Tony Ward: Economic recovery could lead to energy capacity crunch

The UK could draw near to a crunch in energy capacity if it has a strong economic recovery, according to the Head of Power and Utilities at EY. In an […]

Big Zero Report 2022

The UK could draw near to a crunch in energy capacity if it has a strong economic recovery, according to the Head of Power and Utilities at EY.

In an interview with ELN, Tony Ward said there is a pressing need for the nation to build more infrastructure in order to meet the increasing energy demand, especially with a lot of power stations coming to the end of their lives.

He said: “We are rapidly reaching the stage where assets are closing though age, they’re closing through environmental reasons and let’s be honest, they are closing in some places for pure economic reasons. They are no longer economic to run. And that’s the backdrop against which people are having to make very difficult choices about what to build, what to invest in for the future.”

He added: “We’re not quite at that point where we’re likely to slip into the shortage of capacity but this can move very quickly and particularly if we start to see a bit of an economic pickup. Electricity demand in the UK historically has worked very closely in sync with the economic performance, in terms of GDP and that can very quickly begin to eat in to the headroom which we might be relying on at the moment. So we really do have a challenge here to build new capacity very soon.”

The head of Energy UK Angela Knight said the crucial question is how much surplus capacity the UK has, as she believes it is diminishing at “quite a fast rate”.

She added: “I would like to see early decisions now on the capacity mechanism so we can bring forward new capacity, I’d like urgent decisions made on extra amount of capacity available… and a proper focus on it.”

However, Ms Knight believes too many components have been added to energy bills – such as environmental and social policy costs – and the UK needs to address the trilemma of ‘Who pays? How much? And for what?’

She said: “We have an odd dynamic where gas that we need is unattractive because of the wholesale market, people want cheap power but we’re closing down the cheap generators and the subsidy that you need for renewables, that sits on the bill. The capacity mechanism which is the piece that you need to give to make gas attractive, that sits on the bill and the carbon price floor which is the carbon tax that’s on coal, that sits on the customer bill as well.

“So what was designed for when you got a few wind farms, getting people to put solar panels, the Feed-in Tariffs, the little stuff – that worked fine then. But now they’ve taken what worked for paying for that and what worked for the wholesale market and it’s just grown and grown and grown. And now you’ve got a system where you look at it and I look at the electricity system – 35 policies affect that… and you think ‘C’mon guys, get real’.”

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