UK energy sector attracts major investment

The government has announced that GDF Suez (GSZ) and BP Plc (BP/) will invest more than £1.5 billion in the UK as part of a government effort to support the economy and lure companies to pay for upgrading the nation’s energy infrastructure.

GDF Suez of Paris, the largest European power generator by market value, along with London-based Centrica Plc (CNA) and Bayerngas GmbH of Munich plans to develop an 18 billion-cubic-meter gas field under the North Sea, the U.K. Department for Business, Innovation and Skills said.

George Osborne went on to say that “The UK can lead the world in the energy sector….The government is committed to creating an environment in which innovation can thrive and business can grow.”

The announcement came after an investment conference attended by company executives including BP Chief Executive Officer Bob Dudley, Royal Dutch Shell Plc (RDSA) Chief Energy Adviser Wim Thomas and Andrew Gould, chairman of BG Group Plc.

Dudley said he expected world energy demand to rise 40 per cent by 2030, which “is the equivalent of another whole China being formed and another whole United States. Partnerships with academic institutions are vital to progress, and with Britain having so many world-class university departments, it’s no surprise that we spend about 40 per cent of our R&D spending here,” he said at the meeting.

Plasma gasification plant to be first of many

It has also emerged that Air Products' 50 MW plasma gasification facility on Teesside could be the first of many advanced waste gasification facilities to be built in the UK.

According to NNFCC the facility will use AlterNRG advanced gasification technology to turn 350,000 tonnes of residual waste into enough renewable electricity to power up to 50,000 homes every year.

"Following our work gathering evidence for the Renewables Obligation banding review, we are delighted to see these ground-breaking advanced gasification projects starting to go ahead," explained Dr. Geraint Evans, head of biofuels and bioenergy at NNFCC.

Impact on business energy

For businesses in the UK and around the world the cost of energy is an important factor. For some businesses the cost of energy is incredibly important and will dictate the profitability. The announcement of industry investment into the UK energy market is ultimately a good thing for businesses as energy providers will improve their infrastructure and supply of energy making it more affordable.

This will not happen overnight. This kind of investment will take time to come into fruition however it demonstrates that the energy industry is investing in itself and the future. As this process will take time it is essential for businesses to ensure they are using the most competitively priced energy providers and measures such as half hour meters.  

Businesses face 60% increase in energy costs

The cost of energy is an increasing concern for businesses. Having seen energy costs leap 60% in the past year according to new figures which reveals the increasing pressure firms in the UK and many places around the world are facing in addition to economic uncertainty.

According to very recent data businesses now spend an average of 0.51% of their total profit on energy, a huge rise of 70% on 2010’s figures

Historically business could afford to largely ignore energy costs because they were so negligible in relation to profits. However with energy costs leaping up from 0.3% to .51% of turnover in just one year, this is no longer the case.

To better understand how the cost of energy has increased we can look at data from the U.S. Department of Energy (DOE) and the Energy Information Administration (EIA). Looking at the chart below you can see the price of gas and how much it has gone up since 1919 (the first year of available EIA statistics). You can see a low of $0.17/gallon in 1931 rise all the way up to $3.53/gallon in 2011.

If this trend continues, energy costs may soon hit 1% of total business revenues, a hugely concerning figure that should force businesses into acting fast.

Although the future is unpredictable, it is worth planning ahead. Businesses should therefore be sensible and think about cutting and offsetting costs when they have the opportunity. Switching suppliers, installing half hour meters or even just changing your tariff, can save a business an average of £946 a year.

The situation isn’t any better for homeowners, with the cost of household energy rocketing more than five times faster than household income since 2004/05, research suggests.