Energy Supplies Part 2

Mark Sandford - March 2013
Mensa emblem

The subject of energy supply has emerged as a point of debate as many in government and elsewhere have suddenly woken up to the fact that the United Kingdom could face a capacity crunch in the near future in terms of meeting electricity demand. Like it or lump it, a number of older power plants including nuclear are facing closure due to obsolescence or the commitment to reducing carbon dioxide emissions.

Last autumn, Hitachi bought a controlling interest in Horizon Nuclear Power, a joint venture set up in 2009 for 700 million. This businness was put up for sale in March 2012 after Germany decided to abandon the nuclear option after the Fukushima disaster in Japan. EDF and Centrica are both still involved, but EDF is locked into discussions with the Department of Energy and Climate Change over the proposed new nuclear plant at Hinkley Point in Somerset. The firm is demanding a guarantee from government over the return that it would receive after taking into account the construction costs for a new reactor currently put at 14 billion. The Treasury has taken a tough stance on this issue as any price for electricity would have to be subsidised through levies on consumers bills. Many existing nuclear power plants are due to close by 2023 which is why time is running out. The company is not prepared to commit to construction of a new reactor unless it is satisfied about the return it will receive over the operating lifetime of the plant.

In the meantime, Babcock plc and Rolls Royce have also signed contracts with Hitachi to take partt in this venture. Hitachi's design of reactor also has to be given approval by the regulatory authorities concerned. Once this is done, the company could begin work on new nuclear plants at two proposed sites at Wylfa on Anglesey and Oldbury near Bristol. This could create up to 6000 jobs during the initial construction phase plus thousands more in the supply chain. This would be the start of a new programme to provide 6 gigawatts of new generating capacity.

George Osborne has also approved the building of over 30 new gas fired power stations to replace ageing coal and gas plants. This could also increase generating capacity by 5 gigawatts. We have to recognise in this country that we will still need to burn some fossil fuels and natural gas is the lesser of the two evils. Not only is it a more efficiently burning fuel but it also produces less carbon dioxide. It should be recognised by all concerned that wind or tidal power can only do so much in the future. It can never be a panacea for all energy needs.

At present, a new Energy Bill is going through both Houses of Parliament that would hopefully create a new level playing field for all forms of electricity generation and also attract future investment. Under this legislation, the Office for Nuclear Regulation would be placed on a statutory footing to regulate safety of the next generation of UK nuclear power plant. This should be recognised as a common sense measure for us all. The Bill would also improve regulatory certainty by ensuring that Ofgem and government are both working together at a strategic level. It also enables government to set a limit on the number of energy deals on offer to domestic consumers.

The UK does not have much time left to build new capacity and decisions have to be taken now. We do need secure energy supplies in this country to underpin economic growth.

(See or

Mark Sandford - Permission granted to freely distribute this article for non-commercial purposes if attributed to Mark Sandford, unedited and copied in full, including this notice.

Members can discuss this and other articles on the economics forum at International Mensa.

About Us

Economania is the website of Mensa's internationally recognised Special Interest Group dedicated to economics, trade and finance.