Bloomberg News

U.K. Energy Policy May Fail to Meet Carbon Goals, IEA Says

May 30, 2012

The U.K.’s energy policies may fail to deliver nuclear power and renewables needed for the nation to meet its goals for reducing greenhouse gases, the International Energy Agency said.

Britain’s new electricity generation capacity is coming mainly from natural gas fired plants, the Paris-based agency, which advises 28 nations, said today in a report. The government should spur an “efficient mix of new, cleaner generation, more efficient use of existing infrastructure and more flexible demand,” the IEA said.

The report underscores pressure on Prime Minister David Cameron’s government to overhaul the power market in a way that both stimulates investment in new generation capacity and keeps power prices from rising too quickly. The IEA said Britain needs 110 billion pounds ($173 billion) invested in in the industry by 2020 to meet electricity demand.

For the British economy to cut its carbon intensity, “huge private-sector investments in energy infrastructure are needed,” IEA Executive Director Maria van der Hoeven said. “Consumers must be certain that they are paying for the most cost-effective solutions.”

U.K. utilities must replace 12 gigawatts of aging coal and oil-fired plants and 7 gigawatts of atomic reactors by 2020, the IEA estimated. Parliament is considering a draft energy bill that would guarantee returns for nuclear and renewable power.

British Response

“Without the process of market reform, it would not be possible to deliver” the U.K.’s climate and renewables targets, Energy Minister Charles Hendry told reporters today in London. “We happen to be at a time when we need to rebuild our electricity infrastructure in any case, and we need to do it in a low-carbon way.”

Those rules would add to the climate change law that came into force in 2008. It requires the nation to reduce greenhouse gases 34 percent from 1990 levels by 2020 and by 80 percent by the middle of this century. The IEA said those rules have made the U.K. a “world leader in climate change response.”

“The U.K. consistently plays a constructive role in international climate policy, and its domestic policies enhance its credibility,” Van der Hoeven said.

Energy Targets

Britain is targeting 31 gigawatts of installed wind power capacity by 2020, up from 6.6 gigawatts today.

“Deployment of renewables will need to increase sharply over the next decade to meet the indicative level of more than 30 percent of electricity by 2020,” the IEA said in its report.

The country also must replace five of its nine atomic plants, which provide 20 percent of its power. The U.K. can get as much as 50 percent of its power by burning gas, which has almost doubled in price in three years, boosting calls for nuclear expansion.

EON AG (EOAN), RWE AG (RWE) and SSE Plc (SSE) in the past year all withdrew plans to build nuclear reactors in the U.K., leaving Electricite de France SA (EDF), Centrica Plc (CNA), GDF Suez (GSZ) SA and Iberdrola SA (IBE) with proposed projects.

The IEA report was prepared before the government published a draft bill on May 22 outlining an overhaul of the country’s electricity market to spur investment in cleaner forms of energy. The proposed rules would guarantee prices for low-carbon electricity and pay producers for providing back-up supply when renewables fall short.

Three of the measures proposed by the government -- an emissions performance standard for new plants, a minimum price for emissions called the carbon floor price, and contracts setting long-term prices for power known as contracts for difference -- are “more than is strictly necessary” and risk increasing costs for business, the IEA said.

IEA Recommendations

The IEA recommended the government:

-Complete its electricity market reform to “reduce uncertainty” for investors and utilities.

-Work to introduce mandatory fuel efficiency standards for heavy-duty vehicles.

-Raise consumer awareness about its Green Deal program to insulate homes and make them more energy efficient.

-Spur more competition in the electricity market.

-Encourage the exploitation of domestic oil and gas production.

-Develop a national roadmap for the deployment of carbon capture and storage and continue to push the development of four demonstration plants.

-Improve the effectiveness of financial support for renewable energy, and maintain investor confidence as the country moves from its renewable obligation mechanism to a system of contracts for difference that set a guaranteed price level for low-carbon electricity.

-Set “robust and transparent” methodologies for the contracts for difference, and clarify how the contracts will differ between technologies.

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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