Power stations across the UK are coming to the end of their natural life. Most of the current fleet of nuclear power stations, which make up about 16 per cent of electricity generation, will be decommissioned by 2020, and many coal-fired power stations will follow. In all, at least 20GW worth of power stations of all kinds will have to be replaced in the next ten to 15 years.

This represents a challenge for the UK, but also an opportunity for energy companies, which have much to gain from building new capacity to replace the current ageing models. When generating capacity is replaced, it can also be made cleaner and greener, by investing more in renewables and using modern techniques such as carbon capture and storage to reduce greenhouse gas emissions. The UK has the most liberalised energy market in Europe, allowing companies from overseas to participate in this expansion.

As a result, there have been many moves to invest in UK energy, with more on the horizon. Chris Elfton, director of projects at npower, owned by Germany’s RWE, says his company is investing in several aspects of energy generation in the UK, including cleaner fossil fuels and renewables. In mid-2007, RWE announced a new £800 milliion investment in gas power in the UK, bringing the company’s total low-carbon investments for the year, including wind, to £1.7 billion.

In his view, two factors have combined to create good conditions for investment. He explains: “Firstly, there is a real need for new power plants in the UK, as older ones approach retirement over the coming decade. Secondly, the regulatory regime in the UK has created a framework for a market that rewards lower CO2 investments, which makes gas and wind power more profitable.”

He adds: “There are even bigger investments possible down the track, which rely on the government setting a longer term regulatory framework to encourage more expensive technologies like cleaner coal and potentially new nuclear power.”

The UK’s energy consumption fell 1.3 per cent between 2004 and 2005, as the economy became more energy efficient, in line with government aims. Total consumption stood at 224m tonnes of oil equivalent, and the UK’s electricity generating capacity is about 75GW. The UK is one of the biggest producers in the European Union of the leading energy sources, accounting in 2005 for 70 per cent of the crude oil produced in the EU25, and is also the EU25’s largest gas producer, accounting for 44 per cent of total production in 2005. After Poland and Germany, the UK is the EU’s third biggest producer of coal.

But as the problem of climate change looms larger, the UK’s renewable industry is growing in importance. Renewables made up 4.3 per cent of the UK’s electricity generation in 2005, up from 3.7 per cent in 2004, and the government supports the EU pledge to generate 20 per cent of energy from renewables by 2020. The industry employs more than 8,000 people, projected to be 18,000 to 25,000 people by 2020.

Andrew Whalley, chief executive of Renewable Energy Generation, says the future looks bright: “The UK has a very good wind resource some 40 per cent of the total European resource. That is a little like having huge gas reserves, except the gas won’t run out. The country has a well-developed electrical infrastructure, which enable many small wind projects to be connected easily and at modest cost.”

He also attributes the “buoyant” renewables market to the nature of the UK government’s regime to encourage renewable energy production, by which producers do not receive direct subsidies from the taxpayer but instead the major electricity producers are fined if they fail to deliver a certain amount of energy from renewables each year, which they can produce themselves or buy from small specialist renewables companies. Mr Whalley believes: “The UK is a good place to dedicate energy R&D expenditure chiefly because of Britain’s great universities, and a growing skill base in renewables.”

The government provides several forms of assistance for companies investing in different forms of renewable energy. For instance, the Hydrogen and Fuel Cell Carbon Abatement Technology programme provides £15 million for R&D. Customers of some renewable energy companies also receive government help: installing solar panels or mini-wind turbines attracts grants of around £1,000 each.

Outside investors have also found the UK an attractive place. Sharp, one of the world’s biggest solar power manufacturers, has only five solar production sites worldwide, and one of them is in the UK at Wrexham. Production of solar cells started at the site in 2004 and in 2007, the company’s millionth solar module came off the assembly line at the plant. Sony also announced plans in 2007 to manufacture solar electric roof tiles at its Pencoed plant near Bridgend in south Wales, which used to make television sets.

Smaller renewables companies also play a big role. Alan South, chief innovation officer at the fast-growing UK-based solar company Solarcentury, whose solar roof tiles will be made at Sony’s plant, says: “Being in the UK, and especially in London, gives us as a growth company certain important advantages. For our business, we have easier and more convenient access to investment capital. We do all of our R&D in London and find it an excellent place to do so.”

He concludes: “London is really the European centre for the type of talent we need in order to win in our business.”



CONTACTS:

Association of Electricity Producers
www.aepuk.com

British Photovoltaic Association
www.pv-uk.org.uk

British Wind Energy Association
www.bwea.com

Energy Networks Association
www.electricity.org.uk

Energy Retail Association
www.energy-retail.org.uk

Ground Source Heat Pump Association
www.nef.org.uk/gshp/

National Energy Foundation
www.nef.org.uk

Renewable Power Association
www.r-p-a.org.uk

The Coal Authority
www.coal.gov.uk

UK Nuclear Industry Association
www.niauk.org

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