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The transition to a green economy

The potential for innovation will be enormous in every area of the energy supply industry.

With the summer approaching, and the prospect of warmth and sunshine ahead, off goes the central  heating and out come the t-shirts and sunglasses. It’s a time of year when attention tends to turn away from energy. Taking centre stage instead are warm weather records, droughts, hosepipe bans and water metering. But this year, energy seems set to stay in the spotlight for a while longer. Issues of how we heat our homes and offices, and power up our laptops and TVs, have rarely been higher up the national agenda.  And crucial decisions are looming that will affect our electricity supplies for many years to come.

We take it for granted that a simple flick of a switch will provide the light or heat that we need. But behind that lies a vast energy infrastructure that makes it all possible – whether it’s the generator producing the power, the network of wires that sends it zipping around the country, or the company that finally supplies it to you at home. For most of us, it’s this last step that gets our attention – the gas and electricity bill arrives, and naturally we’d all like it to be lower. Beyond that, many people barely give a thought to our energy supplies and their future.

Even what makes up the bill you receive is not widely understood. Only about half of what you pay is for the amount of gas and electricity you consume day in day out. The rest is made up of a range of costs, including energy infrastructure, taxes, the cost of the meter, the cost of social schemes to provide support for vulnerable customers, and environmental initiatives to promote energy efficiency and bring down carbon emissions.  

What’s also not well known is how gas and electricity prices in the UK compare to others across Europe. The latest index of prices across the continent’s capital cities, just published by the global energy think tank VaasaEtt, ranks London as having the cheapest gas prices, well below Germany, Belgium, Austria, Denmark, Italy and a host of others. And for electricity too, we are also ranked among the cheapest.

But there’s no denying that in recent years, energy prices have been rising in many countries. According to a recent factsheet ‘Why Are Energy Prices Rising?’, from the energy regulator Ofgem, the main reason for increasing energy bills in Britain in the last eight years has been rising gas prices.   Britain enjoyed a period of falling gas prices until 2004/5, which was the first year we imported more gas than we produced from the North Sea. Becoming more reliant on imports made prices here more at the mercy of global events, such as political instability in oil-producing countries, since the price of gas is often linked to the oil price.  

As well as declining North Sea supplies, there are a number of challenges ahead. Ageing coal and oil-fired power stations have to be replaced because they no longer meet EU air quality requirements, and most of our nuclear power plants are reaching the end of their working lives. And this comes as Britain faces legally-binding targets to reduce carbon emissions. By 2020, 30 per cent of our electricity supplies must be from renewable sources. To meet the challenge, it’s been estimated that £200 billion will have to be invested in the next decade. And this has to come from private investors at a time when money is hard to come by, and when those who have it are understandably cautious about where they put it.     

But the challenge is also an opportunity. We commissioned a report from consultants Ernst & Young to examine the role of the sector across the country – as investor, employer, and as a creator of wider economic value for the UK.  The report, ‘Powering the UK’, found the sector has the potential to be a major driver of innovation, with patterns of investment shifting away from traditional technologies to greener and smarter ones.  

The sector already makes a significant contribution to the economy. Its direct Gross Value Added – the key measure of its contribution – was around £28 billion in 2010. But it also has a significant impact on other industries through increased consumption along the supply chain – Ernst & Young found that a pound spent in investment in this sector has a larger indirect effect on the rest of the economy than most other sectors. Including indirect effects, the sector’s GVA rose to £92 billion.

When it comes to jobs, one important characteristic of the sector is that much of its activity– power generation, distribution, and services connected to the home – necessarily has to take place in this country, and cannot be moved abroad.  And each new direct job in the power and gas sector supports around three jobs elsewhere in the economy.  Between 2008 and 2010, when the total UK workforce fell, the power and gas sector showed remarkable resilience, with the numbers in full and part-time jobs rising to 128,000.   

The sector also shares the wealth around the UK, contributing more, relatively, to the various regions of the UK than almost any other sector, and acting as a counterbalance to the concentration of other sectors, such as finance, in the South-East.  In all, excluding upstream oil and gas, the sector invested £8.5 billion in 2010 and was expected to invest around £11 billion in 2011.  The shift to the Green Economy – and the need to upgrade ageing infrastructure – will require an even higher level of investment in the future. Investors in low-carbon technologies – such as nuclear, renewable, carbon capture and storage – and smart grid and smart metering developers will form part of a new expanded sector focussing on ’clean energy’.  

