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Big Picture: energy policy for a less affluent age

02 Feb 2012
Windmills on a hillside, at dusk

Dan Lewis, Chief Executive of Future Energy Strategies and Energy Policy Adviser to the IoD, and Corin Taylor, Senior Economic Adviser at the IoD, set out the high costs of the Government’s present energy policies and consider whether a cheaper alternative is possible. 

Key points; With one of the biggest squeezes on household budgets in memory, and worries about business competitiveness, the cost of the UK’s energy policy is a major concern.

  • The UK has the most ambitious carbon reduction targets in the world and, according to Ofgem, up to £200bn of investment will be required over the next decade – much of which will be needed to meet environmental targets.
  • Comparing levelised costs of the various energy sources is fraught with difficulties, but natural gas, nuclear and a number of low-carbon/renewable sources such as hydro and waste-to-energy are far cheaper than offshore wind and solar. It appears that the UK is putting too much money into the more expensive technologies.
  • Policies are estimated to increase retail electricity prices by 34% in real terms for businesses by 2020, although the impact on bills is likely to be less due to energy efficiency measures.
  • The big problem is that it’s very unlikely that the huge investment costs can be met, which in the absence of a global deal on CO2 may lead to the targets being watered down.

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