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The reduced levels of energy consumption witnessed during this recession have cr ...

The reduced levels of energy consumption witnessed during this recession have created an opportunity to reduce future investment in energy infrastructure by as much as £35bn up to 2025, according to a new study published by Ernst & Young. The study also underlines the urgency with which £90bn of investment needs to be made across the energy supply industry by 2015 if the UK is to meet its energy goals and binding EU targets by 2020 and beyond. If secured, this investment could support up to 140,000 jobs in the industry and up to £10.5bn of incremental economic benefit. Commissioned by Centrica, the study is an update to Securing the UK’s energy future - meeting the finance challenge, published in February, and re-examines the energy industry’s investment requirements to 2025 in the light of reduced energy demand and revised costs. The latest estimates suggest that demand for electricity and gas has dropped by approximately 5% and 6% respectively, year-on-year between 2008 and 2009. Securing the UK’s energy future - seizing the opportunity continues the debate following the publication of the government’s Low Carbon Transition Plan and Renewable Energy Strategy. It argues that to take full advantage of the reduced investment opportunity, by sustaining energy consumption at post-recession levels, there has to be the widespread adoption of energy efficiency measures across the UK. Tony Ward, Partner in Ernst & Young’s Power and Utilities team, says: ‘Lower levels of demand now offer an opportunity to embed change that could not have been anticipated 12 months ago. But we need to seize this opportunity and act now. Crucial decisions that will set the investment framework for projects that will ultimately deliver the UK’s energy objectives have to be made well before 2015.’ Fully capturing and leveraging this opportunity will be dependent upon the widespread adoption of energy efficiency measures. If cutting 2008 gas demand levels by 7% by 2020 and holding electricity demand at 2008 levels to 2020 could be achieved, it is estimated that the overall investment requirement would then fall to £199bn by 2025 - a £35bn reduction from Ernst & Young’s previous analysis. The UK also needs to grasp the chance to accelerate the deployment of all low carbon technologies, from renewables to nuclear. For the investment community to have sufficient confidence in making large scale capital expenditure, key risks need addressing which could potentially inhibit investment in the energy sector and therefore jeopardise the likelihood of meeting the UK’s energy objectives. The most significant are likely to be supply chain failures, planning hold ups; policy/regulatory risk; and the viability of project economics. Should these risks not be adequately mitigated, investment levels to 2015 could fall to only £53bn and the UK would, therefore, fall well short of its energy targets.

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