The outlook for energy markets across the world is constantly evolving, with countries at myriad stages of development. What every country has in common, though, is a growing demand for energy – and the assets that provide it.
Energy assets are quite literally the engine room of a nation, driving industry and lighting homes. The consequences of failing to maintain these assets are far-reaching: energy deficits cripple economies and stifle business. Poorly maintained existing power plants – and poorly planned future assets – cost owners millions of pounds in inefficiencies, which must then be passed on to the consumer. As the cost of keeping the lights on creeps ever higher, energy supply is a frequent focus of public interest and ire.
In the UK, energy companies are all too familiar with these threats. Within the next decade, nearly 25 per cent of the UK’s current generating capacity will be lost. Five major coal and oil plants have been shut down in the past six months alone, under the EU’s carbon-curbing Large Combustion Plant Directive, with four more to be wound down by the end of 2015. A new fleet of clean energy projects needs to be built to replace the retirement-age assets due to be decommissioned. Ernst & Young puts the cost of this investment at £233.5 billion by 2020.
The construction of these new, much-needed assets is highly exposed to government policy. The long-awaited Energy Bill, which contains wholesale changes to the way in which energy in the UK is subsidised, bought and sold, is intended to provide investors and developers with the confidence needed to start building. At the moment, though, the policy is still shuffling through Parliament.
Energy giant SSE’s policy and research director Keith MacLean says that the impact of government policy on energy investment cannot be ignored. “A huge challenge facing the UK energy sector at present is the scale of the investment required to replace or upgrade ageing assets, at a time when the underlying policy framework is in a state of flux. Not only is this uncertainty impacting on investment in new capacity, where a worrying hiatus is developing, but it is also creating problems for existing generation plant,” he says.
Indeed, the UK’s ageing physical energy assets are set in a social and economic landscape that looks very different to the one in which they were constructed decades ago. Energy projects set to come online in the next decade must be adequately “future-proofed” to withstand not just the physical elements, but future political and social demands.
Dr MacLean says , for now, the UK energy industry must be ready and willing to juggle a host of demands, while it waits for the government to make good on its policy promises. “For energy generators, the challenge now is to manage their portfolio as effectively as possible, while retaining enough flexibility, both in terms of plant and personnel, to be available if and when the market recovers and a stable policy framework has been established.”
