Should we worry about energy security?

A recent report by the FSB found that energy security is keeping small business owners awake at night. The study found that energy security was even more of a worry than electricity bills or the environment.

So what’s behind the concerns? Pre Brexit jitters, a touch of isolationism or well founded fears?

What is energy security?

Energy security refers to how well equipped a country is to meet its energy demands. It’s how confident we are that we can keep the lights on, and keep energy affordable. Low energy security tends to go hand in hand with political upheaval, war and outdated infrastructure. However, stable economies aren’t immune from problems, and there are a number of reason that energy security in the UK may be a cause for concern.

Energy security concerns businesses because blackouts, even short ones, can be incredibly costly. Additionally, when energy capacity (the difference between supply and demand) runs low, prices soar, bad news if your about to renew your energy contract or are on a variable rate tariff. Unlike electricity, gas can be stored for future use, however the amount stored can only meet a fraction of the UK’s winter energy needs. The UK is increasingly an importer rather than a producer of energy, meaning that our energy security is dependent on other countries. It’s estimated that by 2020 we will be importing 70% of our gas.

Energy security is not the same as energy independence. A country is energy independent if it exports more energy than it imports. Whilst energy independence may seem like an ideal situation, as long as energy security is in hand, it isn’t necessarily a sensible goal. Japan imports the bulk of its energy, but is also one of the world’s most energy efficient countries. Whilst energy independence is something many countries are aiming for, many countries just don’t have the means to get there.

In November 2016, the fragility of the UK’s energy supply was highlighted when the national grid lost half of its French power supply when undersea cables were damaged during a storm.

Where does the UK get its energy from?

Concerns have been raised about the dependence of much of Europe on Russian power. The UK imports around 40% of its coal from Russia. Whilst this isn’t a problem in and of itself, there are worries about pinning energy security on a temperamental state that we are frequently in conflict with.

Over half of the UK’s energy is domestically generated, 50% of this is renewable energy such as wind power. The remainder(42%) is imported, coming from a mix of places including Norway, The Netherlands and Qater. As mentioned earlier, we are indirectly exposed to other gas markets – such as Russia. This matters for a number of reasons, e.g. if there were issues with Russian gas supply, there would be more competition for Norwegian gas, slashing capacity margins and forcing up prices.

Risks to Energy Security

1. Brexit

In 2010 the Government stated that the UK’s future energy mix would be more dependent on imported energy, but that this wouldn’t be an issue as long as there was diversity of supply. To say that Brexit has thrown a spanner into the works is an understatement. How Brexit affects the UK energy industry depends mainly on whether we leave the EU’s internal energy market. If the UK does leave the internal energy market, prices on European energy are likely to rise. Additionally, the UK may become less attractive to energy investors, making it harder for us to generate our own energy. The Government will need to secure energy imports as well as creating a climate that is amenable to investment and innovation.

2. Cyber Security

The UK energy grid is vulnerable to cyber attacks, and the risk may increase as the grid gets ‘smarter’. Cyber attacks, some successful, already target energy firms, however to date we’ve managed to avoid a large scale blackout.

3. Infrastructure and power plant closures

Great Britain has an ageing energy infrastructure, which has seen a protracted lack of investment. In response to concerns, the Government developed the Capacity Market which aims to encourage investment in new powerplants and act as insurance against blackouts. Some argue that this response was insufficient, and that other alternatives, such as demand side response is needed.

4. Natural Disasters

As the situation with the French energy supply showed last year, natural disasters and freak accidents can dramatically affect our power supply.

Remedies for energy security

1. Renewables

Renewable-energy is historically less reliable than traditional energy sources – after all, solar only works when the sun shines. Despite this, it has been argued that renewables actually increases energy security: these energy sources will not run out and we are able to generate large amounts of renewable energy domestically. However, some have argued that the Government have an ‘non-committal’ attitude towards renewables, which has slowed down progress and innovation.

2. Micro generation

Micro-generation turns consumers into active participants in the energy cycle – instead of just consuming electricity, businesses and domestic customers can generate their own, which is then sold back to the grid. Find out more about micro-generation here.

3. Fracking

Whilst controversial, fracking is one option to improve the UK’s domestic energy production, and therefore energy security. Opinion is split on whether fracking is the answer to the UK’s energy problems or an overblown – and environmentally dangerous – pipe dream.

4. Nuclear

The Hinkley Point power plant, due to come online in 2025, was one of the big energy stories from last year. Like fracking, nuclear power is considered by some to be the answer to our energy security problems. Also like fracking, nuclear power is controversial. Concerns have been voiced that nuclear power is potentially unsafe, and overly expensive. Whilst nuclear power is low carbon, it isn’t renewable, and leaves with it the problem of nuclear waste. However nuclear energy is more reliable than renewable energy. Geo politics come into play again with nuclear energy – uranium is needed for renewable energy production, and currently the biggest provider is Russia allied Kazakhstan.

5. Demand side response

Demand side response has much in common with micro-generation in that it also turns customers into active participants in the grid, and incentivises them in the process. In demand side response, companies are rewarded for using less energy at peak times – helping to balance the grid. This will become easier to manage as the grid gets smarter, and businesses have greater clarity over their own energy usage.

Does energy security keep you awake at night? Let us know @switchmybiz.


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