UK Energy Industry Outlook – 2015

In this article we aim to present a quick and easy to digest run-down of the main trends and developments in a highlighted sector of the process manufacturing industries in one of our covered regions. For more information on the areas we cover, click here.

Note: Gas and Energy markets are considered as defined by the criteria for Protel bulletins.

UK Energy Industry Outlook

The available energy capacity of the UK is seen a potential issue by most analysts and has led to speculation about “lights going out all over Britain” scenarios. This hasn’t happened yet, possible contributory factors being the mild winter and decreasing UK energy demand. Total UK demand has fallen every year since its peak in 2005, largely due to rising energy prices, improvements in technology and the drive for conservation. Investment in base load power stations is limited to the few widely-publicised projects for nuclear and coal/biomass co-firing and conversion.

For base load power generation, gas remains the greener choice, but commercial and financial decisions are dictating its use. UK gas supply is reasonably priced and readily available, but cheap coal from the US is still seen as the more likely economically viable solution by many forward market analysts. Last year saw some nuclear and coal base load power stations come off-line – maintenance, failures or decommissioning – and gas made a minor resurgence in popularity, it would appear this has now begun to reverse.

Falling oil price has had an impact on the energy market, but not greatly on the markets and technologies Protel report on. There is still plenty of private sector investment in anaerobic digestion, biomass, biogas, gasification and pyrolysis. Incineration is in decline.

A plethora of alternative technologies, many subsidised, continue to compete for investment in the export-to-grid, capacity and Short Term Operating Reserve (STOR) markets, with minimal investment going into “base load” capacity. Niche developers are forging partnerships with technology providers and developing portfolios of renewable energy facilities exporting to the grid. Other technology providers are acquiring the development expertise to provide a turnkey package of development, fundraising, feedstock sourcing, construction and operation.

Sourcing waste has become integral to the development of a renewable energy facility. Councils are entering into long-term contracts with waste solutions providers who offer an integrated waste collection, recycling and waste-to-energy solution – the bin-grid. Private sector developers are turning to farm-based AD, landfill gas, wood, purpose-grown crops and other biomass, much of it is likely to be imported, especially wood.

Opportunist developers with little or no experience of the renewable energy sector are seeing a financial opportunity and setting up “development vehicles” to get a project to consented or built stage before selling it on for construction and/or operation by others. This, coupled with the lack of investment in a secure base load generation network is seen as a flaw in the UK energy strategy by many industry commentators.

The drive towards a decentralised energy dependence (seen as unfeasible in the long term by many without an investment in base load facilities) is seeing many large-scale residential or mixed developments including an energy centre with CHP (usually gas-fired) and district heating schemes. High users of energy – Chemicals, Petrochemicals and other “Heavy” industry continue to develop their inside-the-fence generation capability.

UK Industry Snapshot

• Economic impact – £96bn – 6% UK GDP
• Invested £13.1bn in Infrastructure – £7.8bn in new generation
• Employed c680,000 people
• Contributed £5.7bn to Treasury

These figures demonstrate how important the sector is to the prosperity and stability of the UK economy as a whole, as well as how it delivers an absolutely fundamental service. From an international perspective the UK has one of the more open and vibrant energy markets in the world. Recently, electricity prices have been broadly in line with prices in Europe and, in the case of gas, below most.

DECC estimates £100 billion of further investment is needed by 2020. Investment in new conventional generation in 2013 was £200 million, significantly down from the £859 million investment in 2012. While the investment in new conventional generation capacity fell sharply between 2012 and 2013, it is important to note that neither of these figures includes the significant on-going capital expenditure that is required to maintain and prolong the life of existing plants.

Investment in renewable generation represented over half of total investment in the energy sector in 2013, accounting for £7.4 billion. Renewables provided 15% of all electricity generated in 2013, a 30% increase on 2012.

Renewables capacity grew by 5GW in 2013 to 20GW total, with installed capacity projected to further double to c.38GW by 2020.

Future Outlook

The UK offers some of the best opportunities in Europe for tidal and wind power, but is seen as a difficult investment environment for biomass/EfW. Solar subsidies were pulled 2 years early, therefore large scale solar is likely to drop-off, but small scale integrated inclusion in new build, mixed development energy centres will be favoured.

DECC targets and carbon-reduction will drive the industry and investment will be largely from private sector, with subsidy/incentives from Electricity Market Reform (EMR).

The UK is still exporting municipal waste streams in some areas, whilst proposed EfW schemes fail as a waste stream cannot be secured, it is likely imported feedstock will become more important.

Consolidation of Green Energy specialists seems likely with mergers and acquisitions set to feature highly.

The DECC View

U.K. Department of Energy and Climate Change Secretary Edward Davey recently delivered his annual energy statement to Parliament. As part of the statement, Davey said that record investments of £45 billion ($70.99 billion) in electricity generation and networks since 2010 have put the nation on target to meet its future low carbon requirements. He said that the average annual investment in renewable electricity has more than doubled under the current Parliament, with 2013 being a record year for investments in renewables. The renewables investment includes £6.3 billion specifically invested in biomass and bioenergy since 2010. During the first quarter of this year, 19% of electricity was generated by renewable resources, Davey added.

A report that accompanied the statement indicates the U.K. is expected to invest an additional £5- 5.9 billion in biomass energy projects through to 2020, supporting up to 14,700 jobs. Biomass accounted for 4.3 GW of installed capacity as of the close of the second quarter of this year, with 0.8 GW of additional capacity currently under construction. An additional 3.8 GW of capacity is currently proposed and awaiting construction, with 0.5 GW in the planning phase.

By 2020, the report predicts biomass could provide the equivalent of 10 percent of the nation’s current power supply, which is enough to power approximately 8 million homes. Anaerobic digestion provided 707 GWh of electricity to the U.K. grid last year, a 208 GWh increase from 2012. Overall, biomass and waste accounted for 4 percent of inland energy consumption in the U.K. during 2013.

Additional information on the statement and report is available on the DECC website.

Energy Sector Project Bulletin Coverage

Protel are currently reporting on 346 active energy & gas projects in the UK. These active projects have a combined potential investment value of £24bn.

Some of the 3 biggest investors of projects currently underway are (data taken from our MyProtel project search engine):

• Clean Power Properties – £663m
• Peel Environmental – £940m
• Viridor Waste Management – £665m

Major project highlights include (data taken from our MyProtel project search engine):

• Lateral Power – Holyhead – 299MWe biomass-fuelled CHP – £600m
• MGT Power Ltd – Middlesbrough – Biomass power station – £600m
• Peel Environmental – Stanlow – 95MW energy from waste plant – £500m
• Green Energy Parks Ltd – Peterborough – 90MWe incinerator & CHP – £480m
• Ineos Enterprises – Runcorn – 100MWe/360MWth CHP plant – £400m

To gain information on specific projects or gain more insight into this sector, including all the contact details you need to start your sales process at the right time, get in touch.