Around two thirds of the UK’s electricity is generated by coal and gas fueled power stations. These plants pump millions of tons of greenhouse gases like carbon dioxide into the atmosphere. These gases are known to cause climate change. Much of the remaining electricity in the UK is produced by nuclear power stations, but there is still no satisfactory way to dispose of radioactive byproducts. With the decreasing stocks and rising prices of fossil fuels like gas an oil, environmentalists fear that even more nuclear power stations will be built, and so the race is on to find cleaner ways to produce electricity. Green electricity is electricity that has been produced with only minimal impacts on the environment. Sources of energy like the sun, wind and tides are known as renewable energy. Green electricity can be produced using renewable energy sources.

Wind turbines are growing more popular in the UK, and wind turbines now supply some of the electricity for the national grid. Modern turbines are quieter and more efficient than early models as more research has led to improvements in their design. The placement of so called windfarms in the countryside has been controversial because some people don’t like the way they look and have concerns about how wildlife could be affected.

There is a potential solution to the perceived disfigurement of our countryside which is to build windfarms out at sea. If this can be made to be cost effective, wind could become the UK’s solution to future electricity supplies.

Solar power is an energy source that we could make more use of to generate electricity, even in the UK. Currently, solar panels are so expensive they are not widely used, but as demand increases and more are produced, the prices will hopefully come down. Solar power could one day be the world’s number one source of electricity. A big advantage of solar panels is that they can be used even in remote locations which are not on the national grid.

The energy of rivers can be harnessed by power turbines which generate electricity. There are already a few large hydroelectric plants in the UK, and there is potential for many more low impact, small scale hydroelectric turbines in lots of places in Britain.

Wave power is something of a holy grail for green electricity in the UK. Research is underway to find methods or harnessing the energy that is in the waves all around our coastline. If an efficient, effective way can be found, then wave power could be a great source of green electricity in the future.

As customer demand for green electricity increases, energy suppliers are trying to find less polluting ways of producing electricity. British Gas, a big UK energy supplier, have carbon neutral dual fuel deals if customers use them to supply their gas and electricity. This means that any carbon dioxide released in the production of your electricity, or when you use your gas, is compensated for by British Gas’s involvement in projects to develop green electricity. Opting for carbon neutral packages like this is an easy way to further green electricity production and prevent climate change.

Scottish & Southern Energy has transferred extra staff into its debt collection operation to cope with rising numbers of cash-strapped customers struggling to pay bills. The owner of Scottish Hydro Electric saw profits more than halve over the first half of its financial year to £302.6m on an adjusted basis after a sudden spike in gas prices last year was only passed on to customers from August although it maintains it anticipates a small increase in full-year profits. SSE hiked average gas bills by 29.2% and electricity costs by 19.2% in the summer.

Chief executive Ian Marchant told The Herald yesterday that he expected to cut bills some time early next year but is “unlikely” to return them to pre-August levels and said the company had already seen signs that some customers are struggling. “We have seen more interest in fixed-price tariffs than in the past from people wanting certainty. We have seen more inward requests for energy efficiency advice and work than we have ever done. “On bad debts we looked at the issue earlier this year and as the house market declined some of our staff that were deployed on dealing with house moves were redeployed into debt collection and so by the time of the price increase we were ahead of where we were the year before in debt collection.” SSE, which also owns Scotia Gas Networks, Southern Electric in England and Welsh SWALEC, reported a fall in bills that were more than six months overdue from £78.5m a year ago to £73.4m but warned of “significant debt management issues” in future. Marchant said: “We have seen a growth in people ignoring red reminders and going to warrant stage. “We are predicting we will see larger write-offs. But we do not think it will get out of hand, If we can reduce prices in the earlier part of next year, when we discuss how you can pay a bill we can spread some of it into the lower price period before. We can spread it over 18 months or two years.” Scottish Hydro Electric provided less power to customers over the six months to September 30 than the year before as the north of Scotland saw drier weather than normal, which cut levels in its reservoirs to just a third of their maximum.

But the company saw a net gain of 450,00 electricity and gas customers over the six months, many in central Scotland. Marchant said: “We are growing in both electricity and gas throughout the UK. We have had a particular focus on the central belt in the last 18 months and we have seen big proportional growth as we raised the profile of the Scottish Hydro Electric brand.” The company, which has net debt of almost £4.7bn has refinanced £500m of the £1.3bn it borrowed from banks including Barclays and Royal Bank of Scotland to buy Irish renewable energy company Airtricity earlier this year. The banks have agreed to extend by a year to June 2010 another £500m of the facility. Marchant said he is “reason- ably confident” the company can refinance the remainder. He indicated that the company would look at further acquisitions as “financially-led investors” exit projects. But he said he would consider options including issuing shares to finance future deals. “Bank financing for long-term business is effectively dead for a generation.”

