In a world where digital technology reigns supreme, the security and cost of the energy supply has never been important to business. It is something we take for granted, and on a hierarchy of needs many would put it on par with food and water.
Worldwide, we send over 182 billion emails a day …and you can’t send an email without power.
So, how does the UK get its energy and what does the future look like?
The Energy ‘Trilemma’
Policy makers frequently talk about the energy ‘trilemma’ – finding a balance between reducing emissions, maintaining the supply and keeping costs competitive.
Generally this triangle is drawn with equal weight to each of the corners. But when UK businesses were polled, their main priority was the cost of energy, making it more lopsided. This revised view from business has to be taken into account in forward planning.
A Mix of Sources
More work is needed to help businesses understand the energy mix and its impact on pricing and security.
As you can see, we are currently most dependent on coal and gas, the cheapest options, but this is set to change going forward as we diversify our supply to meet climate change targets. Four coal-fired power stations are set to close this year, with their output replaced by new generation such as the nuclear Hinkley Point C power plant here in the South West. This will undoubtedly have knock on effects on pricing and security as the proportions change.
The Markets
The breakdown of the energy mix doesn’t tell the whole story, as it is anything but a simple switch from one source to another. The UK is a net importer of energy, and our main sources are France and the Netherlands. We also trade coal, oil, gas and other energy sources with other countries. Gaining more access to international markets should be a key aim to create greater competition and manage demand as our energy supply is a complicated mix of imports, exports and transfers.
The Business View
Nationally, the British Chambers of Commerce polled members across the country and found that38% of businesses thought that their growth had been impacted by energy costs. This statistic is alarming and raises concerns that our energy intensive industries will become uncompetitive in the short term if the cost of energy is not properly managed by government intervention.
The Future
Losing, a third of the output from one of cheapest resources will clearly have an impact on both security and price, with a shift to renewable energy more costly and gaps in the handover meaning that supply will edge disturbingly close to demand. In winter 2015/16 we could face a situation where the ‘safety buffer’ between demand and supply hovers around just 2%. The government has set contingency plans in place, but this approach has been criticised for being too short-sighted and causing risk to business.
What the Government Must Do
It was a lack of long term planning that left us in this position. At a critical junction where our supplies are switching from coal, oil and gas to alternatives the government must drive to keep costs low and security of supply high. There are multiple ‘moving parts’ in trying to forecast energy demand and supply, but politicians must ensure that businesses are informed regularly.
To ensure the lights stay on, the government must:
- Implement a 50-year energy security strategy
- Recognise the changing landscape and update the key drivers in this strategy every 5 years
- Communicate better with industry, using trade organisations such as the BCC to do this
- Remove the politics from energy security by using the 50-year strategy to drive decision making
What’s Happening in the South West?
Most of the talk here in the South West is around nuclear power after a flurry of business interest in the industry and two sites earmarked for new build – Hinkley Point and Oldbury.
To support stakeholders interested in the nuclear supply chain we have launched Nuclear South West with Davies Nuclear Associates. To find out how to get involved in the growing events programme visit the Nuclear South West website.
View the full British Chambers of Commerce Energy Network Briefing
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