• Log in
• Register free
• Subscribe
• Help
• Tour & Trial IC Advantage

Uncertain outlook for Britain's energy

Created:

23 December 2008

Written by:

Martin Li

The European Commission has cleared the proposed takeover of British Energy by French giant EDF, subject to the parties meeting certain competition conditions. EDF plans to use the acquisition to launch a new generation of nuclear plants in Britain.

The deal paves the way for state-of-the-art nuclear power in the medium term, but highlights the energy shortfall facing Britain in the intervening years as ageing coal and nuclear power stations are retired from service. Current estimates suggest a third of present UK generating capacity will have been decommissioned by 2020. Steve Holliday, chief executive of National Grid, estimates that all of this will need to be replaced - at a cost of around £100bn - to avoid a supply crunch hitting around 2015.

Generating capacity is being lost just as North Sea gas reserves are rapidly dwindling, leaving the UK increasingly reliant on imports. However, the UK wants to avoid having to rely on Russia, which supplies over a quarter of Europe's gas. Russia recently threatened to cut supplies to Ukraine over a non-payment dispute, echoing the price row that disrupted European gas supplies in 2006. Ukraine carries 80 per cent of Russian gas destined for Europe and the fear is that it might siphon off Europe-bound gas if its own supplies are cut.

Given the long lead time (and lengthy political debate) for nuclear plants and the uncertainty of importing Russian gas, the UK government is considering sanctioning a new coal-fired station in Kingsnorth, Kent. This would be the first new coal plant in over three decades, but faces vehement opposition from environmentalists. Several others could follow if Kingsnorth is given the go-ahead.

However, reverting to coal before adequate carbon-capture technology is available would endanger the UK's commitment to the European Union's ambitious target to generate 20 per cent of all electricity from renewable sources by 2020. The contribution of renewables is further threatened by the plunging oil price, which Opec's production cuts have so far failed to reverse. Cheap oil might help economic recovery but it renders many fuel sources, including offshore wind energy and coal with carbon capture and storage, economically unviable.

• Share Tips
• Trading
• Companies
  • By sector
  • By event
  • A-Z listing
  • Announcements
  • Aim
• Markets and Sectors
• Columnists
• Stock Screens
• Funds Data
• Research Tools
• Investment guides
• Events
• Q and A

requires IC Advantage

---

Win £1000

You could win a grand by voting in the IC/FT Wealth Management Awards

Click here to vote