2013-09-15 09:31:38 - Recently published research from Business Monitor International, "United Kingdom Power Report Q4 2013", is now available at Fast Market Research
BMI View: While it is clear the UK must press ahead with plans to secure its long-term energy supply if it is to avoid a power crunch, progress has been slow and hopes are now being pinned on the country's Energy Bill and its various provisions. Although we maintain that the bill is muddled - with the UK's focus on a very broad range of options raising questions about the economic viability of pursuing them all as the country emerges from a recession - the government's plans to encourage cleaner gas-fired generation (under the Gas Generation Strategy) and greater adoption of renewable technologies look to be some of the more feasible aspects of the country's energy strategy. As a consequence,
although the economics of coalfired generation will make the fuel a more profitable way to generate electricity in the short term, the utilisation of gas for power generation is forecast to increase gradually, with David Cameron's claims that 'no regulation must get in the way' of shale gas exploration creating potential upside to our long-term forecasts.
Full Report Details at
- www.fastmr.com/prod/673166_united_kingdom_power_report_q4_2013.a ..
Despite the fact a vast number of power plants are likely to be shutdown or mothballed due to emissions reduction policies, the UK has hitherto failed to attract sufficient investment into its power sector. With around a fifth of existing installed electricity generating capacity due to be taken offline over the next 10 years, and electricity consumption set to rise (albeit slightly), the UK is heading for an energy deficit that could result in supply disruptions from around 2015/2016 unless the government addresses the issue.
We have highlighted previously that the country's Energy Bill, which should be signed into law in 2013, will be crucial in establishing a policy that can secure the UK's energy future. Yet, while the Bill includes provisions on decarbonisation, Electricity Market Reform (EMR) and nuclear regulation that go some way towards ending speculation and outlining a strategy for replacing power capacity, we believe the UK's energy policy is a product of a difficult compromise between the two coalition partners - with differences over policy likely to become more pronounced as the Conservative Party and the Liberal Democrats fight the 2015 general election on separate platforms. As a consequence, we question whether the aims of the bill can actually be realised in practice.
With regards to the broader energy sector, key areas of focus include gas, nuclear, renewables, and carbon capture and storage (CCS) technology. Yet despite the broad range of different technologies, we continue to hold the view that, with only limited progress having been made in bringing new nuclear capacity online, and CSS still technically immature, the gas and renewables industries look to be generating the most discussion - with the UK's Gas Generation Strategy having been published shortly after the draft Energy Bill was released in 2012. To this end, there is upside potential for shale gas, which could prove a particularly welcome development, especially as North Sea gas reserves continue to dwindle.
Key trends and developments in the British electricity market:
* In June 2013, the UK's electricity market regulator published a report warning that the risk of blackouts by 2015 was higher than previously thought. Ofgem said urgent action was required to ensure there is no potential shortfall, and highlighted that it has lowered its capacity forecasts for 2015 by more than 2,000MW - based on slow progress in bringing new power plants online. Electricity network owner National Grid is also reported to have mooted an idea that would see the government pay large businesses to cut energy usage during times when there are shortages.
* Meanwhile, Prime Minister David Cameron stated that 'no regulation must get in the way' of tapping the UK's shale gas reserves, while speaking during an EU energy summit in May. Underscoring the government's desire to pursue shale gas exploration, on July 19 2013 it unveiled a new draft tax allowance, under which taxes payable on shale gas production incomes would be reduced from 62% (the amount payable on conventional production) to 30% - the 'most generous' shale gas tax regime in the world.
* Notably, the draft tax allowance bill was announced following the release of a British Geological Survey (BGS) report in July 2013, which doubled estimates of the UK's potential shale gas resources to 36.81trn cubic metres (tcm). Aware of the potential rewards on offer, Centrica has officially moved into the UK's nascent shale gas sector, partnering with Cuadrilla Resources in the Bowland Basin.
* In May 2013, EnergyUK, an industry body that represents power companies such as Centrica, EDF and RWE npower, wrote to Energy Secretary Ed Davey, claiming that action was urgently needed to decide on a capacity mechanism that would encourage investment in gas generation capacity, especially at a time when coal-fired capacity is more profitable.
* Treasury Chief Secretary Danny Alexander's announcement that the UK government will offer EDF a US $15bn loan guarantee could help push the French nuclear provider into making the final investment decision (FID) on the Hinkley C nuclear power plant in Somerset. The loan guarantee is critical to EDF, which claims it needs to realise a price of around US$145 per megawatt hour (MWh) for electricity if the project is to prove economically viable. However, we note that EDF is still negotiating with the government over a 'strike price' - a critical factor in the advancement of the project.
About Business Monitor International
Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at www.fastmr.com/catalog/publishers.aspx?pubid=1010
About Fast Market Research
Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.
For more information about these or related research reports, please visit our website at www.fastmr.com
or call us at 1.800.844.8156.