Oct 13, 2005 -- Datamonitor

 

UK energy issues are in the limelight at the moment: new nuclear build, gas supply and renewable obligations have all been debated amid the increasingly vocal complaints of energy buyers facing steep price rises. Now more than ever, the UK government needs to articulate a comprehensive, balanced and long term energy policy to allow the private sector security in its investment decisions.

The three principle legs of energy policy are: guaranteeing security of supply, ensuring that these sources are available at an internationally competitive cost and ensuring that the net environmental impact of these sources is acceptable. It is only natural that within a complicated field such as energy a series of historical events and overlapping decisions have led to conflicts between these three areas.

One example of this type of conflict is the Renewables Obligation (RO) scheme which has recently come under strong attack from the government's Public Accounts Committee (PAC). PAC claims that the current scheme is at least four times as expensive as other methods of reducing carbon emissions and that a direct carbon tax would be both simpler to administer and more effective. However a carbon tax may not lead to the rise in renewable (and domestic) energy supplies that the RO scheme was designed to support, as other forms of non-renewable carbon emission abatement may prove to be more economically attractive. Indeed, a reduction in investment in UK-based energy sources would diminish the overall security of supply.

Prime Minister Tony Blair and other government representatives have recently started to come out publicly in support of new nuclear build, citing security of supply, job creation and carbon reduction emission targets as factors favoring further nuclear investment. While many people disagree with additional nuclear build based on wider environmental concerns and perceived safety issues, the three factors cited by Mr Blair are worthy goals. A framework needs to be established within which private companies can find the security to make these necessary long term investment decisions.

Meanwhile, security of gas supply for the UK, in its future as a net gas importer, must revolve around ensuring diversity of supply. While some commentators have labeled as risky the possibility that the UK may end up depending upon a country like Russia for up to 10% of its gas requirements in the future, the reality is that the UK will soon be in the fortunate position of having both pipeline and LNG import capacity, in addition to domestic reserves, giving it a wide variety of suppliers to choose from.

The latest Datamonitor survey of 3,500 UK energy buyers has shown that the blame for current record high energy prices is being laid firmly at the door of the government, as buyers see the absence of a comprehensive energy policy as being largely to blame. It should also be cause for concern for policy makers that energy buyers gave only a lukewarm response to the nuclear option when questioned and do not tend to reduce their energy consumption proactively. Given that the investment timeframe is so long term and buyers seem unwilling to take action themselves, the government should act sooner rather than later to provide some clarity for what is currently a very murky future.

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