Meeting future energy needs

The need to secure energy to heat and power homes, organisations and businesses, and the need to safeguard the environment for future generations, means the framework within which energy companies operate is, and will remain, a major public policy issue in the UK and Ireland and in the EU as a whole.

The context for energy policy in the UK and Ireland, SSE’s principal areas of operation, is set by the EU 2020 Climate and Energy Package, adopted in April 2009, and the EU Renewable Energy Directive, which came into force in May 2009.  The Directive requires Member States to deliver on average 20% of their final energy consumption by 2020 using renewable energy sources.  The UK target is that 15 percent of all energy (electricity, heat and transport) should come from renewables by 2020. This target is the most challenging of any EU Member State because, to achieve it, around 30% of the electricity consumed in the UK will have to come from renewable sources, compared with just 5.5% at present; for Ireland a similar step-change in renewable energy output will be necessary.

In February 2010, the second report of the UK Industry Taskforce on Peak Oil & Energy Security, of which SSE is a member, was published.  Called The Oil Crunch, the report said ‘it seems inevitable that global demand will move to a point where it consistently exceeds supply.  The effect must be a structural increase in oil prices, coupled with the prospects of oil shortages and a consequent increase in market volatility.  The only questions are “how soon and by how much?”.  At the same time, some analysis suggests that natural gas produced from shale could become an increasingly important source of energy over the next decade.

In addition, the period to 2020 will see:

• the closure of a number of coal- and oil-fired power stations by 2015, under the EU’s Large Combustion Plant Directive;
• many nuclear power stations reaching the end of their design lives, with a number of advanced gas-cooled reactor (AGR) stations scheduled to close from 2014 onwards;
• the age and relative efficiency of a number of older gas-fired power stations becoming an increasingly significant issue; and
• the growing use of electricity to meet heat and transport needs so that its share of total energy demand increases significantly.

In July 2009, Ernst & Young estimated that £199bn of investment is needed by 2025 to meet the UK’s energy goals.  In October 2009, the UK energy regulator, Ofgem, published a comprehensive review of Britain’s energy supplies which concluded that investment of up to £200bn is needed to secure energy supplies and meet carbon emissions targets (excluding UK Continental Shelf gas production).  It updated its review in February 2010 and stated that ‘the risks to gas security of supply remain high in the latter half of this decade’.

The coming decade will also see, in Great Britain, the installation of ‘smart’ meters in every home, to allow the quantity and value of electricity and gas used by the customer to be continuously monitored and to ensure that information about its use and cost is available to the customer and exchanged with the supplier through two-way electronic communications.

The new UK government has agreed to implement a programme of measures to fulfil its ambitions for a ‘low-carbon and eco-friendly economy’.  It has agreed to seek to increase the target for energy from renewable sources, subject to the advice of the Climate Change Committee.  It also proposes to establish an emissions performance standard that will prevent coal-fired power stations being built unless they are equipped with sufficient carbon capture and storage (CCS) to meet an emissions performance standard.    SSE is confident it will be able to continue to work with MPs from all parties to ensure UK energy policy can deliver secure, affordable and lower-carbon energy.