Are we heading for an energy crisis – MoneyWeek

Whydidtheypullout?

Thefirmssaylastyear’snucleardisasterinFukushima,Japan,islargelytoblame。

GermanChancellorAngelaMerkelreactedbybanningnewnuclearreactorsandhasteningtheclosureofGermany’sexistingstations。

ThelossoftheirdomesticnuclearmarketmakesdevelopingUKnuclearpowermoreriskyandexpensiveforE。

OnandRWE。

Andbothfirmsarealsostrugglingwithdebt。

Together,theyowearound£55bnlinkedtopre-crisisacquisitionsandtheyarenowtryingtoraisecapitalbysellingassets。

However,someindustryinsidersputthemainblameontheUKgovernment。

Publiclyithascommittedtonuclearenergy。

ButdelaysanduncertaintysurroundingthecomingElectricityMarketReformbillclearlyunsettledtheGermans。

Inparticular,thegovernmenthasyettoannouncethesizeofthefuturepublicsubsidyfornuclearpower。

Withoutthis,thetwofirmsareunwillingtoinvest。

Sowhathappensnext?

ThegovernmentisdesperatelyscramblingtohelptheGermanfirmsfindabuyertotakeovertheproject,butsofarnoonehascomeforward。

Anothernuclearconsortium,NuGen,whichisbackedbysomehugeplayers,suchasGDFSuezofFranceandSpain’sIberdrola,sufferedasetbackwhenScottishSouthernEnergypulledoutsixmonthsago。

NowtheonlygroupthatislikelytobuildanuclearplantwithinthisdecadeisthealliancebetweenFrenchstatefirmEDFEnergyandCentrica,ownerofBritishGas。

Ifthegovernmentcan’tfindanotherfirmtodevelopnuclearpower,itwillbeinaveryweakpositiontonegotiatethesizeofthenuclearsubsidylaterthisyear。

Willthelightsgoout?

FornowtheUKhasahealthybufferbetweensupplyanddemand。

Intotal,thecountry’spowerplantshaveanestimatedinstalledcapacityof90,000MWwhilepeakdemandisonly60,000MW。

However,manyofthoseplantsareoldnuclearstationsthatneedtobereplaced,orcoal-firedplantsthatwillsoonfallfoulofEuropeanregulationsoncarbonemissions。

Someanalystspredictthatupto20,000MWwillgowhenpowerstationsareshutdownoverthenextfouryears。

Meanwhiledemand,whichhasbeensuppressedbytherecession,isexpectedtosoarbackuptopre-crisishighsby2015。

AstrongeconomicrecoveryoraparticularlyharshwinterwouldleavetheUKwithnobuffer,shoulddemandspike。

Istheonlysolutionnuclear?

ThelastgovernmentsignedtheUKintolegallybindingcommitmentstocutcarbonemissions。

Thatmeansthecoalitioncanonlykeepthelightsonwith‘lowcarbonenergy’。

Theplan,revealedinlastyear’sElectricityMarketReformwhitepaper,wastomakeacombinationofwindandnuclearthecornerstoneofa£200bnoverhaulofthecountry’spowernetwork。

Butwhilewindpowerisprogressingnicely–installedcapacitygrew40%lastyeartoreach6,000MW–itcan’treplacethelostnuclearpower。

That’sbecausewindpowerisintermittent–ifthewindisn’tblowing,itdoesn’tproduce;andifitblowstooharditshutsdowntoavoiddamage。

Somanyonlygeneratefullpowerforabouteighthoursinaday。

Whataboutgas?

Differentproblemswithcoal,nuclear,andrenewablesmeanBritainislikelytoturntogas。

Stationsfiredbygasarefarcheapertobuildthannuclearandthefuelproduceslesscarbonthancoal。

Yetmanyutilitiesdon’tseemkeentobuildmorewithoutmoregovernmenthelp。

Thisyear,thankstodwindlingNorthSeareserves,theUKbecameagasimporterforthefirsttimesince1967。

AndastheTotalgasleakprovedlastweek,thegasthatisleftintheNorthSeaisgettingmoredifficultandexpensive–toexploit。

RisingUKgaspriceseithermeanlowermarginsforutilitiesorhigherpricesforconsumers。

Centricahasproposedclosingtwoofitsgasplantsandtherearefearsthatmanyoftheplannedgasplantsmayneverbebuilt。

Willthisaffectbills?

Annualaverageenergybillshavedoubledinthepastfiveyearsto£1,345。

Theregulator,Ofgen,wasallowingbillstorisesothatfirmscouldinvestinnewgeneratingcapacity。

Yetwithlittleofitbuilt,billswillcontinuetogoup,especiallyifthegovernmentremainscommittedtocuttingcarbon。

BrokerLiberumCapitalestimatesourpowerbillscouldgoupafurther70%by2020。

Willshalegassaveus?

NewtechnologyhasallowedAmericatoexploitunconventionalgasdeposits,knownasshalegas,inthelastdecade。

Thecountrynowhassomuchnaturalgasthatit’sconvertingimportterminalssoitcanexportthestuff。

Couldthesamehappenhere?

AdiscoverythisweekhasaddedtoBritain’sconsiderableshalegasreserves。

Estimatespointto210trillioncubicfeetofshalegas–morethanisleftintheNorthSeaand,intheory,theworld’s11thlargestshalegasreserves。

Anabundanceofnaturalgaswouldmeancheaperpricesfromgas-firedpowerstations。

However,withthegovernmentstilldealingwithearly-stageenvironmentalobjections,it’stooearlytosaywhethershalegascouldbeBritain’senergywhiteknight。

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