Industry concern over Bill's attempt to tackle future energy

23 November 2012

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Concerns that details of the new UK Energy Bill released last night will fail to resolve the tension between the industry and the Government — nor provide a framework to meet the country’s energy demands in the long term — have been expressed by Warwick Business School’s Global Energy Group.

The Bill tries to tackle how the nation's electricity infrastructure will be improved over the coming years — Energy Secretary Ed Davey has to balance the need to invest in new generating capacity with commitments to a low carbon future. But David Elmes, Professor of Practice and Academic Director for the Warwick Global Energy, says that while it is vital the bill succeeds, he is worried it will only further complicate the picture.

“We are concerned this bill still fails to provide a clear framework for a successful future," he says. "The Prime Minister’s commitment to be the ‘greenest government ever’ has been fudged by pushing any decision on a target for decarbonising electricity until after the next election.

“In work here at Warwick Business School we have studied the decisions and investments that companies may need to take to meet the world’s future needs for energy. One set of future scenarios we considered were developed by the international energy company Shell. They contrasted a planned and orderly future they called Blueprint with a less certain, more chaotic future they called Scramble.

"By pushing out key decisions, the UK has less of a blueprint for the future and faces more of a scramble where environmental commitments the Government has signed up to may be missed and the investments needed to keep the lights on may not be made in time.”

Promoting investment

Monica Giulietti, Associate Professor of Global Energy at Warwick Business School, agrees that the Energy Bill needs to produce an environment that attracts significant investment, but she is also worried the Government has picked nuclear and offshore wind power too early. She said: “The key issue is investment and how it is going to happen. Will the bill promote the necessary investment and to some degree are the choices of investment that this bill promotes still the right choices?

“There is still a lot of research going on into the different types of energy supply, storage and consumption. Other countries are promoting a much broader base to pick from.”

While the Bill provides a framework to support investment in nuclear and wind, the Government is still commissioning research in other areas — with Warwick Business School part of a study looking into the cost benefits of various energy storage methods.

Dr Giulietti added: “The UK is picking its winners now. The risk is that other countries will invest in methods of producing energy that are cheaper, ways to use their energy more efficiently and we will have committed ourselves to solutions that are more expensive. Also nuclear and offshore wind are big, long term projects which might not be delivered on time or work as planned.”

Warwick Business School is not alone in voicing concern over the Energy Bill. At carbon monitoring software provider Optimal Monitoring, MD Duncan Everett said: "The latest indecision by the government over energy means that we are facing years of massive price increases through continued reliance on high cost gas imports. Energy companies are unlikely to make the infrastructure investment needed, when they can continue to generate using existing infrastructure, without penalty.

Creating an energy 'time bomb'

“It also creates a potential time bomb in four years’ time when it is realised that our reliance is fatal to the UK economy and a knee jerk investment in green energy is needed to resolve the problem, and we are all forced to again pay through our energy prices.

"As usual, the focus continues to centre around the supply of electricity, but the elephant in the room is the continual rise of gas prices. Continued high demand from the electricity generators causes corporate heating bills to continue to rise, and the government’s head seems firmly in the sand. The only real solution for UK business is to abandon its strategy of waiting for the government to make up its mind and start reducing its reliance on grid energy by using less through greater energy efficiency — requiring changes in behaviour coupled with changes to infrastructure and energy monitoring.”

And Andrew Horstead, risk analyst at energy specialist Utilyx, added: "As it stands now, The Energy Bill doesn’t bring anything more to businesses than the Government saying that a framework has been agreed. The uncertainty hasn’t gone away — in fact delaying the decision on the 2030 target until 2016 sends out rather mixed signals.

"On one hand the Government recognises gas as a flexible supply source, but on the other it suggests that by 2030 there may not actually be a role for gas if we are to decarbonise the power sector. No generator will invest millions of pounds into power plants that may get shut down in the near future."



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