When the so-called ‘Big Six’ UK energy providers announced a range of price hikes in the autumn, it caused considerable distress to many households already struggling with the rising cost of living, as well as businesses working to manage strict budgets in a difficult economy. At the time, the energy firms insisted that the rise was down to an increase in the wholesale prices they pay for gas and electricity. However, these hikes could prove to be the tip of the iceberg, as the UK is facing a huge energy crisis in the coming years.
Back in early 2010, energy watchdog Ofgem painted a stark picture of the UK’s energy future. Its report warned that without significant action form the government, Britain could be facing power cuts by the year 2015 due to a lack of energy supplies. While highly inconvenient for householders, the impact of power cuts on businesses would be immense, and in some cases, terminal.
But why is Britain’s energy supply set to become such a problem? Firstly, the country continues to need more of it. The Economist noted in 2009 that Britain’s electricity demand was at 59 gigawatts (GW), but by 2015 it should reach 64GW. Much has also been made of the reliance on foreign oil. Petrol prices are already at a record high, and the escalating tension with Iran is placing a question mark over the future of Middle Eastern oil and its cost. Many consumers and business have been embracing hybrid and electric vehicles in a bid to reduce their expenditure on fuel, but this places further demand on UK electricity providers. Electric motoring is a young, growing industry, so it is difficult to predict just how significant an impact this could yet have.
While increased energy usage might not in itself be a worry, it becomes one when the make-up of Britain’s electricity supply is considered. In 2009, almost half of Britain’s electricity came from power stations running on North Sea gas, but supply of this fossil fuel is dwindling. Around a third of the energy comes from coal, but the UK will be forced to shut around a third of its coal-burning power stations by 2015 to reach European environmental targets.
Then there is the nuclear question. Nuclear power stations currently provide a sixth of the UK’s energy, but the sites cannot stay open indefinitely. Of the nine currently in operation, three will be closed by 2016. Faced with the warning from Ofgem that £200 billion of investment was needed to avoid powercuts and a rise in consumer bills of at least 20 per cent, the government decided to back the building of more nuclear reactors.
A key component of this plan was the Horizon project, which had RWE npower and E. ON announcing a joint plan to build nuclear power plants at Wylfa in North Wales and Oldbury-on-Severn, Gloucestershire. However, the firms pulled out of the plan in March, leaving the £15 billion project – and, critics suggested, the government’s energy plans – in tatters. The government is now seeking more investors for the project, but with no Plan B in place, the future still looks unsure for Britain’s energy supply.
This reality is part of the reason behind foreign secretary William Hague’s latest comments, in which he urged cabinet ministers for a more concerted effort to move towards a low-carbon economy. Doing so would help to protect the UK from volatile energy prices and develop more sustainable forms of electricity production, Mr Hague wrote in a letter to ministers. Furthermore, the former Conservative Party leader suggests that a strong emphasis on green issues will help to drive economic growth for business in the UK. For this, Mr Hague explains, a change in outlook is required.
“I believe we should reframe our response to climate change as an imperative for growth rather than merely being a way of being green or meeting environmental commitments,” he stated. “The low carbon economy is at the leading edge of a structural shift now taking place globally … we need to stay abreast of this, given our need for an export-led recovery and for inward investment in modern infrastructure and advanced manufacturing.”
It is a stance backed by Alan Simpson, a retired Nottinghamshire MP and Friends of the Earth consultant. As part of the Premierline Direct Future of Business report, he explained: “Energy and transport prices will rise inexorably, unless we shift into new, sustainable energy systems. You have to be willing to bust open the current energy market and its domination by the cartel of major energy companies.”
However, Mr Simpson believes that the key to achieving this will come when it is recognised as part of pro-business policy. Perhaps Mr Hague’s comments will therefore provide the spark that will help the coalition government fulfil its promise to be the greenest UK government ever, while going some way to address the impending energy crisis.