Environment in the UK Energy & Utilities Sector - Challenges and Solution Strategy

Enzen GlobalThe Problem Statement

Environmental issues facing any country today is a consequence of our need to consume natural resources and energy at an unprecedented rate; a rate at which the renewable potential of the same resources is rendered ineffective. Development being a prerogative of every country is powered by economic growth and fuelled by this energy. But this energy has also fuelled natural disasters and pollution of the air, water and soil that blight the environment of many countries and Britain nonetheless. Today, UK faces some deep-seated environmental externalities as a result of its past and current carbon emissions, consumption and production.

Drastic fluctuations in temperatures and significant changes in weather patterns has led to droughts and flooding. Floods as a result of the sea level rise and erratic rainfall can potentially affect an estimated 2.3 million properties (nine per cent of all properties) across England and Wales1. Rise in sea level also poses the threat of increasing the salinity of groundwater resources. Climatic impacts are not only a result of unabated burning of fossil fuels. Waste generated as a result of the consumption activities aggravates the problem through pollution of the air, water and soil. In 2004 the UK produced about 335 million tonnes of waste2. A large proportion of household waste currently ends up in landfill, with soil and water contamination, and methane emission being serious consequences3.

With increasing need to stem these impacts and perhaps even reverse some of the damage, the focus is on the crux of the problem – ENERGY!

At the micro-level, behavioural patterns and energy efficiency issues play a significant role in energy demand and consumption. The Carbon Trust estimates show that UK businesses waste 10–20% of their energy. The public sector generates 3% of UK carbon dioxide emissions from buildings and official travel. Individuals are responsible for over 40% of the UK’s energy use and carbon dioxide emissions.

The UK’s energy sector is highly dependent on fossil fuels, which is highlighted by the fact that oil, gas and coal account for approximately 90% of the energy sources, and this trend is set to continue for the next 11 years to say the least. With the native reserves drying up, by 2020 imported gas and coal could account for around 80% and 75% respectively. Although there is growing emphasis on non-conventional energy sources, by 2020 they will still represent only a small share of the energy mix (nuclear and renewables accounting for 7%). These energy sources whether fossil-fuel based or nuclear or renewable will need to support electricity generation capacity of around 20 to 22GW by 20204.

From an environment perspective, increasing governmental regulation, and peak demand fluctuations due to weather-pattern changes and higher economic growth are the challenges confronting UK’s utilities (electricity, gas and water) sector. And to face this demanding scenario, ‘efficiency’ will be the key to a stable industry. Energy efficiency improvements would play a significant role in maintaining the security the energy supply and limiting the need to invest in new generating capacity5. Effective water-leakage management and efficient use of water would be important to both water companies as well as consumers6.

So, with population set to increase, demand on utilities is only going to grow. The UK government has an inevitable duty of maintaining security of supplies coupled with implementing measures to mitigate and adapt to environmental effects of energy and water consumption.

The Solution Strategy

UK’s strategy towards energy and environment as has been established through its Energy White Paper, Climate Change Act and Climate Change Programme promotes a low-carbon future. Ensuring environmental sustainability through energy related measures the strategy stipulates charges carbon for emissions, accelerated deployment of low carbon technologies, ensuring carbon neutral development and promotion of energy efficiency.

The Planning Act 2008 seeks to bring forward new renewables, new nuclear and clean coal plants. The Energy Act reflects the availability of new technologies, such as carbon capture and storage, and emerging renewable technologies. For businesses and the public sector, Defra’s three major climate change instruments - EU Emissions Trading Scheme (EU ETS), Climate Change Agreements (CCAs) and the proposed Carbon Reduction Commitment (CRC) will improve information accessibility, charge emissions and provide incentives. Energy Performance Certificate scheme for buildings is an additional energy efficiency tool deployed. In the household sector the government is aiming for zero-carbon new homes by 2016 and new buildings by 2019, including associated products and services such as utilities7.

The government is also targeting energy suppliers through The Carbon Emissions Reduction Target (CERT) scheme which is a statutory obligation on energy suppliers to achieve carbon targets by encouraging households to take up energy efficiency and low carbon measures. Some typical measures likely to be adopted by the utility providers include subsidised offers on loft and cavity wall insulation, and efficient technology for lighting, heating systems, appliances and energy saving devices.
Within the water sector, Ofwat’s strategy for companies is focused on companies’ projects and business plans addressing water efficiency, leakage, incentives and enforcement. Proposals from the Environment Agency and Defra identify and encourage compulsory metering in areas of serious water stress. The Ofwat’s has similar plans for sewerage by seeking long-term sewerage plans in sewerage companies’ business plans8.



Conclusion

Energy efficiency perhaps having greater implementation potential compared to other strategies is an important strand to the Government’s approach. Whether through regulatory or voluntary action the Government’s policies and schemes de-stress the demand for gas and water supply infrastructure and new generation of electricity in the future.

The same Government mechanisms such as the EU ETS, UK Climate Change Levy, Climate Change Agreements, UK ETS and Carbon Reduction Commitment schemes which have given rise to local/corporate action plans and programmes together will also help realise UK’s environmental goals through energy management.

1. Defra, The environment in your pocket 2008, 2008
2. ibid
3. ibid
4. Dept. for Trade and Industry (DTI), Energy White Paper, 2007. In June 2007 DTI was replaced by the BERR and DIUS, which in turn merged in 2008 to form the Dept. for Business, Innovation and Skills (BIS).
5. Dept. Energy and Climate Change, Energy Markets Outlook 2008, 2008
6. Ofwat, Ofwat Forward Programme 2007-08 to 2009-10, April 2007
7. Defra, http://www.defra.gov.uk/environment/climatechange/index.htm, 2009
8. Ofwat, Ofwat Forward Programme 2007-08 to 2009-10, April 2007

Author
Subbarao Chaganty has wide experience in Energy and Utilities sector globally and has supported clients in different consultancy roles. Subba is leading the Environment practice in UK for Enzen Global. He can be contacted by writing to subbarao.chaganty@enzenglobal.com