Multi-billion pound energy challenge

29 June 2012
The National Audit Office this week published a report: The government’s long-term plans to deliver secure, low carbon and affordable electricity. It is more useful to readers as an overview of the policy demands on the electricity industry in Britain today (and the challenges for procurement), than an analysis of the value for money of government policy. This is perhaps just as well for the Department of Energy and Climate Change given its blizzard of schemes and interventions in pursuit of domestic and EU goals. For instance, the report discusses how the existing subsidy regime that supports renewable electricity generation will be replaced by a broader, low-carbon scheme that would also help nuclear power. And there is a plan to operate a ‘capacity mechanism’ to purchase flexible generation. This is to ensure there is sufficient reliable and diverse capacity when needed because the government has decided Britain cannot rely on market forces for the security of electricity supply. (Note that the previous system of ‘capacity payments’ to generators was abolished in 2001 because of serious questions about their efficacy, expense and ability to be exploited). However, it is the scale of the required investment that is of most relevance to procurement specialists. The report says that around £110 billion of spending will be needed during the period up to 2020 and that, “during the 2020s, industry will need to invest a similar level to deliver secure electricity supplies and reduce greenhouse gas emissions further”. All of which means there will be growing opportunities for, and risks to, supply chain optimisation in the electricity generation, transmission and distribution sectors for many years to come. In addition, the flipside of this £200 billion bill over the next couple of decades is that the retail price of electricity will probably rise for both residential and business consumers. In short, the jobs of purchasing professionals, notably in energy-intensive companies, are likely to become ever more interesting.
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