Five years into the financial crisis, the uncertainties go beyond economics to social trends, environmental concerns and technology. How will Britain’s demographics have changed? When will renewable energy get cheaper? What might be the impact of different policy developments? RWE npower commissioned Professor Sam Fankhauser, Co-Director of the Grantham Research Institute, and his colleague Dr Alex Bowen, to explore three alternative scenarios for how these issues could affect UK energy in 2030.
The first, ‘Hitting the Target’, involves political cohesion in a recovered Eurozone, high levels of investment in the power sector and reduced carbon emissions. The second, ‘Gas is Key’, assumes that economic momentum will lie with Asia. It explores how short-term price gains from switching to gas power are followed by environmental problems from missed carbon targets. Scenario three, ‘Austerity Reigns’, looks at how economic stagnation in the UK and Europe would result in less technological investment, with options such as carbon capture and storage, or shale gas, not being implemented.
Professor Fankhauser says: ‘This report shows how fragile and delicate the equilibrium of factors is for protecting the future of the UK energy industry. A slight change of emphasis in policy, a weakening economic picture or a preference for cheaper energy sources over low carbon energy generation could result in very different operating environments for UK businesses. It is crucial UK businesses take action now to overcome the potential challenges they may face.’
The report suggests ways for UK businesses to prepare for this uncertain future, including focusing on energy efficiency, making energy management a senior management issue and taking advantage of self-generation opportunities. It was commissioned via LSE Enterprise, LSE’s commercial arm.
Up to £330bn investment needed in UK energy infrastructure by 2030: The report details the need for a balanced focus on economic growth and investment in the energy infrastructure to deliver a low carbon and strong UK economy. It also calls on businesses to act now to ensure they are protected for the future.
The Future Report examines three scenarios that could arise going forward to 2030.
Scenario 1: Hitting the Target: This scenario is the projected plan for the UK’s energy market. However, it requires a high degree of political cohesion and direction, supporting record levels of investment in the industry (up to £330bn) and driving down carbon emissions to achieve the long-term 2030 target. This scenario is made possible by a recovering Eurozone and UK economy; more trade integration, specialization; a focus on green growth and productivity gains; and recovered financial institutions. The EU remains a market leader on low-carbon technology.
Scenario 2: Gas is key: Short-term price gains by switching onto gas power are followed by environmental problems from missed carbon targets. The presence of gas-fired capacity slows down needed structural change, and necessitates costly action when carbon constraints bite. This scenario depends less on what happens economically in the Eurozone and internationally. However, there will be less committed political action in Europe on carbon emissions reduction, fewer productivity gains and more fractured trade patterns. The Eurozone will still eventually recover, but the momentum is with Asia, which is catching up with Europe in productivity and growth.
Scenario 3: Austerity reigns: This scenario is less optimistic about the economic and technology outlook. Confidence and therefore investment are low, but less is needed due to ongoing Euro sclerosis and continued stagnation in the UK. The grid ages and upgrades are not driven by a need to accommodate renewable energy. Some technologies like carbon capture and storage (CCS) and shale gas fail technologically or otherwise are not delivered. In the meantime, the BRIC (Brazil, Russia, India and China) countries motor ahead.