The Great British Energy Crisis



Chapelcross Cooling Towers – via Flickr

The UN Climate Change Summit 2014 marked an important milestone for the future of UK energy policy, as indeed it did across the globe with renewed promises to cut total emissions by 80% by 2050 and to instigate a collective move towards Nuclear and Renewable energy. Whilst the UK may be on track to achieve its long-term goals in energy policy, the security of the country’s immediate energy supply does not remain so certain.

It may not be fair to call the current situation regarding the security of the UK’s gas imports a crisis but looking to the not too distant future, an over reliance on Russia and the Middle East may well lead to problems. In 2012 North Sea oil provided just over 50% of the country’s gas requirements but now that supplies are dwindling the UK must look to import more and more from overseas (estimated at 69% by 2019). For example, the UK as a result is more dependent on Qatar, whose natural gas imports to the UK grew by 67% between 2010 and 2011 and remain high. Late last year Centrica, the parent company of British Gas secured a five year contract with Qatargas to supply enough gas to underscore the country’s dependence on the North Sea reserves yet when this contract ends in 2018 it is uncertain whether the contract will be renewed amid growing global competition. In addition, the impact of the United States’ engagement with Middle-Eastern gas supplies must not be overlooked since if BP and The International Energy Agency are correct in their predication that the U.S will become energy independent by 2035, their involvement in the Middle East will quickly start to decline. Given how intertwined energy security and foreign policy can be, a decision by the U.S to withdraw interest in the area, which some say is beginning to occur, will reduce levels of policing in supply and distribution and could negatively affect the influence of countries including the UK and other EU members in future oil or gas contracts.

Geopolitics also play a crucial role in energy prices, and we must only look to the effects of the tensions in Ukraine to see examples of this and how diplomatic relations can often impact on energy supply and pricing on a wide scale. Naftogaz Ukrainy Chief Executive Officer Andriy Kobolyev said on September 23rd that there is more than a 70% chance that Russia will decide to turn off the gas taps to Europe via Ukraine this winter which according the energy experts will result in a hike in prices of up to 100%. Whilst this is less alarming for the UK than for other European countries given that our gas imports from Russia only total 15% of our entire supply, other countries such as Belarus, Finland and Bulgaria rely on Russia for up to 100% of their energy which of course creates sky high competition and prices.[1]

Future of UK energy policy

Looking towards the medium-term, one possible solution is clear; nuclear power. It is of course a divisive suggestion with some highlighting its potential contribution to the 80% greenhouse gas reduction target and ability to plug the ‘energy gap’ in the 2020s, yet with others pointing to colossal capital expenditures and labelling it a postponing of sustainable, renewable investment. Public opinion does seem to favour nuclear energy over other sources though with a survey by Harris Interactive (2013) revealing that 24% consider it to ‘offer the greatest potential,’ ahead of solar energy (23%) and wind energy (18%). Beginnings of a new nuclear roll-out have been put in motion by the government who gave the go-ahead to energy companies to build the first new reactor in a generation at Hinkley Point C in Somerset in 2013. Whilst the upfront cost of constructing the reactor is estimated at £16bn, the effect it will have on energy prices are wholly positive with projections suggesting a strike price (as of 2023) of up to 25% less than current prices for solar energy. We must only look across the channel to see how nuclear energy can work not only in the medium-term but also longer-term. Over 90% of France’s electricity is produced by nuclear and hydro-electric power and with the surplus generation it gains €3bn yearly from exportation. However, the 59 active plants in France dwarf the UK’s operational 16, and so without substantial investment Britain’s nuclear capabilities will remain useful and maybe even essential to assist gas as a transitional power source, but are unlikely to become a focus in UK energy policy.

Looking even further into the future of UK energy policy there is an expectation that renewable energy will come into focus and become the main energy source globally. This raises some questions. Government sources indicate that the UK is on track to achieve its goal of producing 20% of total electricity by renewable energy by 2020 with the most recent figure standing at roughly 14% in Q2 of this year. That said, are these targets high enough and will the UK government and EU raise targets according to exponentially falling costs of renewable technologies? WWF UK for example claim that by 2030 90% of our energy needs could be met by green energy as could 80% of those across Europe. However, while this may be technically possible with large investments it is perhaps unrealistic and too much too soon in the real world with other priorities. Although new technologies such as the use of magnesium chloride in solar cells promise to rapidly reduce the price of renewable energy to match that of coal and gas within the decade, it is surely just as important to ensure a secure and cheap supply in the meantime. It does seem then that the UK is heading in the right direction in terms of its energy policy but it is not so clear whether a move from gas to nuclear or renewable power will come soon enough.

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