It’s precisely to create the right framework to attract this investment that the Government is now undertaking its Electricity Market Reform programme - an ambitious agenda for reform, comprising of 4 key measures:   new long-term contracts for electricity generation; a Carbon Price Floor, below which the price of carbon will not be allowed to fall; an Emissions Performance Standard, which sets limits to the amount of carbon dioxide that a fossil-fuel power station can emit; and a Capacity Mechanism, designed to ensure that our supplies are secure.  Clarity is needed on some important details of the programme, and it will be important that the reform package is credible, without being overly complex, for the required investment to flow. The outcome could shape the future of our energy supplies – and the costs – for decades to come.    

In the short-term, there is a challenge to us all to take control of the energy we use – it powers our homes, our hobbies, our economy – and it’s all too easy to take for granted. The new generation of ‘smart’ gas and electricity meters will help make that possible. The national programme to install these hi-tech meters in all our homes will get formally underway in 2014, though large numbers are being installed already.  

Everyone will get a small display unit with their meter to put somewhere handy – perhaps on the wall, or the kitchen counter – that tells you how much energy you’re using throughout the day.  My own has a traffic-light system that flashes red when usage is high - a handy warning that allows you to check, as you leave the house each day, if a power-hungry appliance has been left on. The same data could even be displayed on your TV or sent to your mobile.

The potential for innovation will be enormous in every area. No more waiting in for the meter reader to call. The reading will be taken remotely via regular data communications between the meter and your energy supplier. Bills will be accurate, based on your actual usage instead of an estimate. And you might choose a display that tells you hour by hour, day by day what your energy is costing you, and the carbon emissions.

Just as important as changes in the home will be the innovation behind the scenes in the energy supply industry. With more data on household energy use available, energy companies could offer targeted energy-efficiency advice and a new array of energy deals and services, which could be tailored to customers' changing energy usage through the day. It represents  the start of a revolution in our energy world that will help speed the transition to the new Green Economy.

Christine McGourty is director of communications at Energy UK.

Photo: Getty Images
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What's to be done about racial inequality?

David Cameron's words on equal opportunities are to be welcomed - now for some action, says Sunder Katwala.

David Cameron made the strongest, clearest and most high profile statement about ethnic inequalities and the need to tackle discrimination ever yet offered by a British Prime Minister in his leader’s speech to the Conservative Party conference in Manchester.
“Picture this. You’ve graduated with a good degree. You send out your CV far and wide. But you get rejection after rejection. What’s wrong? It’s not the qualifications or the previous experience. It’s just two words at the top: first name, surname. Do you know that in our country today: even if they have exactly the same qualifications, people with white-sounding names are nearly twice as likely to get call backs for jobs than people with ethnic-sounding names? … That, in 21st century Britain, is disgraceful. We can talk all we want about opportunity, but it’s meaningless unless people are really judged equally”, said Cameron.
While the proof of the pudding will be in the eating, this was a powerfully argued Prime Ministerial intervention – and a particularly well-timed one, for three reasons.

Firstly, the Prime Minister was able to root his case in an all-but-universally accepted appeal for equal opportunities. It will always prove more difficult in practice to put political energy and resources behind efforts to remedy discrimination against a minority of the population unless a convincing fairness case is made that values cherished across our whole society are at stake. Cameron’s argument, that any party which tells itself that it is the party of the ‘fair chance’ and ‘the equal shot’ must have a response when there is such clear evidence of discrimination, should prove persuasive to a Conservative Party that has not seen race inequalities as its natural territory. Cameron argued that the same principles should animate responses to discrimination when it comes to race, gender and social class. Put like that, wanting job interviews to be fair – by eradicating conscious and unconscious patterns of bias wherever possible – would strike most Britons as offering as clear a case of the values of fair play as wanting the best baker to win the Great British Bake-Off on television.
Secondly, Cameron’s intervention comes at a potential "tipping point" moment for fair opportunities across ethnic groups. Traditionally, ethnic discrimination has been discussed primarily through the lens of its impact on the most marginalised. Certainly, persistent gaps in the criminal justice system, mental health provision and unemployment rates remain stark for some minority groups. What has been less noticed is the emergence of a much more complex pattern of opportunity and disadvantage – not least as a consequence of significant ethnic minority progress.

Most strikingly of all, in educational outcomes, historic attainment gaps between ethnic minorities and their white British peers have disappeared over the last decade. In the aggregate, ethnic minorities get better GCSE results on average. Ethnic minority Britons are more likely, not less likely, to be university graduates than their fellow citizens. 

