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UK energy investment hits 20-year high
Investment in the UK’s energy sector is currently running at a 20-year high, with over £43bn invested by energy companies over the past four years, according to a major new industry-backed report.
The report, entitled , was undertaken by consultancy Ernst & Young and commissioned by industry body Energy UK. It found that total energy investment exceeded £10bn last year, with investment in renewable energy generation capacity dominating the market.
The surge in investment means that the sector has delivered greater levels of investment than any other part of the economy over the past four years.
The report also revealed that direct employment from the energy industry has risen significantly as a result of the new investment, climbing from 83,000 people in 2008 to 137,000 by the end of 2011. Significantly, the report found that employment opportunities were spread relatively evenly around the country and not concentrated in the south east.
Moreover, the report predicts the upward investment trend is likely to continue this year: investment for the 2010 to 2012 period is expected to reach £30bn by the end of the year, with a further £25bn to £30bn of investment in the pipeline for the next three years.
Much of the investment is being driven by the need to replace aging power plants and decarbonise the UK’s energy infrastructure, with spending spread across a variety of areas including renewables, network upgrades and gas storages.
The report shows that around £5bn of the £10bn invested last year was targetted at renewable energy generation, compared to around £1bn in thermal generation and £3bn in transmission and distribution.
The trend is expected to continue this year with the report predicting around £6bn of investment in renewables.
The findings suggest energy investment is currently close to the £15bn-plus a year rate that will be required to deliver the upwards of £100bn investment by 2020 that the government maintains will be necessary by 2020 to meet carbon emissions and renewable energy targets.
However, Tony Ward, head of Ernst & Young’s energy team, said the recent surge in investment was largely driven by “trust engendered by the historically clear path in energy policy”, adding that this trust was now being undermined by continued uncertainty over the future direction of energy policy.
“Our interviews with key stakeholders across the sector emphasise their view that the attractiveness of the UK investment framework has worsened notably compared to 2010,” the report states. “This is resulting in many potential commitments being deferred, or being declined altogether. The investment momentum built up to 2012 is highly likely to diminish.”
It adds that energy executives understand that the UK is not alone in its commitment to delivering a “substantial investment programme in low carbon energy infrastructure, [but] as a destination for discretionary investment, it is slipping back into the European pack, and is not keeping pace with the attractiveness of faster growing, more international markets”.
Angela Knight, chief executive of Energy UK, said the report emphasised both the potential of the energy industry to drive growth and employment, and the urgent need to end the current political wrangling over the upcoming Energy Bill and the future direction of energy policy.
“The UK needs to move swiftly to give certainty to the industry and its investors by putting in place the right policies and the right regulations to ensure that the investment that is needed in new power generation and in the transmission network goes ahead,” she said. “Now is the time for all with a stake in our energy future – industry, government, regulators and consumer representatives – to work together to address the challenges ahead and reach the right decisions in the best interests of the country.”
In addition, the report emphasises the “increasing pressure” energy companies find themselves under as they seek to accelerate investment in new infrastructure at a time when they are also being criticised for raising prices.
The government’s “quad” of senior ministers is this week expected to meet for a second time to try to resolve long-standing disagreements between the Treasury and the Department of Energy and Climate Change (DECC) over the precise details of the Energy Bill and the extent to which the UK should be reliant on gas power.
The publication of the bill has until mid-November, further fuelling concerns about the extent to which it will deliver the policy certainty investors are craving.
The new report echoes similar studies from think tank Green Alliance and business group the CBI, which recently highlighted that a third of the UK’s growth last year came from green business, while planned low carbon infrastructure projects for 2012-13 are worth £23bn, compared to just £3.1bn for high carbon projects.