UK facing tough energy choices, warns RWE npower

London – The lack of a clear, co-ordinated energy policy in the UK could mean spiralling costs for consumers, investment shortfalls and service unreliability, warns a new report, published by the London School of Economics (LSE).

The study, titled Demanding times for energy in the UK, was commissioned by RWE npower to assess how the UK’s energy market infrastructure could change in the near to mid-term and the impact this would have on UK businesses.

The report examines the challenges the energy industry is currently facing and assesses the impact this could have on UK businesses. It also assesses what could happen if government does not deliver co-ordinated and coherent policy reform on schedule.

It is predicted that £200 billion of new investment is required by 2020 to replace ageing energy infrastructure in the UK and move toward smarter, lower carbon technologies. However, Government reform designed to attract this investment inevitably relies on finding a balance between cost, carbon and continuity of supply that is acceptable to customers and to the UK economy.

The npower Future Report examines four scenarios (see panel below) that could arise if the right balance is not found, explains professor Samuel Fankhauser, author of the npower Future Report and co-director of the Grantham Institute on Climate Change and the Environment at the LSE and a member of the Committee on Climate Change.

“This report outlines the conceivable scenarios of how the UK’s energy sector may evolve. Implementing the Government’s current intent would create a clean and secure, if somewhat, expensive, energy sector. But it is also possible that costs will spiral or investment fall short. In addition, the Government’s commitment to environmental objectives may falter,” said Fankhauser.

Volker Beckers, CEO of RWE npower, called for effective policy “to attract the required £200 billion investment needed to ensure the current intended route for the UK’s energy infrastructure is established quickly, happens effectively, and delivers an attractive market to invest in.

“As the report shows, it couldn’t be more important that we get energy right, for the benefit of the environment, businesses, consumers and the UK economy.”

The report also addresses what businesses can do to negate the risks, so they can remain competitive and fully-operational whatever the UK’s energy future may hold.

Wayne Mitchell, interim industrial and commercial markets director at npower, said: “Whatever happens in the future, business energy users can take control by becoming more energy efficient, controlling the timing of their consumption and relying on their own stand-by generation when it is economic to do so.

“Organisations that actively manage their energy demand not only reduce the risks for themselves, they also become part of the solution and can help the grid match supply and demand.

“Indeed, there is an opportunity to use this approach as an additional revenue stream by selling back power to the grid. There is an expectation that the value of this kind of opportunity will rise to as much as £945 million a year by 2020, so there is significant business benefit to be had from adopting such an approach.”

Scenario 1: Current Intent
If the current energy policy receives the required investment and legislative support, then this scenario will bring low to moderate costs for consumers and low future environmental cost. However, if the Current Intent strays for any reason, it could lead to one of the following scenarios for the UK’s energy future.

Scenario 2: New dash for gas
This scenario involves the Government backtracking on decarbonisation commitments, and in particular, its renewable energy target. 2020 sees a focus on new gas-fired generation fed by abundant shale gas supplies, this in turn provides a lower cost to consumers but as environmental obligations are missed, the UK risks diplomatic opprobrium and European Commission fines. UK industry is no longer considered a leader in low-carbon green growth.

Scenario 3: Investment Shortfall
Ill-defined and poorly implemented policies and the high investment uncertainty that goes with it, bring about significant consequences for the UK in this scenario. Renewable energy ambitions are a low priority, compliance with environmental targets and obligations are not achieved and environmental NGOs threaten a judicial review with fines from the European Commission. Energy consumers pay high prices as money is raised to make up the investment shortfall and an unreliable level of service is the norm. Major energy users look to self-generation and back-up facilities to try to negate these costs.

Scenario 4: Spiralling costs
Environmental targets remain intact however, technology and cost forecasts of the 2010s were overly optimistic. Carbon capture storage has not lived up to its promise, nuclear energy is much more expensive than anticipated and renewable energy costs remain stubbornly high. Prices rise steeply and vary greatly over time meaning environmental obligations are satisfied, but at a very high cost to consumers.