As a result of that progress, Cameron’s intervention comes at a moment of significant potential – but significant risk too. Britain’s ethnic minorities are the youngest and fastest-growing sections of British society. If that educational progress translates into economic success, it will make a significant contribution to the "Great British Take-Off" that the Prime Minister envisions. But if that does not happen, with educational convergence combined with current ‘ethnic penalties’ in employment and income persisting, then that potential could well curdle into frustration that the British promise of equal opportunities is not being kept.  Cameron also mirrored his own language in committing himself to both a ‘fight against extremism’ and a ‘fight against discrimination’: while those are distinct challenges and causes, actively pursuing both tracks simultaneously has the potential, at least, depolarise some debates about responses to extremism  - and so to help deepen the broad social coalitions we need for a more cohesive society too.

Thirdly, Cameron’s challenge could mark an important deepening in the political competition between the major parties on race issues. Many have been struck by the increase in political attention on the centre-right to race issues over the last five to ten years. The focus has been on the politics of representation. By increasing the number of non-white Conservative MPs from two to seventeen since 2005, Cameron has sent a powerful signal that Labour’s traditional claim to be ‘the party of ethnic minorities’ would now be contested. Cameron was again able to celebrate in Manchester several ways in which his Cabinet and Parliamentary benches demonstrate many successful journeys of migrant and minority integration in British society. That might perhaps help to ease the fears, about integration being impossible in an era of higher immigration, which the Home Secretary had articulated the previous day.

So symbolism can matter. But facial diversity is not enough. The politics of ethnic minority opportunity needs to be about more than visits to gurdwaras, diversity nights at the party conference fringes and unveiling statues of Mahatma Gandhi in Parliament Square. Jeremy Corbyn’s first speech as Labour leader did include one brief celebratory reference to Britain’s ethnic diversity – “as I travelled the country during the leadership campaign it was wonderful to see the diversity of all the people in our country” – and to Labour bringing in more black, Asian and ethnic minority members - but it did not include any substantial content on discrimination. Tim Farron acknowledged during his leadership campaign that the Liberal Democrats have struggled to get to the starting-line on race and diversity at all. The opposition parties too will no doubt now be challenged to match not just the Prime Minister’s rhetorical commitment to challenging inequalities but also to propose how it could be done in practice.

Non-white Britons expect substance, not just symbolism from all of the parties on race inequalites.  Survation’s large survey of ethnic minority voters for British Future showed the Conservatives winning more ethnic minority support than ever before – but just 29 per cent of non-white respondents were confident that the Conservatives are committed to treating people of every ethnic background equally, while 54 per cent said this of Labour. Respondents were twice as likely to say that the Conservatives needto do more to reach out – and the Prime Minister would seem to be committed to showing that he has got that message.  Moreover, there is evidence that ethnic inclusion could be important in broadening a party’s appeal to other younger, urban and more liberal white voters too – which is why it made sense for this issue to form part of a broader attempt by David Cameron to colonise the broad centre of British politics in his Manchester speech.

But the case for caution is that there has been limited policy attention to ethnic inequalities under the last two governments. Restaurateur Iqbal Wahhab decided to give up his role chairing an ethnic minority taskforce for successive governments, unconvinced there was a political commitment to do much more than convene a talking shop. Lib Dem equalities minister Lynne Featherstone did push the CV discrimination issue – but many Conservatives were sceptical. Cameron’s new commitment may face similar challenges from those whose instinct is to worry that more attention to discrimination or bias in the jobs market will mean more red tape for business.

Labour had a separate race inequalities manifesto in 2015, outside of its main election manifesto, while the Conservative manifesto did not contain significant commitments to racial inequality. The mid-campaign launch in Croydon of a series of race equality pledges showed an increasing awareness of the growing importance of ethnic minority votes - though the fact that they all involved aiming for increases of 20 per cent by 2020 gave them a slightly back-of-the-envelope feel. 

Prime Ministerial commitments have an important agenda-setting function. A generation ago the Stephen Lawrence case opened the eyes of middle England to racist violence and police failures, particularly through the Daily Mail’s persistent challenging of those injustices. A Conservative Prime Minister’s words could similarly make a big difference in the mainstreaming of the issue of inequalities of opportunity. What action should follow words? Between now and next year’s party conference season, that must will now be the test for this Conservative government – and for their political opponents too. 

Sunder Katwala is director of British Future and former general secretary of the Fabian Society.