers on energy-related legislation, as appropriate
• speaking at conferences and seminars
• participation in trade association activity.

The UK Government is one of our primary stakeholders and we pay particular attention to its objectives. In general our lobbying focusses on how to deliver the Government's goal of secure, affordable and low-carbon energy supply most effectively.

Policy positions developed in response to major Government consultations are currently subject to agreement by an informal group of our Board members and two other colleagues.

Our director of strategy and energy policy is responsible for our energy policy work and relations with Government departments as well as corporate responsibility and business strategy, reporting to the chief financial officer.

Our head of communications is responsible for the conduct of relations with MPs, the media, internal communications, etc also reporting to the chief financial officer.