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UtILItY WEEK | 21st - 27th March 2014 | 27 Customers Market view The cost of sustainability Successive governments have pursued ambitious renewables targets, but now the costs are starting to bite, says Nick Linklater. T he consensus is that the UK will need to invest £110 billion between 2013 and 2020 in the plant and infrastruc- ture required to realise its green targets. To finance this, electricity customers are paying a premium embedded in their utility bills. Meeting the government's ambitious targets for reducing carbon emissions has been, and will continue to be, a costly burden. For Britain's power sector, "going green" and the impact of the Large Combustion Plant Directive has forced the closure of coal and oil power plants before the end of their planned operating lives. The consequence, as Ofgem concedes, is that Britain will have seen the phasing out of 15.5GW of coal and oil generation between 2011 and 2016 with- out any compensating construction. It is not until 2016 that a new 1GW gas plant is due to come online. The delay in building new plant is primarily the result of market uncertainty and a lack of government leadership. As a result, the UK's generating capacity has shrunk from 93GW in 2010 to around 80GW today. However, what is really concerning is the size of reserve capacity, which is around 14 per cent currently and is forecast by Ofgem to drop to just 4 per cent over the next three years. Cutting fossil fuel generation in order to cut greenhouse emissions was perhaps an obvious approach. The other main approach to creating a sustainable future rests on boosting renewables such as wind and solar. Both the previous and the current govern- ment introduced generous subsidies and feed-in tariffs for wind and solar farms in order to boost the contribution of renewa- bles, all to be paid for by green taxes. As a result, over 20 per cent of businesses' electricity bills are made of green taxes and levies, according to Benny Peiser, director of the Global Warming Policy Foundation. Generous subsidies and government support for renewables, whether on an industrial or domestic scale, has seen a doubling of Brit- ain's renewable capacity in just five years, to 12 per cent today. It is anticipated that with- out a major reduction in the level of subsi- dies, this upward trend will continue until renewable generation grows to around 30 per cent of total capacity by 2020. However, growing public and business concern over steep rises in energy bills may slow this growth. Already, the government has promised a reduction in the green taxes embedded in energy bills, and at the same time has reduced the Eco obligations on sup- pliers. Then there is the very public cancel- lation of the Bristol Channel windfarm and a promised review of carbon targets in 2014. In addition to the cost of building plant, a lot of new network infrastructure is needed, all of which adds to the bill. In order to cope with the new demands on the national and regional grids the system has had to be effec- tively redesigned and rewired. For example, a new 400km high-voltage undersea power cable has been laid to link Aryshire in Scot- land with the Wirral in Merseyside to enable Scotland to export power to England and Wales. This £750 million project has added £10 a year for each of the past four years to the typical household's bill. Despite the government creating a seem- ingly most generous environment for renew- ables, it would appear that many of our utilities have not played ball either in terms of investment or meeting their Eco obliga- tions. According to Ofgem's analysis, profit margins of four of the big six power compa- nies have doubled in the past few years. Indeed, British Gas, Npower, Scottish Power and SSE appear to enjoy a profit mar- gin of around 5 per cent which, as media headlines have pointed out, is well above the supermarkets' average profit margin of around 2 per cent. Government policy currently envisages a sustainable future based on an increasing contribution of renewables, supported by a new string of gas and nuclear power sta- tions, to ensure energy security, diversity of supply and affordability. But it is also becom- ing apparent that the current government is keen to support the rapid exploration of shale gas, which will give a big boost to any efforts to slash carbon emissions. Nick Linklater is head of corporate accounts at ENER-G Campaign to end EU water privatisation A campaign to end the privati- sation of water in the European Union could succeed, the vice president of the European Commission, Maros Sefcovic, suggested this week. The legislation proposes legally binding guarantees that water services will not be privatised in the EU and that access to clean water is viewed as a human right. We asked the industry for its views: A spokesperson for Water UK said: "Rather than looking at ownership of water, it is more important to look at the outcomes. In the UK we have drinking water that is amongst the best in the world and our beaches and rivers are the cleanest since the start of the industrial revolution. We also rigorously test our performance in these areas against stand- ards and rules set by the EU." Eamon O'Hearn Large, national organiser at trade union GMB, said: "For too long, private equity barons have leeched profits out of the UK water industry and we call on the Labour Party to commit to renationalising the industry in its 2015 manifesto. "Water is a human right so an affordable supply should not be subject to the whims of foreign shareholders seeking to maximise profits." Mark Turner, water sector analyst at EY, said: "Securing future access to water, as well as preparing for incidents such as floods, requires large-scale investment. "A privatised sector can make a significant contribu- tion to that direction. We have examples, such as England, where privatisation delivered benefits to customers. Hence, it would be unwise to take this option off the table for EU countries." Home truths