Billions of pounds of capital needs to start flowing into the domestic energy sector this year as the government looks to allay fears of power shortages.
The government’s Energy Bill has Royal Assent, but the industry remains sceptical about the speed at which investment will start to flow from the private sector.
The Energy Act’s Electricity Market Reform is intended to attract up to £110bn-worth of private investment for clean energy projects up and down the country.
Publication of the EMR’s draft contracts for difference allocation technical framework is expected in Q1 2014.
They should offer reassurance to investors about how CfDs - which guarantee clean energy producers a minimum electricity price through a long-term contract - will operate and enable them to invest.
EMR’s first capacity market auction will take place in the winter of 2014.
It will provide regular payments to capacity providers so they are available to produce energy when capacity is tight, or face the threat of penalties.
“Assuming Hinkley Point C goes ahead, it will create a new industry worth tens of billions of pounds on the first two projects alone”
However, progress could be tempered by pressure on the government to reduce energy costs to the consumer in the run-up to 2015’s general election.
The prime minster will continue to feel the heat from disgruntled Conservative backbenchers who want green subsidies scrapped.
This could affect project development, particularly in the offshore wind sector, despite strong backing from the Cabinet, where a number of projects will be progressing (see box).
Nuclear power will inch forward, with EDF Energy’s £14bn Hinkley Point C reaching a financial investment decision in summer 2014, subject to European Union state aid approval, with construction works due to start soon after.
Assuming it goes ahead, it will create a new industry worth tens of billions of pounds on the first two projects alone.
“Fracking will play a major role in the government’s message that it is diversifying the UK’s energy mix this year”
There is plenty of work still to be won at EDF’s new nuclear development. Laing O’Rourke and Bouygues won the main civils works for Hinkley and have said that £200m-worth of contracts are still up for grabs in 2014.
In addition, Horizon Nuclear Power is moving forward with its plans for a nuclear plant at Wylfa in Anglesey, with a £10bn investment figure to date.
Procurement of a main civils contractor is already under way, with first site works expected to start next year.
French group Total became the first major oil and gas company to invest in UK shale gas this month.
Fracking will play a major role in the government’s message that it is diversifying the UK’s energy mix this year.
Contractors will hope for progress in carbon capture storage and biomass plants, after the Department of Energy and Climate Change launched its £1bn commercialisation competition for CCS projects and provided financial backing for the biomass conversion of Northumberland’s Lynemouth Power Plant.
Watch out for:
White Rose, the 450 MW CCS project in Yorkshire, which has been awarded a FEED contract – a two-year programme looking into engineering and planning before a final investment decision is made to proceed with construction.
Peterhead, Shell and SSE’s CCS project in Aberdeenshire, Scotland, will begin its public consultation in early 2014 and will submit a formal planning application later on in the year.
Seagreen Wind Energy’s £5.25bn wind farm development (Round 3) in the Firth of Forth, Scotland, is awaiting a decision on consent in early 2014 from Marine Scotland. Development of the project’s next two phases of the zone will not continue without clarity on the long-term investment support framework for offshore wind.
Dong Energy’s £1.13bn offshore wind extension in Barrow-in-Furness, Cumbria, is being examined after submitting its application for the 207-turbine extension in October 2013. This is due to close on 12 May 2014.