The company reiterated its prediction of a modest rise on last year’s underlying full-year profits of £1.23bn and increased its interim dividend from 18.1p to 19.8p. It said the full-year dividend is likely to increase from 60.5p last year to at least 66p. Its shares rose 55p, or 4.7%, to 1199p.

Rising natural gas and electricity prices are creating an unexpected problem for businesses this winter, and another worry for the Bank of England. The expected opening of several new import facilities had prompted hopes that gas prices would fall. But high oil prices and delays to some important projects have pushed up prices for natural gas, and hence electricity because of the use of natural gas for power generation. A year ago, wholesale energy prices rose in the run-up to Christmas, and then fell back sharply in January and February. The same may well happen again this winter. If it does not, then it is very likely that retail gas and electricity prices will rise. Centrica, the owner of British Gas and a price leader, dropped a heavy hint of that on Friday when it said: “The high wholesale prices will, if sustained, create a more difficult environment for retail energy suppliers in the UK going into 2008. We will continue to monitor this with regard to future pricing policy.” The worry for businesses, especially in energy-intensive industries, is that the balance of supply and demand is tighter than they had hoped. If we have an unusually cold winter, or there are supply disruptions, then the gas shortages and soaring prices of winter 2005-06 could be repeated. The immediate cause of the rising price of natural gas is the high oil price, which last week climbed back close to $95 (£47) a barrel. Natural gas prices in continental Europe are generally set on contracts linked to the price of oil products such as heating and fuel oil, so they follow oil prices, typically with a three to six-month lag.

Alexander Medvedev, the deputy chief executive of Gazprom, recently predicted European gas prices would rise by up to 17 per cent next year, simply as a result of the rise in the oil price.

That has meant higher prices for Britain, too. David Cox of Poyry, an energy consultancy, said continental gas prices tend to set a floor for UK prices, with a premium on top for weather risk. In addition, some of the hoped-for extra sources of gas supply into Britain have been disappointing. The two new terminals for importing liquefied natural gas at Milford Haven in Wales, South Hook and Dragon, are not expected to come on stream until well into next year.

The LNG terminal at the Isle of Grain has been used only intermittently, prompting Ofgem, the energy regulator, to ask companies whether they think there is a problem. Production from Ormen Lange, a Norwegian gas field that came on stream in October and is connected to Britain by the Langeled pipeline, has been growing more slowly than expected, as Norway’s national oil company StatoilHydro admitted this month.

The combined effect has been to push month-ahead gas and electricity prices to their highest level since the first half of 2006, adding to upward pressure on inflation. The Bank of England reckoned in last month’s inflation report that it was “more likely that retail energy prices will rise over time, rather than fall”. It warned that energy prices were one of the factors likely to keep inflation above target in the short term.

For energy-using businesses, higher costs are squeezing profits, but the effects are mitigated by the nature of energy price rises. British companies and their foreign competitors are all facing higher costs, and in many cases are able to pass on increases to customers. The real problems for business will come if British energy costs get out of line with those elsewhere, as they did in winter 2005-06.

Jeremy Nicholson, of the Energy Intensive Users’ Group, said: “We are not there yet, and fingers crossed we won’t be there. But the risk is significantly higher than we had been led to expect a few months ago.”

The vulnerability of British companies could be greater because more businesses have shifted to buying gas and electricity at spot or short-term prices.

Companies that might want to sign longer-term contracts are also put off by high futures market prices.

Jim Hempseed, UK-based energy director of Air Products, the industrial gases company that is a heavy user of energy, says: “My concern is next summer, where the forward price is about £49 per megawatt hour, compared to spot prices that averaged about £20 to £25 last summer. So we are faced by prices double what they were this year.”
Energies spent managing risk

Malcolm Lee of Sheffield Forgemasters International, a manufacturer of heavy engineering components, says he is not just managing energy, he is managing the company’s production costs, writes Ed Crooks.

As energy and commercial manager, he is responsible for buying the energy that accounts for about 20 per cent of the company’s production costs. But his greatest concern is that his ability to manage that risk in the market is disappearing.

