POWER May 2014 - 63

POWER POLICY
UK Struggles to Attract
Low-Carbon Investment
Inflation-busting retail electricity price rises are doing little to encourage the power
plant investment Britain needs to keep the lights on. Offshore wind projects are
stumbling as technical and financial risks bite, a carbon tax has failed to achieve
its aims, and the European Union is threatening to ban the financial support
mechanism that seems to be the only hope of attracting new nuclear capacity.
Charles Butcher
A
fter years of dithering on energy policy,
the UK government has nearly finalized
its plans for electricity market
reform. Guaranteed prices for low-carbon
power, plus a carbon floor price to discourage
the use of coal, are the pillars of an Energy
Bill published at the end of last year.
The UK faces a capacity shortfall as old coal
and nuclear plants are retired. It also needs to
stay on track with a binding commitment to cut
greenhouse gas emissions by 20% by 2020-to
be followed up by a 40% cut by 2030 under
European Commission (Commission) plans
announced in January. The UK has come round
to supporting the Commission's new target of
27% renewable energy by 2030, though this
will not translate into national law.
But despite its subsidies, the Energy Bill
is not a magic wand. By offering double the
current wholesale price, with contracts to last
35 years, the Department of Energy and Climate
Change (DECC) has persuaded three
consortia to agree to build much-needed
new nuclear capacity. Even without further
project slippage, however, none of this will
be online before 2023. Meanwhile, several
gigawatts of planned offshore wind capacity
have been canceled as developers face up to
narrow margins and technical challenges.
The Commission is also looking hard at
energy subsidy mechanisms across Europe,
and seems set to come down hard on the
UK's first new nuclear plant. The UK funding
scheme was drawn up with European
Union (EU) competition policy in mind, so
all will probably come right in the end, but
there may be long delays.
Power Prices, Fuel Poverty, and GDP
For more than a year, energy prices have
rarely been out of the news.
According to the Office for National Statistics
(ONS), inflation-adjusted household
spending on energy has risen by 55% in a decade,
even as energy use fell by 17%. Electricity,
gas, and other household fuels cost a
May 2014 | POWER
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63
typical household £106 (US$176) per month
in 2012, up from £69 per month in 2002, the
ONS said (Figure 1).
Tom Lyon of price comparison website
uSwitch.com said that consumers are having
to ration their energy use, with more than a
third saying that the need to cut back on heating
has affected their quality of life or health.
Unprecedented flooding over the winter
has popularized the idea, even in the rightwing
press, that climate change is a real
threat. With flood cleanup costs reported at
up to £1 billion, more people are coming to
believe that it is worth spending money on renewables.
Yet when they receive their energy
bills, many squeezed householders and business
owners complain about the impact of
green levies, believing that these are largely
responsible for the price rises.
In fact, the ONS figures show that most of
the cost increases in the last decade occurred
between 2004 and 2009. According to the
DECC, green levies in 2013 accounted for
4% of a typical household energy bill, with
support for vulnerable households and energy
efficiency schemes adding a further 5%.
Energy Secretary Ed Davey has accused
utility companies of making excessive profits,
and called on independent energy regulator
Ofgem to consider breaking up the large utilities.
The " big six " firms claim that the UK has
a thriving and competitive power market.
Wind Is Key to a Low-Carbon
Future
The UK's northerly location, exposed coastline,
and large tidal range make wind and
marine sources the obvious choices for largescale
renewable energy.
With wave and tidal power going nowhere
at the moment, wind is the key. The potential
is huge: The UK's total practical offshore
1. Where the money goes. All figures in this breakout of components of the typical
2013 UK household energy bill use real 2012 prices. The chart is based on consumption of 14.8
MWh [equivalent] gas (50.5 million Btu) and 3.8 MWh electricity. Figures may not add up due
to rounding. The wholesale energy costs exclude carbon costs. Source: Department of Energy
and Climate Change

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POWER May 2014

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