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Jones Lang LaSalle house view – UK energy bills set to increase

London, 22  February 2013 - This week, energy watchdog OFGEM warned that consumers are likely to  suffer higher energy bills in the not too distant future as ageing coal and nuclear power stations close and the price and demand for foreign gas supplies increases within the British energy industry. The Office of the Gas and Electricity Markets (OFGEM ) suggests this will mean the reserve margin in electricity generation will fall from around 14% to below 5% over the next three years.

To address this looming issue and to assist with reducing the UK’s dependency on costly fossil fuels, energy experts and green campaigners maintain that the government should introduce a well thought out energy programme that gives businesses the confidence to invest in renewable sources of energy.

Dane Wilkins, Head of Renewable Energy Capital at Jones Lang LaSalle, said: “The decommissioning of a number of coal-fired and nuclear power stations and lack of new technological development such as carbon capture storage presents an opportunity for the renewables industry to step-up and accelerate the build out of new solar, wind and biomass power stations, all of which can come on-line in the short term and help the UK achieve its target  of sourcing 15% of its energy needs from renewables by 2020.”

Dane Wilkins continued: “However, renewables alone cannot completely compensate for the tightening reserve margin expected in the next three to five years, meaning gas will continue to play an important role in balancing the grid and ensuring the lights do not go out. OFGEM estimates up to 70% of the UK's generation in 2020 might need to be sourced from gas, as new technologies will be unable to fill the supply gap in the short term.  However, this reliance on gas will come at a cost and concerns remain over the price consumers will have to pay for this dependence, as world demand for gas is set to rise, while the UK's owns supplies are due to fall by 25% by the end of the decade.”

Dane Wilkins added: “In the medium term, the UK should stay on its pre-set course of sourcing its power needs from a balanced mixed portfolio of power stations which includes new nuclear, renewables, gas and clean coal.  Furthermore, investments in energy efficiency and demand-side response will help reduce the burdens placed on the electricity and gas networks. This will enable the government to achieve its trinity of objects; secure power; affordable power and creating a global leading energy industry exporting banking, legal and engineering skills to build power stations in emerging markets.”

Dane Wilkins concluded: “Innovative schemes such as the Green Deal are set to play an important role in this respect but a certain amount of uncertainty in the energy industry remains as the details of the Energy Bill are yet to be ironed out. Key questions over strike prices, the capacity mechanism and a decarbonisation target are yet to be resolved and these will crucially have a big impact on investor appetite in the sector. New investors including infrastructure and pension funds need to be brought into the sector but to do this the government needs to provide a robust support framework that will reduce risk to acceptable levels while ensuring consumers do not pay over the odds. Renewables have a crucial role to play in this respect as technology costs continue to fall across the board and support for shale gas in the UK remains tepid. The challenge of installing more and more renewables is considerable but the long term benefits of doing so will be substantial especially in light of current predictions surrounding volatile and increasing gas prices.”

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