Paul Golby, CEO of E.ON UK, expects UK residential energy prices to go up in coming years because of rising wholesale prices. Speaking at the presentation of E.ON UK’s energy manifesto, he said, ‘If you look at how wholesale prices have gone, they’ve accelerated significantly ahead of retail prices. Looking forward into the future, I can’t see that the fundamentals are going to change to bring those prices back down.’ Ofgem is investigating the workings of the UK energy market, as is a committee for the UK Department of Business, Enterprise and Regulatory Reform (BERR), because of price rises by the six large UK energy suppliers in 2008. Another contributory factor to rising UK retail prices will be the cost of developing renewable generation to meet the EU target of generating 16 percent of energy from renewables by 2020. The cost of creating new network connections, as well as operating the new infrastructure in meeting these targets will have an effect. ‘Both of these costs will impact domestic fuel bills,’ E.ON said in its energy manifesto. Golby reiterated this, telling reporters: ‘We need to be honest with our customers … saying that going to a low carbon economy is going to cause some economic pain in the short term but I think it’s worth doing.’However, while renewables are clean, they are not flexible and need to be backed up by flexible capacity from other sources. The expected operational time for an average onshore wind farm is about 30 percent and offshore wind farms about 40 percent, according to Golby. The cost of large-scale renewable projects is going up too, with wind turbine shortages and engineering cost increases. Construction of the proposed London Array wind farm, in which E.ON has a 33.33 percent stake, has been held up by Royal Dutch Shell decision to withdraw from the project. E.ON and Dong Energy, the remaining partners, are now considering their options, but while they decide, the costs are increasing. ‘It will cost, but I don’t know how much,’ said Golby. In terms of back-up energy sources, he said that nuclear will likely be the most important baseload power in the UK, but described it as ‘stable but inflexible’, and said that natural gas is the ‘quick and the wrong answer’, given the price volatility and the UK’s dependence on imports. Coal, then, will play a significant role in restraining prices, though its use will depend on the implementation of carbon capture and storage (CCS), a technology the government has proposed to fund if it proves coal can be burned cleanly. ‘Without coal, bridging the energy gap will mean allowing gas to dominate our energy mix and a second ‘dash for gas’ is something we need to avoid,’ the manifesto said. ‘Provided CCS is proved to be effective, the UK should impose a cut-off date beyond which new coal capacity will not be built unless it is fitted with CCS,’ it added. Golby said that E.ON wants to develop nuclear power stations in the UK, either ones currently owned by British Energy or others run by the nuclear decommissioning authority, or non-nuclear sites.

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