Monday, October 08, 2012

Davey goes for gas as €9.5 billion price rise forecast for 2013

Ed Davey at Gastech
 Ed Davey at Gastech today.

Rising gas and power prices will cost European industrial energy buyers an additional €9.5 billion in 2013 according to new forecasts.

The news comes on the day that major corporations including BT and Microsoft are urging George Osborne and the Conservative Party to do more to support renewable energy, and Ed Davey told the GasTech conference about his commitment to gas.

€4.2 billion of these forecast price increases will be due to hikes in gas prices, and €5.3 billion to growth in the price of electricity, market consultants EnergyQuote JHA, will say at their biannual energy price forecasting conference which begins on Wednesday.

UK consumers will see an increase of between 5% and 7%. This is not the highest in Europe by any means: the Dutch will find prices 12.5% higher and Germany Austria and Belgium businesses will face increases of over 10%.

Britain is in the process of approving a number of new gas-fired power stations, which would leave the nation at the mercy of such future price increases. Ed Davey, Energy Secretary, has said that up to twenty could be built over the next two decades.

He told the Gastech Conference & Exhibition this morning that gas will be important even through to the 2040s, and said the sector needed £110 billion of investment in power generation and transportation to 2020.

He said a new generation of gas-fired power stations must be built ready for carbon capture and storage. “CCS matters not only for the continued use of gas in the long-term in the UK; it is also vital for cutting emissions globally. And as we prove the commercial viability of CCS, we have the chance to create in that process an exciting export opportunity for companies that become early leaders in this technology.”

He also said that he is waiting for evidence on the viability of shale gas in the UK before making a decision about it.

He was followed by BG Group's CEO, Sir Frank Chapman, who said: "We must prove that gas is the 'destination fuel' of the low carbon economy".

A new 880 MW combined cycle gas turbine (CCGT) power plant, which will be built by engineering consortium Alstom Duro Felguera and Carrington Power, secured financial support for its development in Manchester last week.

That the gas industry is in buoyant mood is evident at its industry conference, which is happening this week at ExCeL London.

Tomorrow, the conference is being attended by Russian Energy Minister Alexander Novak, giving his first press conference in the UK since he was appointed to the role in May this year. He will be anxious to promote the advantages of Russian gas.

He is being accompanied on his visit to this country by Alexey Kalinin, who, as Rosatom’s Head of International Business, represents another Russian energy sector, nuclear power, that is anxious to sell into Britain.

He will be speaking about Rosatom’s willingness to develop a new nuclear skills base in the UK, to an audience at a Centre for Policy Studies Fringe Meeting during the Conservative Party Conference, that will include John Hayes MP, the new Minister for Energy & Climate Change.

Whether Britain builds a new generation of gas-fired power stations, new nuclear plants, or invests further in home-grown renewable energy, will determine not just the price of energy in the future, but UK energy security and whether the country will meet its 2050 carbon emission targets.

Major companies lobby Osborne

Over 50 companies, investors and industry bodies, including EDF, BT, Microsoft, Marks & Spencer's and PepsiCo, are signatories to a letter sent to George Osborne, David Cameron and other senior Tories today, warning that sending out mixed signals on energy policy risks undermining investment in renewable energy.

They back the setting of a 2030 target for decarbonising the electricity sector, which is urged by the Committee on Climate Change, because reliance on gas beyond 2030 would be incompatible with meeting legally binding emissions targets set under the 2008 Climate Change Act.

“It is essential for government to provide investors with the long-term confidence they need to transform our electricity market and make investments capable of driving wider economic growth,” the letter says, going on to warn that the Government's commitment to green power is being “undermined by recent statements calling for unabated gas in the power sector beyond 2030”.

"Failure to act at sufficient scale and pace will undermine our prosperity and cause us to miss out on the huge commercial opportunities associated with the global shift to a low carbon, resource efficient economy," it says.

The letter is organised by the Aldersgate Group.

Decarbonisation target

The Financial Times is reporting today that utility company SSE also supports a 2030 carbon intensity target, because it “could provide much-needed certainty for low-carbon investors, showing developers that the government is committed to decarbonisation in the long term”.

Both Labour and the Liberal Democrats are in favour of a 2030 decarbonisation target of 50g CO2/kWh, which will be set in the context of the Energy Bill that will be laid in final draft before Parliament towards the end of the year.

Ed Davey's recent thinking is that there should be such a target, but within it there should be some flexibility. He reportedly wants to see a target range for different sectors.

This is a model also being considered for an amendment to the Bill by Friends of the Earth.

This would stipulate a general 50g CO2/kWh by 2030 target, but allow for flexibility within the context of an overall 2050 carbon target. The fixed target would be invoked in primary legislation, but secondary legislation could support different targets for, say, transport.

This would take the burden of responsibility away from resting solely upon the energy sector.

The environmental lobby body is cautious however. Donna Hume, FoE's energy campaigner, has warned that adopting a decarbonisation "range" instead of a specific target could result in the UK failing to deliver the necessary emissions cuts.

"A decarbonisation target would provide greater clarity on the direction of travel for many renewable energy businesses after 2020," she said. "It would also ensure it was a more democratic and transparent process."

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