Whitelee's wind of change merely heralds stormy debate

The Times
May 25, 2009
Robin Pagnamenta, Energy and Environment Editor

On a barren hillside outside Glasgow, dozens of wind turbines are spinning in the breeze as Britain's largest onshore wind park starts to generate electricity.
With 140 turbines producing enough power to supply tens of thousands of homes, it is among the largest and most vivid symbols of the Government's drive to replace Britain's collection of ageing coal, gas and oil-fired power stations with a cleaner, greener alternative.
But this effort to transform Britain's energy industry, which is being propelled by tough new emissions rules and by the sheer decrepitude of much of the network, does not come cheap and has profound implications for consumers.
The site, at Whitelee on Eaglesham Moor, has cost ScottishPower, its developer, £300 million, but this is a tiny fraction of what will be required to upgrade Britain's power network. According to Ernst & Young, the total cost of doing so and meeting tough targets to cut carbon emissions by 34 per cent by 2020 will be no less than £233.5 billion. Although some of that burden is likely to be shared with power companies, the figure, divided among the UK's 26million households, implies a total bill of up to £8,977 each — or £598 a year for the next 15 years.

Tony Ward, power and utilities partner at Ernst & Young, said that about half of the total, or £112 billion, will need to be spent building new supplies of renewable energy, including vast new offshore wind parks - each many times the size of Whitelee — as well as biomass-fired power stations, tidal and wave-energy projects.
Britain must also renew almost all of its ageing nuclear power plants, which account for about 20 per cent of the country's electricity supply, a project that is expected to add £38.4 billion to the cost. A further £28 billion or so will have to be poured into the grid to build a transmission network capable of supporting new reactors and remote wind parks sited as far north as the Shetlands and in the North Sea. This excludes the cost of building new coal-fired stations equipped with carbon capture and storage technology (CCS), bolstering the UK's gas storage facilities, new gas-fired power plants and a rollout of “smart meters” in every home and business in the country.
Steve Holliday, chief executive of National Grid, whose company will be at the centre of this effort, said: “It's very clear from the renewables and new nuclear stations being planned that there is going to be a need for a substantial increase in investment to build a modern, 21st-century grid.”
He expects National Grid alone to spend up to £5 billion a year from 2012 and he is already drawing up plans for a network of seabed cables feeding renewable electricity from Scotland to consumers in the South, as well as sweeping reinforcements to conventional high-voltage lines that criss-cross the country.
Craig Lowrey, director of markets for EIC, the energy consultancy, said: “These are massive investments — we are talking about potentially the biggest investment programme in Britain's history. But if the Government is serious about meeting its emissions targets, it needs to make people understand the true scale of these costs.”
Ian Marchant, chief executive of Scottish & Southern Energy, Britain's second-largest utility, takes a similar view: “In the long term, the unit price of energy is going to have to go up significantly. We are going to have to produce energy in a greener and more secure way and that will cost money.”
Ernst & Young's figures might underestimate the total expense because they do not include regular maintenance costs, Mr Marchant said, suggesting that a figure of £300 billion could be closer to the mark. However, he is optimistic that dramatic improvements in energy efficiency could mean that consumer bills will remain stable or even fall in the long term.
The fear is that in Britain's liberalised energy market this tidal wave of required investment simply will not materialise.
Dr Lowrey believes that, under its current structure — which relies on market forces plus consumer-funded incentives designed to boost investment in renewable energy — the scale of investment needed is unlikely either to meet expectations or to be allocated in the way that the Government or society wants. It is a concern that has been compounded in recent months by a collapse in funding that has accompanied the credit crunch and the plunging value of the pound, forcing up the cost of imported power-generating equipment.
The falling prices of oil, coal and gas have also undermined the economic rationale of many investments in more costly, alternative forms of energy. “There is a need for greater intervention to make this investment a reality,” Dr Lowrey said. “We need a guiding hand from government.”