For Forgemasters, a strong order book means higher costs can be passed on to customers. “We have a strong, buoyant market, and we are a very robust company, and there is an ability to pass that extra cost on. If you are a marginal company in a commodity business, though, you can’t pass it on,” he says.

However, profits are stillsqueezed by the delay in passing on higher costs, because contracts are typically signed for six to nine months ahead. “The energy price is not disastrous for us, but it does impact the bottom line all the time.”

His attempts to manage that risk have been hampered by a lack of liquidity in the forward market. “As prices started to rise in September and October, we started a damage limitation exercise, buying ahead,” he says. “But when we tried to do it a bit further forward, into January, February and March, it became very difficult.”

Very few sellers have been trading either gas or power in the wholesale market, he said.

“It has noticeably got worse since we came to the end of the summer,” Mr Lee said. “There seems to have been a bit of a sea change in how the market operates. If you try to fix forward, you can’t get a price.”
Keep costs down and homes warm

Beryl Barrett reprimands her five children when they neglect to turn the lights off or they keep the hot water running in her four-bedroom Croydon home, writes Ellen Kelleher.

The rising cost of electricity and gas is a burden and Ms Barrett, 40, struggles to find ways to keep gas and electric bills to £80 a month.

“I do everything I possibly can to save money,” she said. “When I was growing up, I had this habit of brushing my teeth and leaving the hot water running, which made my mother mad. Now I understand why.” Ms Barrett has pared back the cost of running her home by taking part in Warm Front, the government’s fuel poverty scheme. Her boiler was replaced last year with a more efficient one, resulting in yearly savings of at least £100. Since then, Ms Barrett has spread the word about the programme to friends.

She said: “I ask people I come in contact with on income support whether they’ve heard of Warm Front and they tend to say: ‘Oh yes, I received a leaflet about that’. I tell them to sign up for it. My house is a lot warmer now that they’ve taken out the old boiler.”

The Carbon Trust has doubled the size of loans available to small and medium sized businesses for upgrading to energy efficient equipment and also doubled its grants for research into technology that can cut carbon emissions. The Energy Efficiency loans have been upped from £100,000 to a maximum of £200,000. The loans go toward companies that want to replace equipment with more energy efficient versions, including lighting, boilers and heat recovery systems. The interest free, unsecured loans can be paid back over a maximum of four years. Businesses in Northern Ireland are eligible for even larger loans; they can receive up to £400,000 for upgrades. Coinciding with the increase in individual loans, Carbon Trust has upped the pot available for loans by 45 percent, from £21.5 million to £31 million. Carbon Trust, an independent company set up by the government in 2001, said the increase was made in response to difficult market conditions and to help companies implement changes more quickly and on larger scales. The higher loans are also designed to attract more energy-intensive small and medium business that would need to spend more to upgrade their operations. Companies developing carbon-cutting technologies can also receive a larger boost from Carbon Trust, which has also doubled the size of its Applied Research grants. Increased from £250,000 to £500,000, the grants go towards projects that have the potential to reduce carbon emissions in the U.K. Since 2001, £18.5 million in Applied Research grants have been distributed to 145 projects. To date, 95 projects have been completed, and more than 65 of those have filed patents, secured additional funding or made commercial sales. Carbon Trust recently opened up its latest search for Applied Research projects.

Morrisons is opening a superstore that monitors how much customers breathe, to save electricity. The store in Kidderminster, Worcs, is fitted with carbon dioxide sensors that set off cold air fans when it is full of shoppers. At quiet times, the fans switch off, saving energy. A Morrisons spokesman said: “It’ll ensure we use the right amount of energy. That’s good for the environment, so it’s a win-win.” The shop, opening Monday, also has solar panels and collects rain for its toilets.

Britain is “quite simply running out of power” and blackouts are almost inevitable within the next few years. This is the stark warning from the head of an energy think-tank who believes power cuts could be serious enough to spark civil disorder. Campbell Dunford of the respected Renewable Energy Foundation said: “It’s almost too late to do anything about it. Nothing will stop us having to pay very high prices for power in future. “If we pull our finger out now we can limit blackouts but it’s going to be pretty grim whatever happens.” Gordon Brown pledged last week to end Britain’s reliance on the “dictatorship of oil” but Mr Dunford believes the Prime Minister’s new interest in the security of energy supplies may have come too late. Only last Thursday, National Grid issued an urgent call for power after a series of power station breakdowns. Suppliers were asked to bring all their available generating capacity online, including costly oil-fired stations. In May, hundreds of thousands of people in Cleveland, Cheshire, Lincolnshire and London suffered blackouts when seven power stations were closed. The electricity industry estimates it needs to spend £100billion on new stations to ensure supplies.

