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LONDON -(Dow Jones)- Up to GBP200 billion needs to be spent on energy-related infrastructure in Great Britain over the next 10 to 15 years to ensure the country can meet its targets to cut carbon emissions and shore up its energy security, British energy regulator Ofgem said Friday.
British energy users are likely to face steeper bills as a result, with the investment for new power plants, gas storage facilities, upgraded power grids and increased renewable generation to be funded by consumers, the watchdog said.
Ofgem warned that energy bills could rise by as much as 60% over the period if wholesale energy prices remain volatile, although the figure may vary depending on global economic recovery, levels of infrastructure investment, and the government’s environment targets.
“These are big challenges. Consumers are already enduring high energy prices,” said Ofgem chief executive Alistair Buchanan.
The U.K. has a binding European Union target to meet 15% of its energy demand from renewable sources by 2020, from around 2% now, as part of a broader EU-wide plan to cut emissions.
In all four scenarios that Ofgem outlines over the next 10-15 years, Britain becomes increasingly dependent on natural gas imports.
The report also found that Britain will need to make significant changes in the way it generates and consumes power in order to manage fluctuations in power generation resulting from the nation’s increasing dependence on intermittent wind power.
Ofgem forecasts domestic energy bills could rise between 14% and 23% by 2020 as between GBP95 billion and GBP200 billion is invested to secure energy supplies and lower carbon emissions. In a worst case scenario, average annual household energy bills could spike over 60% from current rates to almost GBP2,000 in 2016.
Utility companies agreed Friday that massive investments need to be made and called on the U.K. government to speed up the planning process for new coal and nuclear power plants and grid links, and lay out a clear policy framework so investments could be made.
The U.K. government, which has championed a liberalized energy market, has been reluctant to directly subsidize investments that utilities need to make to ensure the lights stay on.
As a result, investment in new infrastructure such as renewables and gas storage capacity has lagged compared to other European countries. Private energy companies haven’t had the confidence to invest in the U.K.’s energy infrastructure because of a lack of clear direction from the government
“It is vital that the U.K. is attractive for investment in energy infrastructure. Important too that the framework set by government enables companies to make the most cost-effective investments,” said David Porter, CEO of the Association of Electricity Producers.
The U.K. Department of Energy and Climate Change called Ofgem’s report “prudent”, even if the scenarios are “unlikely”.
“Ofgem is examining a range of hypothetical scenarios, it’s prudent to do so, however unlikely they are. What’s clear, and set out in our transition plan, is that there’s no low cost high carbon future,” DECC said in a statement.
The Conservative party – currently leading the polls – has pledged that, if elected, it will immediately approve 5 gigawatts of clean coal capacity, push through planning guidance for new nuclear power stations and step up efforts to boost the electricity network to cope with more renewable generation.
“To meet this investment challenge, crucial decisions that will set the investment framework for projects that will ultimately deliver the U.K.’s energy objectives have to be made well before 2015,” said Tony Ward, partner in Ernst & Young’s power and utilities team. Earlier this year Ernst & Young estimated U.K. energy companies would need to invest GBP199 billion to 2025 to meet emissions reduction targets and boost renewables.
“Given the long lead times involved for most of the investment projects required, confidence in the policy framework needs to be high by early 2011,” Ward added.
Ofgem is the energy regulator for England, Scotland and Wales. The energy sector in Northern Ireland is regulated by the Northern Ireland Authority for Utility Regulation.
Company Web site: http://www.ofgem.gov.uk -By Alex MacDonald and Selina Williams, Dow Jones Newswires; 44 20 7842 9328; [email protected]; [email protected]