Energy and Utility Management Consultants

Claims of an energy shortfall, but government backs nuclear investment

February 2013


The chief executive of Ofgem, the UK’s energy regulatory body, has warned that energy prices are to increase in the short term as the country looks to fill the supply gap left by retiring coal and oil fired power stations and ongoing delays to new nuclear projects - by needing to buy in overseas markets for our generation means. Speaking with the BBC, Alistair Buchanan said that the reserve margin in place, which currently stands at 14% of demand, is to decline to just 5% within three years. The expectation is to move more toward gas fired generation; natural gas currently accounts for some 30% of the UK power generation and Mr Buchanan expects this to climb to almost 70% by 2020 in reaction to the ‘lost’ capacity. As the UK cannot meet this demand gap with the fossil fuel from our own sources, the energy would have to be bought on the open market which is more expensive and would see the higher costs passed through to consumers. He also provided warnings that shale gas would not be as revolutionary to the UK market as it has proven in North America, and the expected ‘boom’ may occur too late to avoid a rising market.

In another motion by the government that can be seen as a U-turn; it has been announced that a 40-year backing proposal is to be launched in order to tempt companies to sign up to building new nuclear power stations. In 2010, it was promised that new nuclear would only be built if the investment needed was sourced away from public funds, but it would appear that the recent delays and over-running projects have scared many would-be investors off, so the government has had to act quickly to put reassurance back into the industry. It is suggested that the originally envisaged 20 year backing could be extended, with ministers even proposing contracts to last as long as 40 years in some cases. The long-term plans are aimed at keeping energy generation costs below the politically crucial £100/GW barrier, and a move such as this is almost certain to pique the interest of any investors who have not yet committed. The Department of Energy and Climate Change has not yet made a solid commitment, but with aims focussing on a fair and reasonable agreement for all parties, it is unlikely that any such deals will be struck in the immediate future whilst finalities are put in place.

National Grid are expected to begin construction of their Carbon Capture and Storage (CCS) facility off the cost of Yorkshire as early as May following an agreement reached with the Crown Estate last week. The Crown Estate owns the seabed around the UK and the drilling required resulted in intense negotiations between the companies to agree a lease. The saline aquifer, some 70 miles from Flamborough Head, is touted as being an exciting and important step in the new procedure of permanent geological storing of carbon dioxide. The technique of capturing the carbon at source as opposed to expelling to the atmosphere, and then safely and efficiently storing said carbon underground, will go a long way in helping the UK reach carbon emissions targets. The agreement is only the second CCS lease awarded by the Crown Estate following a deal last year where Shell and SSE secured the UK's first licence to store CO2 offshore under the seabed in Scotland. That was expected to be a watershed moment, but further incentives have been a little slower than expected. While these projects are still ongoing, it will be interesting to see just how much impact CCS will have on the UK energy industry.

It is almost time to start thinking about CRC again; for those that need to comply with the Carbon Reduction Commitment (CRC), we have systems and procedures in place that track and compare carbon dioxide and carbon performance against a chosen base year. We report such data and provide the necessary resources to assist clients to reduce their carbon dioxide emissions.
Under the full Utility Bureau Service, we can provide CRC reports from suppliers at the end of each year ready for the submission of the CRC report by the client’s appointed person (ourselves or another). Just get in touch with our expert energy management consultants and utility consultants for advice.

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