On the 3rd of February 2010 the energy regulator Ofgem published Project Discovery, a year-long study of whether the current arrangements in Great Britain are adequate for delivering secure and sustainable electricity and gas supplies over the next 10-15 years.
Where does our energy come from?
The report warns that the country may only have relative power security until 2015 and that an increasing number of consumers would not be able to afford enough energy.
This is the result in the decline in our indigenous gas supplies and
the need to make demanding cuts in carbon emission levels
(the
Government has pledged that 15per cent of UK supplies will come from
green sources such as wind farms by 2020, largely to meet EU emissions
rules).
In addition, large parts of our ageing energy infrastructure will need
replacement and, at the same time, we must make rapid progress towards
the substantial decarbonisation of our economy.
It is estimated that up to £200 billion of investment might be required by 2020 alone, in the face of huge global demand for investment in energy infrastructure; volatile commodities prices; and the ongoing effects of the financial crisis.
Ofgem listed five challenges that together cause its concerns over the sustainability of the current market arrangements.
In the report Ofgem proposed 5 potential reforms, all of which would hand greater power to the state over the current privatised energy markets.
The aim would be to promote low carbon investment by reducing carbon price uncertainty with a minimum carbon price, and to strengthen investment signals through improving short term price signals in both the gas and electricity markets.|
Carbon prices dropped to record low levels after the failed Copenhagen climate summit, due to disappointment over emissions reduction targets. A low carbon price means there is less money to be made from low-carbon technology.
Ofgem suggested establishing a minimum price for emitting carbon. This, it said would work best as part of a Europe-wide scheme, but "it may be necessary to consider a minimum GB carbon price".
However, the regulator warned this policy might not be enough to meet financing challenges and deliver secure supply.
If the first option is considered insufficient, Ofgem said additional
action could involve imposing obligations on suppliers to force them to
demonstrate plans to cope better with threats to supply.
National Grid would also be forced to take measures to improve security
of supply.
However, Ofgem warned these measures also might not meet the financial
challenges and achieve renewable energy goals.
The third proposal focuses on replacing the current incentive system for renewables with tenders for renewable generation.
It would commission power companies to build wind farms, nuclear plants and clean coal power stations, and guarantee a high price for their energy for 20 years to ensure they can make a profit.
However, the regulator said even this package of reform may still fall short on financing and long-term climate aims.
The third proposal could be made more radical by putting all types of energy generation out to tender, from new power stations, to renewables, as well as new gas storage.
This would add even more investor security, Ofgem argued.
Ofgem's most radical suggestion was to set up a central energy buyer.
All future investment would be co-ordinated through a single entity, probably state regulated, which would determine the amount and type of energy needed and enter into long-term contracts with suppliers.
This would basically mean the nationalisation of the green energy sector, and the commissioning of building wind and wave power generation, and require customers to buy the expensive power it produced.
At present carbon prices are determined by the number of emissions permits issued to large industrial polluters under the European Union's emissions trading scheme.
But the economic meltdown and the reluctance of governments to pressure industry have meant carbon prices are currently too low (about Eu12.60 per tonne) to sway the investment decisions of companies to build more expensive 'green' power stations.
Ofgem says some £200billion is needed to build new nuclear stations, 'clean' coalfired plants, where carbon emissions are captured and stored, and green energy projects.
However,
the regulator said the country cannot rely on the private sector to
build them all. As a result, there is a danger that
The government hopes at least eight will be under construction by 2015 with the first, at Hinkley Point in Somerset, due to enter service in 2017.
The majority of the UK's coal-fired power stations were built in the 1960s and 1970s, with most expected to reach the end of their life in the next few years unless they install emissions control technologies as required by the EU's Large Combustion Plant Directive.
Five of the country's 14 coal-fired stations must close in 2015 to hit European environmental targets.
Drax is the UK's newest and biggest coal-fired station and also the country's largest emitter of carbon. The Yorkshire plant, which provides about 8 per cent of Britain's electricity, is technically able to continue to operate into the 2030s. In order to reduce its massive emission it would have to have carbon capture and storage technology (CCS) fitted. But since it is 40 miles from the coast, transporting captured carbon for storage in the North Sea would be particularly difficult.
E.ON is planning to replace the existing coal-fired units at Kingsnorth Power Station with two new cleaner coal units. If approved the new units would be 20 per cent more efficient than the existing power station, allowing for a reduction in carbon emissions of almost two million tonnes a year when compared to current plant performance.
The UK has 19 reactors generating up to one fifth of its electricity and all but one of these will be retired by 2023. The first of some 16 GWe of new-generation plants are expected to be on line about 2017.
French state- owned power giant EDF bought nuclear generator British Energy for £12billion in 2008 and has pledged to build four atomic reactors. Rivals EON and RWE are also planning new nuclear stations.
British
Gas cut average gas bills by 7 per cent
on the 4 February 2010
in a move
set to benefit around eight million households.
The
reduction, which is effective immediately, comes amid falls in wholesale
prices from their highs of two years ago.
British
Gas said customers will save an average £55 a year as a result of the
move, which is the third cut in energy prices from the company in the
past 12 months.
But relief for households could be short lived, as Britons were warned they faced power shortages in just five years' time, bringing a threat of black-outs and huge rises in family bills.
Independent experts said households could be facing annual bills of £5,000 by 2020 - four times the current level of £1,230.
Department of Energy and Climate Change (DECC) has recently announced that all homes will have smart meters by 2020, and Ofgem is now working with DECC to take forward the smart metering programme which will involve developing the regulatory framework and establishing the systems and processes required to support the nationwide roll-out of smart meters.
1) Focus on alternatives, such as natural gas. Reserves are continuing to be discovered around the world. At present there is the equivalent of 1.2 trillion barrels of oil - enough to supply the world for 60 years' supply.
2) Improve storage. At present the UK has storage capacity of about 4 per cent of its energy needs, or about 14 days' supply. This compares to Germany's 21 per cent and France's 24 per cent.
3) Change the rules of the game. Currently, in traditional energy areas, the government leaves investment to the open market. However, energy companies need more incentive - either monetary or regulatory - to increase investment.
4) Subsidise new nuclear power plants. The government has so far refused to help pay towards their construction. But it may be preferable to pay out as the alternative is higher energy bills for the taxpayer.
5) Make it even easier for home-owners to power their homes i.e. with solar panels with feed-in-tariffs.
For more information about Project Discovery please go to the Ofgem website
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