The “retirement” of a string of nuclear and coal-fired power stations will see 37 per cent of the UK’s generation disappear by 2015, partly because of EU environmental directives. An REF report predicts that the neglect of the power infrastructure will lead to a series of grim consequences, particularly electricity and gas price rises as Britain could be held to ransom by such foreign energy producers as Russia. Blackouts could force the Government to impose electricity rationing, last seen in the Seventies. The REF report says the Government “should prepare itself to intervene with social policy to prevent hardship and maintain order”. It criticises ministers for focusing too heavily on such untried renewable energy sources as wind and tide power, rather than making sure that secure new power generation was put in place. The report concludes: “A near fatal preoccupation with politically attractive but marginal forms of renewables seems to have caused a blindness towards the weakening of the UK’s power stations and a dangerous and helpless vulnerability to natural gas.” The REF warns that as many as nine million people could be plunged into fuel poverty, defined as spending more than 10 per cent of their income on energy bills.

Ministers are already under massive pressure to do more to help people trapped in fuel poverty this winter because of soaring prices. Up to six million families are expected to face a stark choice between heating and eating following the series of massive energy price rises that have made a mockery of Labour’s target to eradicate fuel poverty by 2016. Mr Dunford said worse was to come: “Certainly we’re going to be heading to eight or nine million in fuel poverty. “The people who are vulnerable are old people and the single mums. They rely on power. “If you are a single mum 14 storeys up in Hackney, you depend on electricity for everything in your life, even the water pumped to your flat, the lifts, the food and so on. “There’s a very real chance that power, will not even be there when you need it. That’s when you start worrying about social disorder.” Ministers have launched a belated plan to plug Britain’s energy gap, including the construction of a string of nuclear power stations. power stations take up to a decade to build though and many experts believe the Government’s move has come too late.

Every few years the UK Department of Trade and Industry, now Department of Business Enterprise & Regulatory Reform, publish a chart of the nation’s energy flows. Here’s the most recently published chart based on 2007 data:

It’s a nice, high level overview of energy in the UK illustrating the flow of primary fuels from the point at which they become available from home production or imports (on the left) to their eventual final uses (on the right). Flows at the bottom represent exports, conversion losses and energy industry and non-energy use. The yellow blocks represent transformation (power stations and refineries).

UK Coal said a 45% rise in the market price of coal since the start of the year had transformed the outlook for its mining operation. The operator of four deep pits reported half-year losses but said “significantly higher production at a significantly higher sales price” left it on course to meet market hopes for full-year profits of around £70 million. The company is Britain’s biggest producer of coal, supplying around 15% of all the coal burned - equivalent to the energy needed to provide 5% of the country’s electricity needs. It also owns 46,500 acres of land, of which around 3,700 acres are currently targeted for development. UK Coal said demand remained strong because UK electricity generators viewed coal as more profitable to burn than gas. The average sale price in the first half of the year rose 18% to £1.79 per gigajoule, but UK Coal said some production sold on the open market for up to £4. The expected average price for the second half is near £2. Total sales of 3.7 million tonnes was down in the first half, which UK Coal said reflected the timing of face changes at Kellingley, West Yorkshire and Welbeck, Nottinghamshire. Output was also committed to satisfying older contracts, limiting the benefit of higher prices. Bottom-line losses for the half year were £9.9 million against profits of £40.6 million in the same period a year earlier. UK Coal chairman David Jones said the company was confident of meeting expectations for the full year and viewed the future with optimism. He added: “The sharp increase in the market price of coal, up around 45% from the start of the year to the end of July, and its strong forward curve, transforms the outlook for our mining operations.”

