Looming energy gap according to energy industry leaders

The UK must avoid being lured into a new dash for gas as it seeks to bridge a looming power generation gap, according to energy industry leaders.

Ministers and the industry are committed to a range of power-generation options, from nuclear and cleaner coal through gas to renewables and energy saving, but striking the right balance may not be easy. New nuclear reactors are the best part of a decade away, even on optimistic assumptions. Coal is controversial and its future looks to be closely tied to the ability to develop carbon capture and storage. In terms of generation, that leaves gas and renewables to take the strain as a raft of ageing or environmentally unacceptable generating plant is taken out of service.

David Porter, chief executive of the Association of Electricity Producers, argues that in the long run Britain “could be well very well provided with a diverse range of technologies for power generation”. The problem is the near term: around a third of the UK’s generating capacity may need to be replaced by 2015. Some analysts believe the crunch could come earlier.

“At the moment companies are having to go ahead with what looks to be easiest,” Porter says. “Despite supply scares and price volatility, gas-fired generation is still easier to do than most.”

Recent developments back his view. The government has just given the green light to three gas-fired power plants, including a 2 gigawatt power station in Pembrokeshire.

Ian Marchant, chief executive of Scottish and Southern Energy, said this month that Britain will lose 14 to 18GW of capacity by 2015. He told the Commons business and enterprise committee that some 7GW of gas generating capacity was under construction and another 6GW had been given the go-ahead. That is balanced by some 46 renewable projects, providing about 5 megawatts of power generation.

Paul Golby, chief executive of E.ON UK, said last week that it was vital the UK maintained a variety of options: “Clearly gas has an important part to play, both in the near and the medium term. But we can’t become overly reliant on a single form of power generation if we’re to ensure security of supply, reduce our carbon emissions and ensure energy remains affordable for our customers.

“The only way we can do that is to, yes, build gas-fired power stations… But we also need to ramp up our renewable build, create a new generation of cleaner and, eventually, clean coal-fired power stations - and, longer term, replace the UK’s nuclear fleet. To become overly reliant on a single fuel - and one that will, in the next decade or so, become 80% imported - is simply too dangerous.”

Centrica chief executive Sam Laidlaw says this winter’s row between Russia and Ukraine has brought security of supply issues sharply back into focus and that the UK needs to develop diverse sources of gas as its dependence on imports increases. “Russia will play a role in the long term… but also more LNG [liquefied natural gas] coming from other sources has to be the answer so we aren’t dependent on one source. But, thinking about power generation, we can’t have another dash for gas.”

EDF has placed a multi-billion-pound bet on the development of a new generation of nuclear power in the UK through its acquisition of British Energy. Its UK subsidiary, EDF Energy, plans to build four new nuclear reactors and is aiming to have the first coming on stream at the end of 2017. In the meantime, the company is building a 1.3GW gas plant in Nottinghamshire. “Until nuclear can come on line, it is likely that much of the energy gap will be filled by new ‘combined-cycle’ gas turbines, as these are relatively cheap, quick to build and flexible, meaning they are able to respond to market prices,” the company says.

Gas and renewables, notably wind, can be complementary, rather than alternatives, with gas taking on the back-up role as more wind generation comes on stream. A key test, however, is whether companies will be able to secure returns on their investment in gas if the plant runs only to supplement wind power.

Money is an issue. Ian Parrett from energy analyst Inenco says: “Funding difficulties in the current economic climate are resulting in new generating capacity being delayed or even shelved. The UK’s lack of gas storage leaves the country running the risk of being held to ransom and forced to pay a premium for gas in a highly volatile market.”