Ofgem’s comprehensive review of UK energy supplies is contained in Project Discovery, as part of a consultation that seeks views on four scenarios which identify the scale of the challenge and the risks facing Britain and wider global energy markets over the next two decades. The consultation closes on 20 November.
To secure energy supplies and meet carbon targets, an investment of up to £200 billion will be needed and customers could face potential price increases to fund the investment, the report explains. Among the key challenges to gas and electricity supplies is a growing exposure to a volatile global gas market and power stations nearing the end of their life.
The four energy scenarios developed by Ofgem are designed to assess energy security risks over the next 10 to 15 years, and reveal a range of potential risks to supplies when exposed to shocks. The scenarios envisage reductions in carbon emissions of 12% to 43% (from 2005 levels) but all four scenarios would result in increases in domestic energy bills of 14% to 25% by 2020 (from 2009 levels), with the possibility that wholesale price spikes could lead to an increase in domestic energy bills of up to 60% in the interim.
The most positive scenario for renewable energy is Green Transition where there is a rapid economic recovery and a significant expansion in investment in green measures. Domestic targets for renewable energy are met and energy efficiency measures are effective, and consumer bills increase 23% by 2020.
The Green Stimulus scenario sees a slow recovery from the recession and restricted availability of finance, with governments around the world implementing green stimulus packages to achieve environmental goals such as for renewable energy and boost economic activities. High carbon prices and government policies support investment in renewable energy, nuclear and carbon capture and storage, and consumer bills increase 14% by 2020.
Under the Dash for Energy scenario, global economies bounce back strongly but security of supply concerns prevail over meeting environmental targets. The UK targets for renewable energy and the government’s carbon budgets are missed, and domestic consumer bills increase 60% by 2016 before falling back.
The fourth scenario, Slow Growth, sees the recession continuing and investments in gas and electricity infrastructure being considerably lower than before the credit crunch. Low gas and electricity prices, coupled with low carbon prices, reduce incentives to build renewable energy or nuclear facilities, and consumers see relatively low price increases in early years but an increase of 22% by 2020 as conditions tighten.
“Our scenarios suggest that Britain faces a tough challenge in maintaining secure supplies whilst at the same time meeting its climate change targets,” explains Alistair Buchanan of Ofgem. “These are big challenges.”
Ofgem is the Office of the Gas & Electricity Markets, which supports the regulator of the gas and electricity industries in Britain.