A Time of Transition

Electricity Abroad The fourth in a new series focusing on international electricity markets. Diarmaid Flemming examines the significant challenges facing the UK energy sector as the Blair government embarks on a review of the country's energy needs.

Reviews are nothing new in a sector used to upheaval and transformation since privatisation by Margaret Thatcher's Conservative Government and deregulation in 1990 (see box). The Blair Labour Government carried out an energy review in 2002, followed by a White Paper in 2003, but little in the way of firm decisions have been made. Meanwhile energy prices and demand have been rising, along with the threat of global warming, while Britain has moved from being selfsufficient in gas to becoming an importer to help meet her energy needs.

This latest review announced by Tony Blair in November at the Confederation of British Industry would seem to be different. Due to be completed by Energy Minister Malcolm Wicks, it is expected to face up to the need to make some tough decisions when it reports next year.

Back on the agenda, and probably top of it, is nuclear power. Speculation suggests that Mr Blair is convinced of the need to build more nuclear power stations, as a way of meeting energy needs and targets on climate change. But the environmentalists are resolutely opposed to it: Mr Blair had to move to a different hall at the CBI when his speech was interrupted by Greenpeace campaigners who climbed on the roof of the conference venue in London.

"Energy prices have risen. Energy supply is under threat. Climate change is producing a sense of urgency," said Mr Blair. "By 2020 the UK is likely to have seen decommissioning of coal and nuclear plants that together generate over 30% of today's energy supply. Some of this will be replaced by renewables, but not all of it can," he warned.

But going nuclear is likely to provoke a radioactive debate. Opponents to nuclear power like former environment minister in the first Blair government, Michael Meacher, say nuclear power is costly and produces hazardous waste, much of which can only be expensively stored and not destroyed, and also presents a terrorist threat. Opposition politicians point to the cost of £56bn spent on cleaning up and decommissioning existing UK nuclear plants, built from when Britain started producing nuclear power in at Calder Hall in Cumbria in 1956. Mr Blair will face opposition from within his own ranks, and could face difficulty steering a nuclear plan unless he receives support from Conservative MPs.

Britain has expressed in previous energy reviews a desire to cut carbon emissions by 60% by 2050, well in excess of requirements signed up to under the Kyoto agreement. Environmentalists are urging the way forward is increased renewable energy use and more efficient fossil fuels rather than the nuclear option. EM

Privatisation

With the Conservative Government under Margaret Thatcher driving a relentless programme of privatisation of state utilities and industries, the power sector was denationalised during her reign. The UK electricity sector prior to deregulation and privatisation in 1990 had three main electricity grids. The largest covered England and Wales and accounted for around 90% of demand, a separate but interconnected system for Scotland and a then separate isolated system for Northern Ireland.

In England and Wales, there was only one main generation and transmission company, the Central Electricity Generating Board, which had a monopoly over transmission and owned and ran the national high voltage transmission system.

Privatisation in 1990 saw it split into four companies; National Power and Powergen which were given the fossil fuel plants, while the nuclear plants remained in the public sector under a new company, Nuclear Electric. The transmission arm was transferred to the new private National Grid Company (NGC).

Twelve Regional Electricity Companies (RECs) responsible for regional distribution and retail existed in the nationalised industry. After privatisation, these were required to separate their retail activities from their monopoly distribution, as well as being given joint ownership of the NGC. But in 1995, the RECs had to sell their shares, leaving an independent NGC which merged in 2002 with its gas equivalent Transco to form National Grid Transco.

In Scotland, two separate companies, the South of Scotland Electricity Board and the North of Scotland Hydro-Electricity Board monopolised all activities - generation, transmission, distribution and retail in their regions before privatisation. They were privatised to become Scottish Power and Scottish Hydro in 1990, with the nuclear plants becoming Scottish Nuclear, remaining in the public sector like their southern counterparts due to massive liabilities in decommissioning and waste costs which the private sector would not bear.

Since 1995, when restrictions imposed after privatisation restricting takeovers of the RECs were lifted, these companies have been prey to international takeovers by US, German and French companies, which some have blamed for contributing to higher UK consumer electricity prices. The market is still open to takeovers: Scottish Power rejected an £11.3bn (€16.6bn) takeover bid from German company E.ON which also owns Powergen, a move which would have made it the UK's largest energy supplier.