Our Challenges: taking action in uncertain times

The energy industry is dominated by three issues – how we move to a low carbon economy, how we maintain a secure supply of energy and how we keep energy affordable.

But just when it seems the issues we face could not get any more challenging and the impact of our decisions on society could not get any greater, the stakes increase. As the role of energy generation and supply becomes increasingly central to some of society’s greatest challenges, our customers, regulators, employees and shareholders expect more of us as a company. We need to deliver cleaner, affordable, secure energy supplies while returning an acceptable profit. The global economic slowdown, which continued in 2009, introduced a further challenge - our multi-billion pound investment in new generating capacity must be delivered against a backdrop of financial uncertainty and increased costs of capital. Meanwhile economic conditions have driven demand for customer price cuts, despite the fact that, even with recent reductions, wholesale costs remain high.

But even before the economic downturn took hold, the biggest challenge our industry has faced for some time has been uncertainty, and there remain many unanswered questions. This has been further complicated by the lack of progress achieved at the UN Climate Conference in Copenhagen.

Uncertainty

We support the Government’s plans to reduce the UK’s greenhouse gas emissions by 80%, but there is no doubt that this is an extremely challenging goal. At the same time it is not clear how much people are prepared to pay for environmental benefits, or whether secure energy supplies will, in the longer term, emerge as the main priority.

We have to make major choices about how we generate energy in the future and the type of power stations we build. The decisions we make now about investment in the future of UK energy will have profound, long-term consequences. Will there be a role for new coal? What is a realistic maximum contribution from wind power? How much of our electricity can or should be generated from gas? How fast can we bring on emerging technologies like marine power, and complex ones like new nuclear power?

In the energy retail market, there are further questions: how much will consumers change their behaviour to embrace energy efficiency, microgeneration and other energy services? Enough for further, radical, profitable change to our business model which is already increasingly focussing on helping our customers use less energy?

Society’s priorities will be reflected in Government policy and consumer behaviour, which should signpost the way forward. But the answers are not coming quickly: the long-term future of carbon trading in Europe; the relative roles of business and Government in tackling fuel poverty; efficient delivery of the new power generation infrastructure and planning regime; a clear roadmap for the delivery of smart metering. Largely these issues remain unresolved.

Leadership

But we know inaction is not an option. Half the UK’s installed current power generating capacity could close by 2020, and the UK is likely to need between 15-25GW of new generating capacity. If we don’t start to build new power stations now, they will not be operational in time to plug the impending energy gap.

According to industry estimates the UK could need more than £200 billion of investment in power generation, transmission, smart metering and energy efficiency measures over the next decade. This massive programme must be delivered quickly and it must be done responsibly.

We will adopt a balanced approach to the challenges we face and recognise that action in one area can have significant impacts elsewhere. We place a huge premium on communication with our local and national stakeholders, our employees, customers and the communities we operate in. We will continue to do this to help resolve the challenges that we face, balancing the wishes of wider society with the local communities that may be impacted.

Moving to a low carbon economy whilst maintaining affordable and secure sources of energy represents the biggest challenge the energy industry has faced. At the same time, industry and politicians alike have been given an opportunity to make choices now that will have a lasting impact on a global scale, and we must take it.