03/02/2010
Investment challenge is huge - but electricity industry wants to invest
Commenting on today’s report (3 February) by Ofgem on the arrangements for the UK’s future electricity and gas supplies, David Porter, Chief Executive of the Association of Electricity Producers said:
‘There is a massive need for investment in new power stations – a quarter of our power stations have to close soon, because of EU environmental standards, or, simply because of old age. On top of that, the EU Renewable Energy Directive means that we have to produce 30% of our electricity from renewables (mostly wind farms) by 2020 and in the longer run, to meet the global warming agenda, we have to develop ‘low carbon’ electricity.
‘This is not simple and the investment challenge is huge. Energy companies, large and small, will have to spend up to £200 billion. Make no mistake, the electricity industry wants to invest, but, in order to attract investment on that scale, we must have clear and stable policy, which investors have faith in. Not only that, but, the UK’s energy market must look at least as attractive as that of other countries. That’s because there is competition for funds all over the world and investors will be careful where they put their cash.
‘But, the industry is plagued with political and regulatory uncertainty. We have a market that was reconstructed in 2001, specifically to favour reliable electricity production and deliver competitive prices, but, it is being asked to accommodate a huge amount of renewable energy, which is expensive and much of which is not ‘reliable’ compared with conventional power stations. We have a European programme to reduce carbon emissions, with a price for emitting carbon. Achieving a ‘carbon neutral’ electricity industry by 2050 depends on tight limits being imposed and a higher price for carbon emissions. But, many people are doubtful whether the EU will make that scheme strict enough and the wishy washy outcome of the Copenhagen talks must have reinforced those doubts.
‘Ofgem’s report seems to have recognised the problems facing the power industry and it has put forward five different ways of dealing with them. It states clearly that the current trading arrangements have to be changed. But, the last time we changed the electricity trading arrangements (the abolition of the Electricity Pool and the introduction of the ‘New Electricity Trading Arrangements – NETA’) it took three or four years to complete. Changes of that kind actually add to the uncertainty facing investors and Ofgem admits that even the most modest of its five proposals involves ‘significant change’.
‘The power industry will respond constructively to this report (Ofgem wants replies by 31 March 2010). Whatever solution is adopted, it must be robust enough to satisfy investors and it must be cost-effective. ‘Secure and sustainable energy supplies’ also have to be priced competitively for customers who probably face tough economic conditions in the years ahead.’
ENDS
Contact:
Rachel Hunter
Communications Executive
Tel: 020 7930 9390
Direct: 020 7747 2922