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

Norwegian energy supply falls 7%

Norway, the world’s fourth biggest crude exporter and the UK’s second largest gas supplier, said Monday that its oil production fell a sizeable 7% in April to 1.99 million barrels a day last month from 2.15 million barrels a day in March.

Though preliminary, the data highlight one of the big underlying supply problems in non-OPEC states that many oil analysts believe is likely to send crude prices back over the $100 a barrel mark in coming years. Oil closed Friday at $58.63, its highest settle since mid-November. It is trading around $57.75 a barrel this morning.

The Norwegian situation is being replicated in other non-OPEC oil producers, such as Mexico and the U.K. These regions are mature and giving up less oil, meaning that keeping production flat is getting harder and harder.

If analysts are right, this underlying supply struggle will keep oil prices relatively strong in coming years. And that’s a boon for renewable energy developers. Not just are they set to receive an enormous infusion of cash, low-interest loans and other support out of capitals from Washington D.C. to Beijing, they appear set to get some tailwind from high oil prices. If the worst global recession in decades can’t derail oil prices for long, that’s a good sign that the global economy is entering a period of oil prices high enough to support ongoing investment in renewable (a.k.a. competing) energy sources.

In addition to the so-called “below ground” geological issues, non-OPEC producers, which currently meet about 60% of the world’s daily crude demand, are grappling with the global economic recession. The International Energy Agency in Paris last month cut its 2009 non-OPEC supply forecast by 320,000 barrels a day to 50.3 million barrels a day due to falling spending on drilling projects. It was the IEA’s eighth straight monthly downward revision to non-OPEC supply.

Source - Wall Street Journal

Anger as Shell reduces renewables investment

Royal Dutch Shell provoked a furious backlash from campaigners yesterday when it announced plans to scale back its renewable energy business and focus purely on oil, gas and biofuels.

Jeroen van der Veer, the chief executive, said that Shell, the world's second-largest non-state-controlled oil company, was planning to drop all new investment in wind, solar and hydrogen energy.

“I don't expect them to grow much at Shell from here, due to portfolio fit and the returns outlook compared to other opportunities,” he said, speaking at the Anglo-Dutch group's annual strategy briefing.

He said that instead Shell would focus its remaining renewable energy investments on biofuels, where it is conducting research into “second generation” fuels, so far with little commercial success.

Linda Cook, who heads Shell's gas and power business, said that wind and solar power “struggle to compete with the other investment opportunities we have in our portfolio”.

The announcement, which comes as Shell is fighting to maintain its commitments on dividends (which it will increase by 5 per cent this year) and its core oil and gas business in the face of a more than $100 slide in the price of crude since last summer, triggered a furious response from green groups.

John Sauven, the executive director of Greenpeace UK, said that Shell had “rejoined the ranks of the dirtiest, most regressive corporations in the world ... After years of proclaiming their commitment to clean power, they're now pulling out of the technologies we need to see scaled up if we're to slash emissions.”

A spokesman for the Department for Energy and Climate Change said: “We believe renewables have a strong future as part of the UK and global energy mix in the fight against climate change.”

Shell has invested $1.7billion on alternative energy in the past five years, compared with total capital expenditure of $32billion this year. It holds stakes in 11 wind power projects, mostly in the United States, with the capacity to generate 1,100 megawatts of electricity. It also operates research programmes into thin-film solar and hydrogen technology.

Shell also said that it will maintain its spending on carbon capture and storage projects in Germany, Netherlands, Norway, Canada, Australia and America - most of which also receive state support.

Source - The times