£200bn National Infrastructure Plan Announced by Prime Minister

The Confederation of British Industry annual conference took place in London on Monday 26th of October. While politicians and business experts were discussing ways to deliver economic growth to the UK, Prime Minister David Cameron used the meeting to announce its £200bn private investment infrastructure plan.

Cameron couldn’t have picked a better time to announce such an ambitious plan that will “completely update and modernise” the UK’s infrastructure, including roads, railways and utilities, over the next five years.

The announcement caused mixed reactions from business organisations that ranged from an excited response from RenewableUK to a more moderate welcome from the British Chambers of Commerce who urged the Government to turn its “vision to concrete action”.

In short, the Prime Minister’ infrastructure scheme is more a challenge as the Government is looking for the private to provide £160bn of the total investment over the next five years. The idea is to incite companies to invest in a wide range of energy, transport, water and waste, broadband and digital projects. Meanwhile the Government will be investing £40bn in the key areas as announced in last week’s Spending Review.

A large sum of these investments is to be destined to subsidise renewable energy projects while another £70bn is estimated to be spent by electricity generators in building new nuclear power plants for “free” because there is no subsidy.

Support for the £1bn carbon capture and storage technology to develop clean coal is a key part of the programme but this has suffered a setback with the withdrawal of one of two companies building pilot plants.

On the other hand the Green Investment Bank will be using its £1bn initial fund to back up private sector investments the market regards as too risky.

Most of the spending in the five-year plan would come from the private sector “where necessary, helped by suitable regulatory change”, along with levies and State-imposed pricing rules in areas such as renewable energies.

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UK to import more LNG this winter

According to the National Grid’s annual winter outlook gas demand is set to rise by 3.8% this winter. Such an increase will force us to import more liquefied natural gas (LNG) by ship from the US.

Despite the need to import more LNG from overseas, power network operators calmed fears that there would not be a repeat of last year. Even in the event of a rough winter there would be more than enough capacity thanks to the increased capacity at Britain’s Isle of Grain LNG terminal and the British-Dutch BBL gas pipeline.

National Grid’s forecast predicted that utilities will favour gas-fired plants for energy generation in October and November and from December onwards coal plants.

Ofgem, the energy regulator, cautioned that changes in global energy prices and demand levels in Europe have a significant, unpredictable influence on the situation, which could create a well known phenomenon of fluctuating gas prices.

A spokesman said: “Ofgem’s position is that the energy industry must maintain its vigilance and take every step to prepare for this winter to ensure supplies for consumers.”

On the other hand the report stated the Britain has more than enough power generation to supply demand this coming winter. Predictions are that peak electricity demand for an average winter cold spell would be 57.7 gigawatts (GW), below 57.8 GW last year while power generation availability was forecast to be 66.3 GW.

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UK Renewable Energy Production Down by 12%

According to the Energy Minister, Mr Chris Huhne, renewable energy production is what will help “keep the lights on” in Britain and guide us towards a low carbon economy. Despite all the investments and government support to increase renewable energy generation in the UK production has fallen for the second time this year, which makes it hard for us to believe that putting all our chips on renewables is the way forward.

The Department of Energy and Climate Change reported a 12% drop in renewable energy production between April and June due to lower wind speeds and rainfalls, the second this year. Reasons aside, these drops have re-opened the discussions about the £1 billion support the industry itself receives from the taxpayers each year.

“Renewable Energy is without a doubt the way forward towards a low carbon economy and people support the idea, but only if it produces results” – said Chris Hurcombe one of our leading Energy Brokers.

These drops in power generated by renewables are likely to incite criticism towards the government’s energy policies from both sides. Supporters will argue that the sector needs more funding while the opposition will want to see figures improve before approving more investments in renewable energy resources.

In another report published by the UK’s Department of Energy and Climate Change, England generated more renewable energy in 2009 than any other country of the UK despite having less installed capacity than neighbouring Scotland.

With 11,993.2 GWh generated from 3,076.5 MWe of installed renewable energy capacity England was some 12% ahead of Scotland which, in the same period, generated 10,744.3 GWh from its 3,820.4 MWe of installed capacity.

The report also measured economic activity in each country or region in terms of Gross Value Added. It found that Scotland not only has the largest generating capacity from renewables, but that it is the largest in terms of capacity per unit of GVA and generation per unit of GVA. Using those two measures England in 2009 was below the UK average while Wales and Northern Ireland, as well as Scotland, were above it.

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Britain’s energy prices are on the rise again

According to Ofgem, the energy industry regulator, energy prices are set to rise £6 every year until 2020, as £32bn is needed to  “re-wire” Britain. In total Ofgem estimates that Britain needs £200 billion in investments over the next decade if it is to meet the government’s green energy targets and above all “keep the lights on”.

With the rise in renewable energy generation such as wind farms the National Grid needs to be rewired to improve the distribution infrastructure. The £32 billion will be used to replace gas pipes and electricity cables in the next 10 years and will represent a 75% increase in the amount currently invested.

Alistair Buchanan, chief executive of Ofgem, said: ‘£32 billion of the £200 billion investment challenge Ofgem has identified falls to the regulated energy networks and is within our statutory remit. That is why Ofgem’s new performance regulation model, RIIO, will ensure we attract this investment, but at a fair price for consumers’.

And added:

‘The RIIO model will ensure that efficiency and innovation are hard-wired into the network companies. This means the benefits of the green economy, like more skilled jobs delivering smarter networks to allow householders to run solar energy and other types of microgeneration, will be delivered. However there will be no gold plating of the networks at customers’ expense,’

If it wasn’t enough last week Ofgem warned of its latest quarterly update of the energy market that wholesale energy prices have risen and gas bills could jump by £80 and reach the £700 mark.

The report said: “We forecast our estimate of wholesale energy costs to begin to increase over the coming months. This is because prices in forward markets have further increased since our June report. This effect is more pronounced in the market for gas. We estimate that by spring 2011 gas purchase costs may increase by 13%.”

Our biggest concern here at Catalyst is that despite what some analysts and energy brokers say,  such increases seem unlikely, considering the major suppliers had reported healthy half-year profits over the summer. Ofgem’s report could be seen to be giving energy companies free rein to rise their prices going into the peak winter period.

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Our monthly analysis of the UK gas and power markets is now available on line for the month of October 2010. The service is intended to keep you up to date with all the major news in Europe’s gas and power markets. It is also designed to keep power executives focused on market activity in an easy to digest format.

Your find our October 2010 report here and all historical energy reports can be located here.

If you would like more information on our services or would like to find out how this could benefit your business, simply call our energy team today on 0870 710 7560 or request a call back at time to suit.

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