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Supplier warns of higher energy prices

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Supplier warns of higher energy prices

By Ed Crooks, Energy Editor

Published: June 4 2008 03:00 | Last updated: June 4 2008 03:00

Energy consumers must be prepared for structurally higher prices in future as a result of the huge investment needed to cut greenhouse gas emissions while keeping the lights on, a leading supplier has warned.

Paul Golby, chief executive of Eon UK, the British arm of the German energy giant, said the need for new nuclear power stations and wind farms created an unprecedented demand for investment, which could be £100bn or more by 2020.

He said the industry was undergoing a “seismic” shift. “We have gone from a world where energy is plentiful and cheap to one where it is scarce and expensive, and I don’t see what will change to flip that back again,” he said.

The new power generation capacity will have to be built to meet European Union targets for renewable energy and to replace old plants that are being shut down.

Britain has promised that by 2020 it will source 15 per cent of all its energy from renewables, implying at least 35 per cent of its electricity. Most of that is likely to come from offshore wind farms, the most expensive form of large-scale generation of all, on Eon’s calculations

Mr Golby added that companies would have to be rewarded for investing in the additional coal and gas-fired power stations that would be needed to back up wind power when there was no wind.

Although onshore wind farms in Britain can be expected to deliver about 30 per cent of their notional full capacity, over the past winter Eon found it was sometimes getting just 8-10 per cent. So up to 90 per cent of Britain’s wind power might need to be backed up with flexible fossil fuel plants.

In total, about 70,000 megawatts of new capacity could have to be built by the end of the next decade, Eon believes; almost as much as Britain’s entire generation capacity today.

All that meant the cost of electricity is likely to rise, Mr Golby said. “We have allowed people to think that green energy is plentiful and cheap, and that is not the case.”

Eon, like other leading energy suppliers, has been battered by a range of attacks in recent months, including complaints about rising gas and electricity bills and protests from environmental campaigners over its planned construction of a new £1.5bn, 1,600 megawatt coal-fired power station at Kingsnorth in Kent.

Questions have also been raised over its planned investment in the London Array, which would be the world’s largest offshore wind farm, where costs have risen sharply and Royal Dutch Shell, one of the three partners, has decided to pull out.

Mr Golby said Shell’s withdrawal “undoubtedly will delay the project”.

He added that Eon and Dong Energy of Denmark, the other remaining partner, were looking at options.

“At the time of Shell’s decision, we were about to make decisions about the supply of turbines, and we can’t do that without all the project partners in place,” he said.

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