Lack of investment in local gas production in UK ñ cost of electricity could double within 20 years, says National Grid
The cost of electricity could increase twofold over the next 20 years, according to results uncovered, on Thursday, by the National Grid, Great Britainís influential power company.
The nationís leading supplier of gas & electricity, with a market capitalisation of approximately £28.7bn, envisages the wholesale gas price rising from 70p per therm to circa £1 per therm ñ a staggering increase of 43%.
In its UK Future Energy Scenarios report, in which the energy giant hypothesises multiple 'worst case' scenarios and proffers appropriate solutions, the price of wholesale electricity is speculated to increase by over £50 per megawatt hour to £100+ by 2035 under certain, conceivable conditions. Given that the price of electricity has already risen 20% since 2009, growing fears surrounding the energy sector are fully justified.
The National Grid holds plans to close a number of coal-fired power stations, combined with the increasing cost of funding wind farms, culpable for the substantial escalation in the price of electricity.
"Electricity prices for the high case and base case scenarios are assumed to increase over the next few years due to decreasing margins as coal-fired plants retire due to the Large Combustion Plants Directive legislation and some gas-fired plants are mothballed," says the document. "All prices increase post-2020 as the costs of low carbon generation increasingly factor into the power price," it adds.
These latest forecasts will perturb high-energy using businesses and many families struggling with rising costs of bills. Although alternate scenarios, with gentler economic conditions levied on them, yielded tamer price rises, this will be little comfort to a public ridden with debt, nervily anticipating the next abrupt fluctuation in the market.
The government has found its hands tied with regard to its aims of reducing carbon emissions. The National Gridís latest warnings compel government to take action. Offering incentives to coax investors into replacing polluting, tired coal and nuclear plants seems like a prudent long term option.
At a time where Britainís energy sector has been lambasted for its over-dependence on foreign resources, the National Gridís forecast is perfectly timed. The UKís trading balance is at the bottom of any of the major countries in the world, lying at a chunky 5.4% of GDP in the fourth quarter.
ìThis is flashing amber,î said David Bloom, currency chief at HSBC, earlier this week. ìBritainís recovery is unbalanced, with a consumption-driven deficit and very little pick-up in investment. It canít carry on being the worldís consumer of last resort.î
These comments follow a collapse in many North Sea gas and oil projects, due to fields becoming increasingly barren. In what appears as last-ditch attempts to boost performance, government has endorsed a controversial ëShaleí gas drive in order to match the USí success with this fuel.
This measure has been approved to an extent by the Grid, which says over 40% of Great Britainís gas requirements could be met by home-grown shale extraction by 2035. However, when asked to speculate on costs, the energy giant made no comment.
What is certain, is the company has said that failure to invest copious amounts more in local gas production, whether inland or in the North Sea, would mean the UK would be 90% dependent on imports within twenty years.
The power of shale gas has been talked of in discreet terms in previous years, however a spokesman for the Grid has said the time to evaluate its merits is now. Given the data available from the British Geological Survey and the considerable success the US has had with it, the source said:
"We have a lot more information on shale gas on which to base our assumptions, which range from providing zero under the 'no progression' scenario up to 41% by 2035 in a 'low-carbon life scenario'."
However, the Gridís speculative claims of electricity prices rises to in excess of £100 could act as a blessing in disguise for the government. Plans to pay £89.50 per megawatt hour, a ìstrike priceî, to ëEDF energyí for the company to synthesize electricity from a planned new power plant at Hinkley Point, Somerset, from 2023, are in the pipeline.