The government has given yet another indicator that its strategy for keeping the lights on in the UK over the coming decades will lean heavily on gas-fired power generation, which has positive implications for UK-focused gas producers such as
A report from the Department for Energy and Climate Change (DECC) this week signalled support for hydraulic fracturing, or 'fracking', as a means of releasing potentially significant onshore shale gas reserves. The report was commissioned after drilling by privately owned
This followed last month's announcement from DECC that the Emissions Performance Standard, which governs the emissions from power plants, will be enshrined in the forthcoming electricity market reforms at 450g of carbon dioxide per kilowatt hour until 2045. This rules out new coal plants without carbon capture and storage but allows gas plants to continue at current levels of emissions for another 30 years without the need for carbon capture and storage.
And the emphasis on gas-fired production, coupled with the government's longstanding commitment to nuclear power, has prompted some concern among supporters of the renewable energy industry as to the true level of support. Onshore wind in particular could be vulnerable. In February, more than 100 MPs signed a letter calling for an end to onshore wind development, and comments from Climate Change minister Greg Barker last weekend that Britain has 'the wind we need' onshore, suggested a further cooling towards the sector. There are 350 wind farms already in operation and 500 in planning or under construction. But the prospect of local planners becoming more emboldened against wind farms, and financiers becoming more wary, could reduce the number being built in the coming years.
SHARE TIP UPDATE
The preponderance of gas-fired power is likely to benefit UK onshore gas producers such as IGas Energy and Alkane Energy, which both have producing coal-bed methane sites as well as shale gas opportunities within their portfolios. We rate both companies as buys at 57.5p and 21.75p, respectively. But the growing uncertainty about onshore wind support leads us to downgrade