European carbon emissions prices hit a 1-month high on Wednesday on the back of rising oil prices and concerns over the Norwegian gas pipeline, traders said. December-delivery European Union carbon permits were up 44 cents or 1.9 percent at 25.20 euros a tonne, the highest level seen since July 25. “Oil’s firming on Gustav, and that’s pushing (carbon) prices higher,” said a broker at London-based Newedge. U.S. benchmark crude oil futures rose for a third straight session on Wednesday to above $117 a barrel on growing worries that Tropical Storm Gustav may threaten oil and natural gas installations in the Gulf of Mexico. “We’re also seeing a genuine bullishness in the energy complex following last week’s Norwegian pipeline news,” he added, referring to the closure of a North Sea pipeline following a gas leak. “This has huge effects on the UK as well as Europe in terms of spare gas supplies in the winter.” A rise in natural gas prices mean utilities capable of fuel-switching may opt to burn dirtier coal, which would require them to buy more CO2 permits to cover their increased emissions. “Plus we’re seeing good technical buying,” the broker added, noting the market is “trying to push towards the 25.30 (euro) level, which we see as the next resistance.”

Energy companies are raising gas and electricity prices again, meaning yet more misery for those struggling to pay their bills. Many pensioners face the prospect of spending about a quarter of their income on basic utility services – and that’s on top of the increasingly unaffordable council tax. While political tension in the Middle East and high demand in Asia
are clearly partly responsible for high wholesale energy prices, government policies, driven by an environmentalist agenda, are making a difficult situation far worse. An increasing share of bills is being used to subsidise uneconomic renewable energy, such as wind power. By 2010, the Government’s renewables obligation will add £1bn a year to electricity prices. Proposals by the European Commission to introduce legal targets for green energy are likely to lead to bill increases of 10-15 per cent by 2020. Extra expenditure will also be needed to integrate wind power into the national grid. The planned offshore locations tend to be distant from the existing network so new capacity will be required. This means that stretches of coastline are likely to be scarred by unsightly pylons, or that consumers will subsidise the costly process of burying power cables underground. A further problem is that wind power is highly unreliable. Extra capacity must, therefore, be provided in conventional power stations to maintain supplies on calm days. And there is more bad news. The decision to build a new generation of nuclear power stations will further increase prices. When capital costs are included, nuclear generation is significantly more expensive than coal-fired. Construction overruns, as well as largely unknown decommissioning and waste-disposal costs, could further inflate bills. If the consortia building the new stations go bust, the Government could end up finishing the job with taxpayers’ money. Britain’s previous nuclear programmes have been economically disastrous – development losses amount to at least £20bn, while decommissioning is likely to cost another £75bn. Yet caution has been thrown to the wind in an attempt to appease the global-warming lobby. Environmental policies have also raised the cost of fossil-fuel generation. Some coal-fired power stations, such as Drax, near Selby, have been fitted with expensive desulphurisation plants – costing up to £1bn each in current prices. Yet this equipment may actually speed up climate change, since sulphur dioxide emissions are thought to have a cooling effect on the atmosphere. The desulphurisation process also requires vast quantities of limestone, which has meant additional quarrying in the Peak District. These sulphur “scrubbers” were designed to reduce acid rain, but it is now clear that the scale of the problem was greatly exaggerated by a coalition of environmentalists and European bureaucrats. Acid rain from UK power stations had a positive fertilising effect on many soils and actually improved agricultural yields. The damage to trees was negligible. But electricity customers have ended up paying dearly for measures that, in reality, have had little impact. True to character, environmentalists are strongly opposing proposals to build a new coal-fired plant in Kingsnorth, Kent. Yet such new capacity is needed desperately to keep bills under control. Electricity from coal power stations is cheaper than gas or nuclear, while new technology means that new plants will be 20 per cent more efficient than existing ones and release far less carbon.

Energy security would also be enhanced. Major coal exporters include Australia and the US – stable countries that are unlikely to threaten Britain’s supplies. And the world won’t run out of coal in the near future – reserves will last for hundreds of years. There is, therefore, a strong economic and environmental case for building new coal-fired power stations. Yet despite huge benefits – cheaper electricity and lower emissions – none has been built in the last 20 years. Whether it made economic sense to “dash for gas” in the 1990s is a moot point, but gas has recently been in short supply, and the market has responded. A new pipeline has been built from Norway to Easington, in the East Riding, and import capacity for liquified gas has been increased at Milford Haven, in Wales. The energy companies should also be given similar flexibility to exploit new coal-powered electricity generation. But an increased level of regulation is likely to make such adaptation more difficult in the future. As politicians and bureaucrats attempt to control how our gas and electricity is supplied, there will be reduced scope for the innovation and entrepreneurship needed to combine lower prices with lower emissions. The recent policy record does not augur well for consumers. Government interventions in the energy sector have achieved very little in terms of improving the environment but have been highly successful at raising bills.