UK has become too dependent on imported energy

The UK should take a more “interventionist” approach to ensure new nuclear reactors are built — and in greater numbers — than currently planned, according to a report commissioned by Prime Minister Gordon Brown released on Wednesday.

The report by Malcolm Wicks, the former energy minister appointed by Gordon Brown as his special representative for international energy issues, said that “the time for market innocence is over” and that the government needs to do more to safeguard electricity and gas supplies.

The report, ‘Energy Security: a national challenge in a changing world’, recommended that the UK should generate 30 to 40 per cent of its electricty from nuclear power stations by 2030 – up from the current 13 per cent.

Mr Wicks said that the UK has become too dependent on increasingly imported natural gas for its energy needs and argues that state intervention is needed to accelerate plans to build a new fleet of nuclear power stations.

“The era of heavy reliance on companies, competition and liberalisation must be re-assessed,” he said. “We must still rely on companies for exploration, delivery and supply but the state must become more active: interventionist, where necessary.”

Other recommendations from the report include:

- Prioritizing Norway, Qatar and Saudi Arabia as the most significant bilateral relationships to UK energy security. Relationships built on a broad base including diplomatic, development and cultural collaboration will provide a firm basis on which to pursue the UK’s energy security goals.

- The UK should remain at the forefront in developing and demonstrating CCS technology.

- The UK should continue to ensure that energy efficiency is at the heart of energy dialogues with its global partners.

- The Government should do what it can to support EU work to promote diversification of routes and sources of gas supply into Europe including through the use of EU diplomacy to influence third countries where they are better placed to do this than the UK bilaterally.

The Government should do what it can to support EU work to promote diversification of routes and sources of gas supply into Europe including through the use of EU diplomacy to influence third countries where they are better placed to do this than the UK bilaterally.

The future is looking greener for investors as ambitious government targets for generating renewable energy are providing fund managers with new opportunities.

More than 30 per cent of the UK’s electricity could eventually be derived from renewable sources, according to the latest estimates, compared with just 5.5 per cent today. This would be twice the government’s legally-binding target of 15 per cent by 2020.

Much of this is expected to come from wind power but other sources, including biomass and tidal power, will also increasingly be drawn upon. The government plans to invest £100bn in the renewable energy sector, which could involve the creation of as many as 500,000 jobs. It has also set out new plans for reducing carbon emissions to help tackle climate change.

Fund managers say this increased commitment, together with a similar focus from the US, plus stronger moves towards clean energy from China, is welcome news for an industry that has been slow to take off – and has suffered more than others in the recent downturn.

Edward Guinness, one of the managers of Guinness Asset Management’s Alternative Energy Fund, says green energy companies were trading at a premium to the market before the downturn but were hit hard last year, particularly as funding dried up.

His fund lost 40 per cent in the year to the end of June, according to total return figures from Lipper.

A number of other renewable energy funds, most of which have been set up in the past couple of years, have had an equally difficult run. Lipper’s rankings show that, over the same period, BlackRock’s New Energy Investment Trust, the Premier Renewable Energy trust and the Jupiter Green Investment Trust all saw negative returns of at least 30 per cent.

But new opportunities now look to be arising, particularly in wind power .

“The area where government policy is really having an impact on our investing is on the wind side,” says Guinness. “The UK has much better resources in this area than in solar, and the government wants to make it easier to get planning permission.”

His fund typically invests in companies that derive at least 50 per cent of their business from either the manufacture and development of renewable energy generation or the improvement of energy efficiency.

Guinness says solar stocks performed well last month as demand started to pick up following a difficult 18 months, in which the prices for solar panels halved. The lower prices should trigger stronger growth, he says, while providers should also receive a boost from cheaper raw materials, lower manufacturing costs and improved subsidies.

Luciano Diana, portfolio manager of the Pictet Clean Energy fund, says wind power is more attractive than solar because it is much cheaper. He claims that, for the first time, there is a real push to new energy around the world.

“For a long time, it has just been Europe supporting it but now there is a big push from the US and also Chinese packages dedicated to cleaner energy,” he says.

Fund managers say much of the new government investment will be captured by the large utilities.

The Association of Investment Companies argues that moves to combat climate change should prove beneficial to some of the big utility and infrastructure investment companies.

John Murray, chairman of Ecofin, which invests in the utility and infrastructure sectors, says utilities have been largely oversold in recent months as investors have moved back into cyclical and recovery stocks. As a result, some companies in the sector are looking the cheapest they have been since 2003.

But, he points out: “Unlike in 2003, the fundamentals of the global utility sector are generally sound. Balance sheets are in relatively good shape and the utilities are proving that they are able to access long-term capital markets.”

Source - Power Engineering