Time, money pressures rise for UK power industry

Major power utility companies in the United Kingdom are repeating warnings that they have made over the past two years of an impending power gap. At the same time, a study by Ernst & Young states that the country's power industry requires an investment of $340 billion by 2025 to secure the supply of power and meet targets for carbon emissions and renewable energy.

A decision at the government level that was due last year on an application to build the first new coal-fired plant in Kingsnorth, Kent, is now not expected until the third quarter of this year, as Ed Miliband, Secretary for Energy and Climate Change, ordered a fresh review of coal policy, The Guardian reported. The decision on Kingsnorth, expected to precipitate more submissions for coal-fired projects, had already been delayed by a government industry probe into what power companies building new coal plants would be required to do to make their projects "CO2 capture ready."

The power industry maintains that its ability to build new plants in time to meet the power gap presented by the closure of older generation nuclear and coal plants is threatened, and the government maintains that it is aware of the need to ensure energy security and that a decision on Kingsnorth will follow current consultations.

The increase in the investment requirement of $240 billion by 2020 estimated by Ernst & Young in June 2008 to $340 billion by 2025 was the result of an increase in costs for renewable power generation and the nuclear power building program, which was not featured in the 2008 study, commissioned by Centrica, one of Britain's big six power suppliers. Steve Jennings, head of Ernst & Young's power and utilities, told Reuters that the costs of offshore wind rose to $3,770 per kilowatt-hour (kWh) from $2,755 per kWh, causing inflation in the cost of components and the weakening of the United Kingdom's currency.

The study said that a $163 billion investment in renewable energy would be needed by 2025 to produce 57,100 megawatts (MW) of renewable energy, including 33,000 MW of offshore wind. New nuclear power generation would take $57 billion to add 12,800 MW by 2023; gas-fired plants would need $9.2 billion to bring 13,100 MW online by 2021; and $10.5 billion would be needed to add 3,200 MW of coal-fired power by 2025.

The offshore transmission grid, onshore grid reinforcement and distribution network enhancement would need $41 billion, and target supplier obligation on carbon emissions reduction would take $22.7 billion. Gas storage capacity of 75 days' supply would need an investment of $12.2 billion.

The Ernst & Young scenario assumed that 40% of the electrical power would come from renewable resources by 2020 and that carbon emissions would be cut by 26% from 1990 levels by 2020.

Jennings concluded his comments on the report by saying that in broad terms, investment would double from current levels and profits would have to double from current levels even though the level of returns would be the same.