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Recession offers chance of £35bn reduction in energy supply investment

Reduced energy consumption during the recession opens the door to reduce energy infrastructure investment by £35bn up to 2025, according to a new study by Ernst&Young.

In February, Ernst&Young published a study - ‘Securing the UK’s energy future - meeting the financing challenge’ which estimated that £234bn of new investment was required by 2025 to meet the UK’s energy goals.

This new study revises this estimate down to £199bn, suggesting that savings can be made by capitalising on reduced levels of energy use due to the recession, and using this lower level of consumption as the baseline for future reductions.

The report bases its conclusions on estimates that demand for electricity and gas has dropped by approximately 5%and 6% respectively, year-on-year between 2008 and 2009.  

Partner in Ernst & Young’s power and utilities team, Tony Ward, says: “Lower levels of demand now offer an opportunity to embed change that could not have been anticipated 12 months ago.  But we need to seize this opportunity and act now. Crucial decisions that will set the investment framework for projects that will ultimately deliver the UK’s energy objectives have to be made well before 2015.”

£90bn of investment is still urgently required, the report says, to put energy efficiency measures in place to keep post-recession levels of consumtion and to meet EU targets by 2015, support some 140,000 jobs and up to £10.5bn of economic benefit.

“In essence, the investment opportunity can only be seized if energy efficiency measures are accelerated to ensure energy demand is maintained at post recession levels; investor confidence is supported by a level of return which covers financing costs and by energy policy that is subject to minimal change; and the industrialisation of the energy supply chain is made possible through investment in technical innovation, training and skills.  

To take full advantage of this potential saving, there must be a widespread adoption of energy efficiency measures across the UK

Partner in Ernst & Young’s power and utilities team, Tony Ward

Ward says that dealing with supply chain failures, planning hold ups; policy and regulatory risk; and the viability of project economics is essential, or investmant levels could fall to only £53bn in 2015 and the UK would miss its efficiency targets.

“Given the long lead times involved for most of the investment projects required, from gas storage to new nuclear plant, confidence in the policy framework needs to be high by early 2011. The level of industry-wide investment required equates to roughly £13bn a year from today, and the years to 2015 will be absolutely critical in determining whether the UK will get close to meeting its 2020 commitments, and be on track towards the even tougher targets thereafter,” he adds.

“With so much to lose if the investment targets by 2015 are not met, it is clear that investment momentum needs to start ramping up from today.  Our greatest error would be to waste this opportunity by treating it as a breathing space, a welcome pause along a difficult journey.  As time passes the window of opportunity will gradually close to the point where delivering on the UK’s energy goals will become ever more difficult to achieve,” he said.

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